Manchester schools have halved their debts in a single year, but still owe more than pound;3 million - the legacy of the city's falling rolls and the high-cost workforce of experienced teachers.
Chief education officer Roy Jobson estimates schools will end the financial year in April owing pound;3.2m compared to pound;6.2m a year ago when almost half were in the red.
Reviews of staffing at individual schools and a series of budget planning days for heads have helped to bring the deficit down without compulsory redundancies.
But the council and its headteachers believe a long-term solution will not come until the city removes surplus places - Manchester's declining population means spare places recently reached 16 per cent. The target is between 5 and 8 per cent.
The authority has already embarked on a major programme - eight infant and junior schools have been merged into all-through primaries and others have closed. Further reorganisation, taking in secondary schools, is planned.
Manchester's schools slipped into collective debt three years ago, but some heads date the problems back to the start of local management. The city's large number of experienced teachers meant some schools started with debts, while low turnover - unlike other inner cities, Manchester has few problems retaining good teachers - and a policy of no-compulsory redundancies made getting the wage bill down difficult.
Phil Taylor, head of South Manchester High School and city convener of the Secondary Heads Association, said: "For several years nothing much happened - schools just went on having very expensive staff."
But the deficit does cause a problem for schools. "My school has a massive deficit. It restricts anything you try to do. You can't plan for improvement because you're not able to increase spending. It's a huge straitjacket," Mr Taylor said.
St Vincent de Paul RC high in Rusholme - deficit 18 per cent of its annual budget - is a victim of Manchester's other problem: falling rolls. Headteacher John McNerney has seen numbers fall to 330 pupils from 1,000.
"We've made every conceivable effort to reduce the deficit. We've tried to generate income - we've reduced staffing and done enormous amounts of marketing. But the reality is the pupils aren't there."
But Mr Jobson argues some schools were staffed too generously, based on money they did not have. He has seen his job as changing the culture.