New information recently made public reveals the extent of the decades long financial problems that plagued the Buena Vista school district and that, as a result of state policy, will be passed to all taxpayers to rectify. The district, along with the Inkster school district, was dissolved in July 2013 under a new law when the state determined that the district was no longer “financially viable.” We now know that the district’s accumulated debt is larger than originally anticipated, the taxpayer cost of repaying the debt is greater, and the time it will take to pay off the debt is longer.
The completed 2012-13 financial audit for the Buena Vista school district was recently sent to the State of Michigan. Nearly all other school districts submitted their audits by mid November 2013, as required by state law. It took the Saginaw Intermediate School District (ISD) and the private accountants working with the ISD quite a bit longer to sort through, organize, and make sense of the incomplete financial records of the school district. The audit provides a clearer picture of the final taxpayer bill associated with shuttering the 432-student district that experienced years of declining enrollment, mismanagement, and financial challenges. Specifically, it reveals that the bill for repaying Buena Vista’s debts will be nearly ($4.0 million), approximately $1.0 more than originally projected. Because of the way that the new state policy for school dissolutions works, these costs will be borne directly by other school districts in the state through decreased allocations from the State School Aid Fund over the next three years.
CRC analyzed the new state law allowing for school district dissolutions and discussed the specifics of the Buena Vista case in a December 2013 report. In that report, CRC highlighted some of the problems created by the law itself and cautioned lawmakers to weigh carefully a number of issues before deciding to pursue another school dissolution. One key aspect of the law allows an existing 18-mill, locally levied school operating tax to be used to repay school debts instead of being used to fund the per-pupil grants of former Buena Vista students. Instead, these students’ grants will be financed entirely by state funds. The Buena Vista district remains in existence solely as a taxing entity until the debts are repaid. The practical effect of this provision is that fewer dollars are available to all other school districts from the School Aid Fund; the provision effectively socializes the costs of repaying a dissolved district’s debts. Without dissolution, the district would have been forced to repay its debts from the resources it annually receives from the state, likely over a number of years.
The specifics of the Buena Vista case and the authorization to levy the debt repayment tax is another issue raised with the new law. Currently, the 18-mill tax levied on nonhomestead (primarily business) property is authorized through 2015, meaning that both the 2014 and 2015 levies will be used to repay district debts (estimated $3.2 million). Initially, it was estimated that the two levies would be sufficient to satisfy the total outstanding debt; however, it now appears that the tax will fall short, by about $800,000, of the $4.0 million required to repay all district debts. By law, the Saginaw ISD will be required to ask voters in the geographic area of the former Buena Vista school district to renew the tax, or part of it, for another year to generate the needed funds to fully satisfy the district’s debts. If the voters do not approve to renew the tax, it is unclear how the remaining debt obligation will be satisfied.
While the audit revealed the extent of the debt the Buena Vista school district accumulated, the state recently acknowledged that there will be additional costs associated with handling district property that was transferred to other school districts as part of the dissolution. Early this month, the state legislature approved a $5 million appropriation from the School Aid Fund to help other districts with the costs of building maintenance, utility bills, insurance, and security associated with former Buena Vista capital stock. This cost also will come at the expense of reduced state allocations to all other districts.
The completed 2012-13 audit of the Buena Vista school district reveals that the district’s finances were in more disarray than originally thought and that it will take longer to repay the district’s outstanding debts. What has not changed with the publication of the audit is the fact that other school districts will be responsible for footing this larger bill; the state will have $9 million less in School Aid Fund dollars to allocate across all other school districts in the state. Policymakers and others should recognize where the costs and benefits of the state’s school dissolution policy lie. The benefits, to the degree there are any, are entirely localized; district debts are repaid and former Buena Vista students receive their public education from “better” school districts. However, the costs of dissolving the district and repaying its debts are spread across all other districts in the state.