Options to Address School District Accumulated Deficits
A June 2012 CRC report (State Bailouts to Erase School District Accumulated Deficits, CRC Memo #1113) highlighted the fact that despite the presence of an emergency manager appointed pursuant to the Local Government and School District Fiscal Accountability Act (Public Act 4 of 2011), resolving the financial crisis in the Muskegon Heights School District is going to require the infusion of additional state funds, in addition to a series of budgeting and management reforms. Public Act 4 does not contemplate the provision of additional funds as a solution, either in whole or in part, to resolve the financial challenges faced by local governments and school districts. Rather the contrary is true. Public Act 4 requires that an emergency manger's financial and operating plan must provide for conducting the operations of the local government or school district "within the resources available" (MCL 141.1518). However, the Muskegon Heights School District emergency manager has indicated an inability to both liquidate the accumulated deficit of the district and provide for the required educational services using only the resources available to him. If the emergency manager is correct in his assessment, a public policy question arises, "What options, short of bankruptcy, are available to fiscally failing school districts to help them simultaneously liquidate their accumulated deficits and ensure that their students receive the educational services and programming they deserve?"
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This report addresses this question by highlighting some options for state policymakers. In each case, the suggested solution is limited to school districts under the control of emergency managers and any additional funding, regardless of its source, must be used to address the legacy costs of the district, not for current operational costs. In weighing each option, consideration should be given to when and under what circumstances additional resources should be made available to financially distressed school districts. Specifically, should this be a decision solely made by the emergency manager for the school district working within the constructs of current law? Or, should this be the call of state policymakers? Should the additional funds come from the state or from local sources? What metrics or measures should be used? Should the specific conditions and measures for the provision of additional funding be written into Public Act 4, or another statute? Or, should the decision be made on a case-by-case basis?
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