Michigan Law to Dissolve School Districts Not Fiscally Sound

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UPDATE: On Feb. 26, 2014, the House introduced a bill to appropriate an additional $6 million to the “receiving school districts” for the purpose of building maintenance/demolition and busing of transferred students. The Senate has offered $5.1 million, so this adds another potential $900,000 on to the growing costs of dissolving school districts. See HB-5362.

Remember those two small Michigan school districts dissolved by lawmakers last summer due to their financial distress?

Buena Vista and Inkster Schools had a combined total structural deficit of $19,600,000, with Inkster responsible for the lion’s share of the debt. There’s no argument — it was certainly not an insignificant amount. But, instead of crafting a policy that would serve as a model for the dozens of other districts similarly swimming in red ink, the Snyder administration pushed for a slap-dash ad hoc legislative fix to get rid of them altogether — just sweeping them under the rug. They cooked-up a solution that is turning-out to be more costly than the original problem. The cure may be worse than the disease.

At the time, lawmakers claimed they were acting in the best interest of the students, although their tone was often tinged with thinly veiled accusations — implying the closure was punishment for the school administrators due to their lack of fiscal responsibility. True, one can make a reasonable argument that the 649 students of Buena Vista were clearly under-served by certain members of their administration, but it would still remain a poor justification for dissolving the unit of government altogether — unless of course the same principle were to be applied universally, wherever there may be found malfeasance. The states of New Jersey and Illinois, plus the city of Chicago come to mind.

The Michigan legislature was on a tear, purportedly to rescue the students from the fiscal mismanagement of their school leaders.

Alright then, if the discussion is to be about “fiscal responsibility”, then by all means, let’s venture into the tall grass.  After all, it’s a favorite catch phrase of the GOP. We’ll be speaking in their native tongue. Surely they’ll approve. We’ll even show our math.

First, a little history.

Prior to their forced demise, Buena Vista and Inkster Schools both saw a $470 reduction in their state per pupil foundation grant allowance from 2011 to 2012. They were not unique in this regard — as we recently reported, the Citizens Research Council calculated that, adjusted for inflation and other factors, the cut to actual classroom funds was closer to $540 for most schools. Using the more conservative figure of $470, that amounted to a drop of approximately $305,000 in annual revenue for Buena Vista, and Inkster lost around $1.26 million — not chump change, although certainly not enough to have made the difference. These cuts simply added insult to injury on top of their snowballing fiscal imbalance. At that time, their deficit was about half of what it eventually ballooned to under the Snyder budget — serving as proof positive his administration did not fully grasp the scope of the school funding crisis. Again, the corporate mind-set at work — if a division isn’t profitable, it is simply parted-out like an old Buick. Michigan’s governor clearly does not understand the difference between the private and public sector, nor this most basic of his executive office responsibilities.

As if that’s not bad enough, the following recent numbers are nothing short of stunning:

Last week, the state Senate voted to provide an extra $5.1 million to the school districts that absorbed the 3,300 displaced students. These funds are specifically for the maintenance or demolition of the dissolved schools’ shuttered buildings which are now the property of the “receiving districts”.

Public Acts 96 and 97 of 2013 are the two hastily enacted laws that provided means for the state to dissolve the fiscally distressed school districts. The first strips the district of local control, and the second, the one we’re interested in, sorts through the details and financials. Section 20g. (1) and (2) of PA-97 makes an appropriation of $2.2 million, over four years, for the purpose of grants to the receiving school districts for transition and enrollment costs as they take on students from the dissolved schools. Additionally, the receiving districts earn a 10 percent bonus over the per pupil foundation grant of transferred students for four fiscal years, which in the case of Buena Vista totals an additional $2,019,000, and Inkster students are worth an extra $8,138,000 over that time.

In a recent post, we discussed the Michigan Public School Employee Retirement System (MPSERS), and its role in the funding crisis. The state is responsible for a certain portion of MPSERS funding for each school district and the district itself has its own obligated amount. The two dissolved districts’ portions have now reverted to the state, which the House Fiscal Agency estimated to be $4.1 million in additional costs. The receiving districts are not responsible for any portion of the dissolved schools’ existing deficits or future legacy costs. All Prop A taxes collected in the defunct district are allocated to paying-down the residual deficit, and thus, do not contribute to the School Aid Fund. Any additional millage monies are rerouted to the receiving district, via their local Intermediate School District, to be used at their discretion.

Time to take a tally.

  • Inkster Schools 10 percent bonus (4 yrs)*                                                $8,138,000
  • Buena Vista 10 percent bonus (4 yrs)*                                                         2,019,000
  • PA-97 appropriation for transition costs                                                      2,200,000
  • Additional state MPSERS costs                                                                      4,100,000
  • Proposed Senate money for buildings                                                           5,100,000

                                                                  GRAND TOTAL EXPENSES            $21,557,000

What again, was the combined deficit of the two school districts?            $19,600,000 

Yep, the scheme to dissolve fiscally challenged school districts will be, in essence, operating at a $1,957,000 deficit if the new Senate appropriation goes through. This is exactly the concern raised by the Citizens Research Council in their recent study of the initiative. They questioned the fiscal wisdom of dissolving districts instead of simply helping them before the situation became dire.

Considering the costs associated with the closures and the transfer of students, plus the fact that the debt of the dissolved district must still be serviced out of local Prop A taxes, thereby depriving the School Aid Fund of the revenue stream that had formerly been attached to the displaced students — this approach adds-up to fiscal lunacy — not responsibility.

Poor planning + Bad laws + Bad fiscal policy = Gov. Snyder’s legacy.

DSCN0444Amy Kerr Hardin

Munetrix data and rating of Buena Vista

Data and rating of Inkster Schools

Public Act 97 of 2013

* The 10 percent bonus numbers were calculated based on the student population impacted and their per pupil foundation allowances assigned to them from their former districts.  Inkster: 2886 students at $7574, and Buena Vista: 649 students at $7,776 per year. The precise information is not available in a searchable database as to the exact number of students that transferred and to which district. Therefore, the amounts may vary slightly. The dissolved districts were at the low-end of funding statewide, but not necessarily as compared to their surrounding areas, Buena Vista was slightly higher than the absorbing schools, and Inkster closer to average.  The formula under PA-97 is somewhat complex — and since exact actual numbers are unavailable, Democracy Tree employed extrapolated figures based on known data. Other variables include the number of students who opted for charters or school of choice elsewhere, the future level of enrolled students from the dissolved districts, and fluctuating foundation grant levels over the next several years. Also not factored-in, were the increased transportation costs of the receiving districts. Although they are not legally obligated to provide busing, they mostly chose to do so. Give or take a few thousand dollars, the cost of dissolution of these districts remains unjustifiable.

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2 Responses to Michigan Law to Dissolve School Districts Not Fiscally Sound

  1. Lisa says:

    This is going too far. The state is responsible for cutting school budgets, so they are setting up schools to fail in order to selectively close schools that the republicans see fit to close. Isn’t this an intentional scheme to fail schools? This horrendous and calculated act is being done by our state government. Aren’t state governments supposed to be the overseer or the watchful eye for evils lurking in the dark corners. Yet, the state government is becoming the lion in the dark corner. Seems like if the state continues to cut school budgets so drastically that many schools will not be able to function. Let me restate that, the state is writing their ticket to underhandedly set schools up to fail. Isn’t this a violation of their authority? Couldn’t this be discrimination against underprivileged schools, which allows them to give more money to their favored schools? This reeks of the familiar illegal acts against the Detroit Art Museum and the Detroit retirement funds. Also like the Republicans set up the U.S. Post Office retirement fund bill that was passed, which was written so as to use the retirement funds to take down the Post Office. It amazes me that these acts are happening right before our eyes!

  2. Elena Herrada says:

    This Friday, the elected Detroit Public School board, of which i am a member, heads to Lansing to attend a meeting of the Emergency Loan Review Board. We have very little authority because we are under PA 436, the illegitimate son of PA 4. We have used our authority to stop the fire sale of one building; Southwestern High School- for far below its market value. We put the building out for bid and got two that were better than the one the price the district accepted.
    Closing schools is a real estate decision. It has nothing to do with education.

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