Philly Schools' Debt Service Is 10 Times National Average
In last week’s article on the Philadelphia School District’s financial crisis, there was a tiny typo with sweeping implications: We wrote that the district will pay $28 million in debt service this fiscal year. In fact, the number is $280 million, or 12 percent of its total budget. What an important zero.
The sheer size of that number is a symptom of the problems facing poor school districts — which, in order to survive, plunge themselves into more and more debt. In that way, they’re a lot like poor people. The School District, long underfunded, is a particularly egregious case. Its annual debt-service obligation is up 32 percent from five years ago. And more than half its debt load, or $157.9 million, goes to interest. According to 2011 Census data, districts nationwide paid an average of $155 per non-charter pupil on debt service. Philly spends $1,684 per non-charter student.
“Philly has the extreme disadvantage of operating within one of the nation’s least equitable state school-finance systems — which really screws Philly’s operating revenue, likely causing ripple effects,” says Bruce Baker, a Rutgers school-funding expert who included Philly on his annual list of “most screwed” school districts.
Wall Street banks, however, profit handsomely from Philly’s suffering. Over the past decade the district has lost $161 million from interest-rate swaps to Morgan Stanley, Goldman Sachs and Wells Fargo, according to the Pennsylvania Budget and Policy Center. The deals were supposed to protect the district from rising borrowing costs, but went sour after interest rates plummeted following the financial crisis. That crisis also led to declining tax revenues for cities and school districts — requiring them to borrow more money from, well, the banks.