Emergency Financial Managers — May 13, 2015 at 7:07 am

Indiana moves to take over Gary schools with an Emergency Financial Manager


Back in 2012, I first wrote about the exporting of Michigan’s Emergency Financial Manager system to Indiana, the first instance of this happening and something I had been warning the country about in my own small way for two years. It was eventually signed into law later that year.

This week we learn that the first use of the Emergency Financial Manager system is happening to Gary Public Schools. (The Bond Buyer article is behind a paywall but you can get free access through May 22nd.)

After years of financial problems, the school district in Gary is poised to become Indiana’s first local government to be taken over by an emergency financial manager.

A bill passed in connection with the state’s new two-year budget creates a pathway for the state takeover. Officials said they are still working on key details, including how to select the financial manager and his or her powers.

Most likely the manager would have the ability to open labor contracts and make other financial restructurings. The state board overseeing the process can authorize the school district to put off debt payments on state school loans and recommend a new no-interest loan from the state’s common school fund.

“It will be a first, and it will be very interesting,” Dennis Costerison, a public school lobbyist and executive director of the Indiana Association of School Business Officials, said of the expected Gary takeover. “We’ve never had a district go this far before.” […]

“In a fashion it kicks the school board and the superintendent to the curb,” said Costerison.

Things were already bad in Gary but voters turned down a ballot referendum at last week’s election that would have provided additional revenue.

In this situation, it is actually a Democrat pushing this on Gary:

Sen. Earline Rogers, D-Gary, who sponsored the school bill with the support of Senate Republican leaders, said the Gary bill could be a template for other troubled districts in the future.

“The Gary Community School Corporation stands as a poster child for the impact of recent state policies on school corporations,” said Rogers. “We can learn from Gary and it will put us in a position to take care of other school corporations or look into the future and make sure this doesn’t happen to other school corporations.”

Rogers claims that the local school officials WANT this though none of them would go on the record to say so for the Bond Buyer article.

Like many struggling urban cities, Gary is facing a huge exodus of residents which has blown a giant crater in revenues for the city and the schools. Like Michigan, the public schools are facing competition for precious tax dollars from charter schools and Gary, unsurprisingly, has among the highest number of charter schools in the state.

It will be interesting to see if the EFM in Gary will attempt to cut their way to solvency or whether they will actually try to help resolve the core systemic problems that led to the financial crisis. If the Michigan experience is any guide, I’m not hopeful and it’s unlikely that the EFM will even have access to the tools with which to rebuild Gary Schools.