By Bill Turque
Washington Post Staff Writer
Friday, April 16, 2010; B01
The District's chief financial officer said Thursday that a $34 million surplus in the school system's budget, cited by Schools Chancellor Michelle A. Rhee as a major source of funding for raises promised to teachers in a proposed labor contract, does not exist.
Natwar M. Gandhi's analysis, outlined in a stinging letter to Rhee, is likely to raise new questions about the prospects for an agreement between the city and the Washington Teachers' Union. The tentative accord introduced last week, which must be approved by union members and the D.C. Council, was the product of more than two years of contentious bargaining and was hailed nationally as a progressive model of education reform.
In the letter, Gandhi, who is responsible for certifying collective bargaining agreements as fiscally sound, tells Rhee that although there is a projected $34 million in "underspending" in the school operations section of the agency's budget, it is offset by an estimated $30 million in overspending in the system's central office.
In unusually blunt language, Gandhi takes Rhee to task for what he describes as a failure to adequately consult his office before mentioning the surplus at a meeting with D.C. Council members.
"I was incredulous to learn that in your April 13, 2010, presentation to the Council on the contract you asserted that a surplus is available to fund the proposed salary increases based on preliminary information," he wrote.
Rhee disputed Gandhi's assertion that the information was preliminary but said Thursday night that she had "no choice" but to accept the findings. She also said she has identified $29 million in new sources of money to restore funds Gandhi disallowed. She did not elaborate.
In his letter, Gandhi describes an e-mail exchange last month between Rhee and George Dines, his deputy for school finances, in which Dines mentioned a possible source of extra funding from lower-than-expected teacher salary expenditures.
Although Gandhi described Dines's March 29 e-mail to Rhee as "his preliminary analysis," the e-mail, obtained by The Washington Post, never uses the word "preliminary." The only concern Dines raises about the salaries is "how we can explain this difference" at an upcoming council hearing.
In Rhee's March 31 response to Dines, also obtained by The Post, Rhee seems pleased but cautious -- far more cautious than when she described the existence of the surplus to the council Tuesday as "good news." She said that more discussion was needed before being able to count on the money to pay teachers.
"We just need to carefully review together any projected surplus before we make any decisions relative to its use," Rhee wrote. She asked that Dines set up meetings with her senior staff followed by a session with her to discuss the finances.
Gandhi says in his letter that "no further discussion has taken place to date."
In a written response to Gandhi released late Thursday, Rhee contested several of his points. She said Dines's March 29 e-mail was actually his second analysis presenting evidence of a surplus. "Again, that analysis was never qualified or labeled as preliminary and concluded that DCPS had a surplus of approximately $30 million."
She also disputed Gandhi's assertion that there was no discussion of the possible surplus subsequent to March 31. "Your staff sat with DCPS staff on April 7th to review the fiscal certification package. They specifically discussed the surplus identified by [Dines]. . . . At no time did [Dines] object, question or qualify the surplus analysis."
Gandhi's letter is the latest pushback in a week of fierce interagency scuffling over the funding for the proposed contract with the Washington Teachers' Union. At a hearing Monday, Mayor Adrian M. Fenty (D) told the council that the 2011 budget, effective Oct. 1, contained "all the necessary funding" for the collective bargaining agreement, estimated by Rhee at $140 million.
But Fenty's assurances were not confirmed by Gandhi or his deputies at the hearing. Dines said in sworn testimony that the money was not in the budget. At a meeting the next day, Rhee stunned the council with the disclosure that a $34 million surplus in the current schools budget would help pay for the five-year, 20 percent package of raises.
Council members expressed astonishment and anger at the revelation of the surplus, which Rhee said was identified in February, three months after 266 teachers had been laid off because of a budget crunch. She also said that the extra money was located based on an analysis of information received from Gandhi's office.
Gandhi was infuriated by Rhee's attribution of the surplus to his office and told sources who spoke on condition of anonymity that he felt as if he'd been thrown "under the bus" by Rhee. The Fenty camp also expressed anger toward Gandhi, who in its view was trying to back out of assessments made by his staff.
What followed Wednesday was a round of leaked e-mails and on-the-record swipes from both sides. A Fenty administration official circulated, on condition that he not be identified, charts that seemed to show Dines's forecast of a surplus of $34 million to $44 million in the current fiscal year. On Thursday morning, Fenty used his weekly appearance on Fox 5 to say that Gandhi had signed off on the surplus.
"We do know they certified this $27 to 34 million surplus, and we absolutely need that money to fund the collective bargaining agreement," Fenty said.
Gandhi must present the council his fiscal analysis of the entire proposed contract, which relies on about $21 million in grants from private foundations to help underwrite the teacher salary increases. Gandhi initially was supposed to complete the analysis this week but said Monday that the process could take "weeks."
The teachers union has said it will not ask members to ratify the contract until Gandhi certifies that there is sufficient money for the financial package. The council, which must also vote on ratifying the deal, will not act until the union does.
In addition to the big pay increases, the pact calls for increased professional development, mentoring and induction programs for teachers. It also confirms Rhee's latitude in deciding whether to retain teachers whose positions have been eliminated because of enrollment or budget issues.
The pact also calls for a voluntary "pay for performance" plan, through which teachers could make an additional $20,000 to $30,000 a year in exchange for improved student test scores, working in a high-needs school or teaching a subject for which teachers are in high demand.