School District Dissolutions:
Another Approach to Address Local School District Fiscal Distress
Memorandum 1125, December 2013

Every year, a number of Michigan children take advantage of one of the state’s educational choice options and move to schools outside of their resident school district. Families availing themselves of these options carefully weigh the educational offerings of their resident district against alternative providers (e.g., other local districts, charter schools, and, more recently, cyber schools) to find the best educational fit for their student. For the 2013-2014 school year, students in two districts did not have the option to attend schools in their resident district because their districts were not deemed “financially viable” by state officials and were dissolved during the summer under a new state law (Public Act 96 of 2013). Instead, the students of these former districts were assigned to schools in neighboring districts by the area intermediate school district.

The dissolution of any unit of local government is a serious matter as it marks the finality of a community institution that many residents deem important and have come to rely on for needed services. This is especially true when the dissolution is involuntary and not the direct result of local decisions by elected officials or by a vote of the people affected. Dissolving a school district is no exception given the emotional and sentimental attachment that many residents have to their neighborhood school and in light of Michigan’s strong traditions of local control of public K-12 education.

The state’s primary mechanism for dealing with local government fiscal emergencies is Public Act 436 of 2012 (Local Financial Stability and Choice Act).1 However, instead of invoking Public Act 436 to address the fiscal distress in these two districts, policymakers enacted a new law to allow the state to deal with financially troubled traditional local school districts in a much more expeditious way. Through this mechanism, state officials bypass the deliberative processes outlined in Public Act 436 and, after determining that a school district is no longer financially viable, close all of the district’s schools and assign its students to other districts. This ends the district’s role as a K-12 education provider, although the district continues to exist but only to levy previously authorized taxes. Additionally, the new dissolution process allows the state to provide additional state dollars to erase the dissolved district’s outstanding debts, something it is unable to do under Public Act 436.

It is unclear if Public Act 96 was intended as a “one off” policy response to deal with the two districts, or if it will become a permanent tool available to state officials to intervene in local school district affairs. However, the adoption and implementation of a new school district dissolution policy signals that state officials are continuing to search for a policy solution to deal with financially failing school districts. Also, this policy highlights the fact that the state does not have a uniform model to use when officials decide that a district is no longer financially sustainable.

Because the new law is written in a way such that it could apply to other school districts dealing with financial challenges, policymakers should consider a number of salient issues before dissolving more districts. The issues and questions surrounding Public Act 96 extend beyond the specific circumstances associated with the two districts recently dissolved, but these situations should motivate a broader examination of school district fiscal distress and the state’s response(s). The public policy implications associated with the new law are both broad and narrow in scope. Broad questions deal with the underlying causes of school district fiscal distress and how the structure and functioning of the current school finance system contribute to distress. Questions also arise about the state’s departure from prior laws that require local voter approval to alter school district boundaries. The more narrowly focused questions touch upon implementation issues surrounding the dissolution of school districts and factors that are important to consider, but are not contemplated in the new law.

This memorandum seeks to shed light on the questions and considerations raised by the enactment of Public Act 96 to help guide future state policy responses to school district fiscal distress.

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