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CRC Column

The right to criticize government is also an obligation to know what you are talking about. 
-Lent Upson, 1st Executive Director of CRC  

Open Report | See Also CRC Memo #1114 | Email to a Friend |


State Bailouts to Erase School District Accumulated Deficits
June 2012
Memorandum 1113

The emergency manager of the fiscally distressed Muskegon Heights School District has developed a proposal to head off bankruptcy that would redirect a dedicated local millage intended to finance school operations and instead use the tax to eliminate the outstanding debts and legacy costs in of one of the state's most urban and property poor school districts. If accepted, the proposal would result in fewer state dollars for less fiscally challenged local schools so that a single district could receive additional state aid to address its financial problems and get out from under the burdens created by chronic operating deficits. This plan, effectively a state bailout, is being pursued without the direct involvement of the Michigan legislature or a separate state appropriation. While it is entirely possible that a state bailout is the preferred option, this is not transparent nor is it the product of a broader consistent state policy concerning financially distressed school districts.

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Beginning in the fall of 2012, the financial and operating plan offered by the emergency manager for the Muskegon Heights School District would end direct educational services provided by the District and instead have services provided by a charter school operator hired by the emergency manager, acting in lieu of the Muskegon Heights School District's elected school board and appointed superintendent. Most recently, the emergency manager appointed to run Highland Park City Schools indicated that she would pursue the same alternative beginning this fall. In both cases, the local dedicated school operating tax that is part of the per-pupil foundation grant will be redirected to finance the districts' accumulated deficits. Additional state dollars will be provided to the charter school in place of these "lost" local operating funds to keep whole the districts' foundation grants and avoid gutting the educational programs offered.

Notwithstanding consideration of whether the charter school model is a better fit than the traditional local school district model for educating students in the 21st Century, Muskegon Heights' plan is a financial solution to a chronic fiscal problem that the district has been unable to solve. The solution hinges on the provision of additional state funds. The opportunity to maintain school operating funding and, at the same time, erase the accumulated deficit is made possible by the interaction of Public Act 4 of 2011 and the school finance system that was put in place with the adoption of Proposal A of 1994. Specifically, the unilateral decision by the emergency manager to charter an entire school district combined with the financing mechanisms for the per-pupil foundation grant serve as the vehicles to provide a state bailout. Both the conversion of the entire district to a charter school and the attendant increase in state funds that comes with the new foundation grant occurs without state legislative deliberations or actions.

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