Number of Public School Districts in Debt At Six-Year Low

It didn’t attract much media attention, but the number of Michigan's school districts that are in debt is at a six-year low after the Michigan Department of Education released a list of 36 schools that had exhausted their savings and were in deficit.

Just two years ago, there were a record 55 districts in deficit. At the time, then-State Superintendent Mike Flanagan said, "Currently, 55 school districts are in deficit. I think it would be over 100 before long."

The reduction of the number of districts in deficit is noteworthy in that there are more "districts" now than in recent years. For many purposes under state law, a public charter school is counted as a school district, so as more charter schools have opened, the number of districts has gone up. In 2007-08, there were 27 school districts in deficit and there were 839 intermediate school districts, conventional school districts and charter schools. There were 900 in 2014-15.

And the outlook is for even fewer districts in debt. There are 20 school districts that, in the latest published report, were projected to be out of deficit by June 2015. There were just two school districts that had a positive fund balance but were projected to be in deficit by June 2015. The final audited financial reports are not concluded until November.

There are several reasons for the reduction of districts in financial distress, said Michael Van Beek, the research director at the Mackinac Center for Public Policy.

School districts are receiving more money. According to the Senate Fiscal Agency, state dollars dedicated to K-12 education have increased in each of the last five years.

School districts are privatizing noninstructional services at a higher rate. A 2015 survey done by the Mackinac Center for Public Policy found that 70 percent of school districts in the state had privatized food, transportation or custodial services. That was the highest percentage ever. In 2001, only 31 percent of school districts had privatized one or more of those functions.

The state has put a cap on the skyrocketing costs of school employees’ pensions and picks up the cost above the cap. That means districts can budget for a set cost while the state picks up the extra, which can be millions of dollars.

“Situations vary from district to district, but it’s likely that many of these districts are using fiscal tools the state affords them to help manage their budgets, such as requiring employees to pay a share of health insurance costs, freezing pension contributions and giving them more leverage in negotiating fiscally responsible union contracts,” Van Beek said in an email. “Districts are also saving money by contracting out for noninstructional services at a higher rate than ever before.”