Saving the St. Louis School District from Bankruptcy
Until St. Louis Mayor Francis Slay and four members of the city's board of education voted to hire the consulting firm Alvarez & Marsal in the spring of 2003, William V. Roberti, a managing director of the firm, had been involved in corporate and military restructuring situations but had never run a school district. From June 1, 2003 until June 30, 2004, he served as interim superintendent of the St. Louis Public Schools.
"This was the first time that a school district brought in a corporate turnaround firm to help save a system that was so dysfunctional that it was on the brink of bankruptcy," said Roberti in relating his experience as interim superintendent in St. Louis to an audience of education entrepreneurs on August 4 at the fourteenth annual EDVentures Conference of the Education Industry Association. The conference was held on the Northwestern University campus in Evanston, Illinois on August 4-6.
"While St. Louis may be somewhat unique in terms of the severity of the crisis, there are ... hundreds of school districts across the country that are struggling to cope with many of the same issues," said Roberti. "In that regard, I think St. Louis provides a useful roadmap for other districts to follow."
In the past two years, at least two school districts have experienced major financial disruptions, apparently because administrators simply weren't keeping on top of district finances. In 2003, the superintendent of the Seattle Public Schools resigned after the discovery of a $35 million accounting error. In 2002, two officials of Colorado's St. Vrain School District lost their jobs over a $13.8 million shortfall.
What Roberti found in St. Louis was a similar lack of knowledge about what was happening financially in the district, which had a budget of $450 million. Officials thought the district had about $39 million in reserves, but Roberti quickly discovered it faced an immediate cash shortfall of $99 million and a $75 million year-end deficit.
"The district was bankrupt, and didn't know it," he said, noting it didn't take his team from Alvarez & Marsal very long to find out why the district was in such financial straits:
- paying insurance for vehicles they didn't own;
- maintaining dozens of abandoned warehouses;
- operating too many buses; and
- extravagant spending, such as $500,000 on staff lunches.
Although the district's educational performance also was in bad shape--with only 5 percent of 11th-graders reading at or above proficient--the first priority was to address the cash crisis. With the agreement of the NAACP, the State of Missouri, and the U.S. Department of Justice, Roberti arranged for the district to borrow $49.5 million so it could continue to operate. Then he tackled the cost drain.
His efforts generated cost savings of $79 million. They included:
- putting more than 40 properties up for sale;
- closing schools with declining enrollment;
- simplifying bus routes;
- renegotiating labor agreements;
- outsourcing maintenance and food service operations;
- closing old warehouses; and
- reducing non-teaching staff from 6,260 to 4,797.
Once the operational and financial reforms were in place, Roberti took steps to create a framework for long-term educational success. Those steps included:
- hiring more than 130 new teachers;
- implementing a literacy-based curriculum;
- putting principals in charge of driving academic achievement; and
- reducing class size in certain grades.
By year's end, a number of educational measures were beginning to show promising upturns. For example, the percentage of high school students considered "at risk" for reading proficiency had dropped from 36 percent to 24 percent, and the percentage of middle school students reading at an advanced level had increased from 0 percent to 7 percent.
"The ultimate performance measure here is educational, not financial," said Roberti. "Now it's up to the district's new leadership to continue to sustain the reforms as they move forward and work to build on the progress."
George A. Clowes (firstname.lastname@example.org) is managing editor of School Reform News.
For more information ...
The June 30, 2004 report from Alvarez & Marsal, "St. Louis Public Schools: A Year of Change and Progress: Final Report," by William V. Roberti, is available online at http://www.alvarezandmarsal.com/June_2004_Turnaround_Initiatives_Update_FINAL.pdf.