Michigan Schools Improving Financially as Dire Predictions Shown to be False

Two years ago, the financial status of Michigan’s public schools was much discussed in the media when 55 school districts, the highest number in the state's history, were said to be in debt.

In June 2013, then-State Superintendent Michael Flanagan was quoted in a Michigan Education Association online article as saying there would be 100 districts in debt “before long.”

Media pundits predicted that the number of districts with red ink was “certain” to increase. Public school officials incorporated that theme into their perennial "underfunding" claims.

Yet, according to a June 15 report from the Michigan Department of Education, the financial condition of public schools has not worsened. Instead, the number of districts in debt has remained about the same, and projections point to an easier financial climate going forward.

Specifically, 54 school districts were expected to be in debt when the books are closed on the 2014-15 school year. These projections are not finalized until audits are completed in November.

For example, the June report breaks down school districts and where they were financially before they ended up in red ink. The 2015 report stated that 18 of the 54 school districts that were overspending were projected to be out of debt by June 30, 2015. Also according to that report, Gibraltar School District was the lone district in Michigan that had a positive fund balance but would finish 2014-15 in debt.

Since the release of that report, the department has said two other districts — Adams Township School District and Tahquamenon Area Schools — were in black ink in 2014-15 but headed toward debt.

Still, more districts are exiting debt status than entering it.

Gibraltar’s financial situation caught the attention of Moody’s Investors Service, which downgraded the district’s bond rating in June. Its enrollment has declined from 3,805 in the fall of 2007 to 3,649 in 2014. Yet despite the steady decline, in a four-year contract covering 2012 to 2016, the district increased pay for step increases, seniority-based payments in the pay scale. The largest raise in the step payments was 6.9 percent. Most teachers were granted a step increase of 6 percent.

The district started overspending its revenue in 2011-12, ringing up a $1.57 million deficit. Deficits continued with $1.41 million in overspending in 2012-13 and $1.94 million in 2013-14. By the end of 2014-15, the district had exhausted its reserve balance and was in the red by $500,000.

The school board hired Amy Conway as its superintendent April 1, 2015, and has brought in former East China School District Superintendent Rod Green as a consultant on union negotiations and the budget.

Green said in an email that the board realized the financial situation was not sustainable and that union contracts had to be addressed. The district was able to get concessions from unions and privatized its food service, Green said.

“The unions have all been cooperative,” Green said. “They realize there is a financial issue here. … The total reductions for all employees in the district is about $1.9 million which is about a 6-percent reduction from current compensation levels. This reduction is sustainable for the district and employees going forward and allows the district to eliminate the deficit by June 2017.”