St. Louis School District Corporate Turnaround

William Roberti, the a managing director at Alvarez & Marsal, describes the results of his corporate turn around firm’s unprecedented private contract to stabilize the St. Louis school district. Some highlights:

Faced with a financial crisis of enormous proportions and failing to deliver an adequate education to thousands of children, the St. Louis Public School System in 2003 made history, becoming the first known district to hire corporate restructuring consultants to implement a plan for reform that would save the system. As courageous as it was controversial, their decision has resulted in progress that once seemed unimaginable and serves as a beacon to school districts around the country still struggling to provide quality education to their children.

Last year, the St. Louis Public Schools were on the brink of bankruptcy, facing an astonishing $75 million year-end deficit and a near-term $99 million cash shortfall. The district was spending more than $11,000 every year for each of its approximately 40,000 students – out of a total budget of $450 million. While the district had the highest rate of per-student spending in the state, just over $6,000 per student actually found its way to the classroom.

Tens of thousands of dollars were squandered to insure vehicles the school district no longer owned. Money went toward maintaining buildings and facilities that had long been abandoned. Books and supplies were ordered, but then sat in warehouses, while teachers reported scrounging at yard sales for used books.

A year ago, textbooks and supplies sat in disheveled warehouses instead of classrooms. The district had no idea how many books it had or what titles were in circulation. Today, the district can account for every book and has consolidated warehouses into one modern facility. Unnecessary books are being “bought-back.” By the start of the 2004-2005 academic year, the district will have spent $2.1 million on new or refurbished textbooks – money that would not have been available but for the financial overhaul that has taken place.

In total, more than 40 unused and unnecessary facilities, including a greenhouse, were closed and put up for sale. A software system – purchased years ago, but never installed – is now used to make school bus routes more efficient, so that the district isn’t wasting money by running large numbers of partly empty buses.

We negotiated labor agreements that saved a total of $24 million. We saved another $27.5 million by outsourcing functions like payroll processing, benefits administration, the operations of the supply warehouse, and construction and maintenance of school district properties.

In all, the district has succeeded in reducing expenses by an astounding $79 million. It has a balanced budget for FY 04-05 – the first in recent memory.

If only every urban school district could be subjected to the tough love of the corporate turnaround process.