The Muskegon Heights School District has been in deficit nine consecutive years, dating back to the 2004-05 school year, according to the Michigan Department of Education.

Mosaica Education, a national charter public school operator, ran the Muskegon County school district for two years, but made no progress in ending the cycle of debt and now is ending its contract with the district.

This had a few state lawmakers and State Superintendent Mike Flanagan questioning whether the state should hand an entire district over to charter public school operators, according to an article posted on the Michigan Radio website. 

Muskegon Heights has a history of deficits, which steadily increased through the years, jumping from $863,468 in 2007-08 to $11.8 million in 2011-12. The charter public school operator took over in 2012-13.

But it was hardly the only conventional public school district to have a long history of deficits. Once a school district has a deficit, it submits a deficit elimination plan to the Michigan Department of Education for approval. Yet many districts still end up in deficit year after year.

Flanagan gave his report that there were 45 school districts projected to be in deficit at the end of this 2013-14 school, down from the record 55 districts in deficit from a year ago.

According to Michigan Radio, State Rep. Terry Brown, D-Pigeon, was caught off guard when he was told by the MDE’s Dan Hanrahan that the charter public school operator was not going to follow through on the deficit elimination plan for Muskegon Heights because it was no longer going to be working with the district.

Michigan Radio reported this exchange:

"Now that (Mosaica) is leaving, they pretty much told us they're not going to do (the district's) deficit elimination plan. To follow up on that, we should wait for the new management company and deal with them," Dan Hanrahan, Michigan Department of Education's director of state aid and school finance, told the panel.

"We sort of acquiesced on that in regards to..." Hanrahan continued, when he was interrupted by State Rep. Terry Brown, D-Pigeon.

"Wait, did I hear you say they said they're not going to do the (deficit elimination plan)?" Brown asked.

"Yes," Hanrahan answered.

"I wasn't sure. And they can do that?" Brown asked.

"They're not, they shouldn't do that, but the reality of the situation is that they're out the door here in a couple of weeks," Hanrahan said.

However, it's somewhat common for conventional public school districts not to follow through on their deficit elimination plans.

For example, Redford Union Schools in Wayne County has been in deficit 11 of the last 13 school years, including the last five in a row. Hancock Public Schools in Houghton County has had a deficit eight consecutive years. Clintondale Community Schools in Macomb County has had a deficit for nine consecutive years.

MDE Spokesmen Bill DiSessa said the department "works collaboratively with deficit districts" to help them get back on sound financial footing.

"For deficit districts showing progress, we are likely to maintain that collaboration and grant extensions of deadlines for when they must eliminate their deficits," DiSessa said. "When necessary, however, we have withheld state aid payments from districts or initiated the preliminary review process under PA 436."

He added, "If an emergency exists, the school chooses between an emergency manager, consent agreement, mediation or bankruptcy."

Gary Naeyaert, executive director of the Great Lakes Education Project and an advocate for charter public schools, was at the meeting and wondered why there was so much discussion about one charter public school when there were 40-plus conventional public schools also with deficits.

"They used the opportunity to criticize charters," Naeyaert said. "There are dozens of districts that are chronically in deficit and there are no repercussions."

Audrey Spalding, education policy director at the Mackinac Center for Public Policy, said it is rare for a conventional school district to be closed or to suffer penalties for managing money irresponsibly.

"However, charter public schools close all the time due to academic or financial mismanagement," Spalding said. "The charter schools face real consequences while the traditional districts typically do not."

The Michigan Court of Appeals has upheld a law banning automatic wage increases after the expiration of union contracts.

A 2011 law banned the practice of salary increases after collective bargaining agreements expired. Before the law, in practice, what was happening was a union contract would lock in raises. After a contract expired, the law required districts make pay increases as if the contract was still in effect, which meant step increases and wages were guaranteed until a new contract was agreed to by both parties. The new law froze salaries until a new contract was reached.

Former State Rep. Marty Knollenberg, R-Troy, was the sponsor of the bill, now Public Act 54 of 2011. He applauded the court and discussed the reasoning for the law.

"What was going on is that a lot of the public employers were having difficulty resolving their negotiations with the public unions," said Knollenberg , who is now running for the 13^th Michigan State Senate district. "You had a number of public employers who for months or years could not renew their contracts. Public employees were getting automatic pay increases even though they weren't being negotiated by either party. The bill was to put more fairness so the negotiations were not as tilted toward the public unions."

During the debate over the bill, former Royal Oak Superintendent Thomas Moline testified that the district had to pay an extra $1.7 million in additional salary and benefits while the union had little incentive to bargain.

"The 2009-2010 school year commenced within the School District of the City of Royal Oak with the absence of a new negotiated teacher contract. Nonetheless, the school system was required to pay $430,000 in additional insurance increase, and $357,000 in step increases based on the expired contract," Moline said. "Bargaining continued in Royal Oak in a second year in summer of 2010. At that point, the school system was presented with a second round of automatic step increases ranging from 4 percent to 12 percent additional compensation for step eligible instructors and amounting to $420,000 in additional costs. The school system also braced for a 17 percent increase in insurance for our teacher group amounting to $525,000."

The 2011 law limited automatic pay and benefit increases for all public employees. But a new proposed law would change that.

Senate Bill 850, introduced by Sen. Patrick Colbeck, R-Canton, would exempt public safety employees from the law. It passed the Senate on Tuesday by a 27-10 vote and heads to the state House.

Sen. Colbeck said he introduced the bill because the original law was not supposed to impact law enforcement officers and was tied up with reforming Public Act 312, which relates to binding arbitration.

"The key provision of the binding arbitration law is the 'ability to pay' provision we now have. If the municipality does not have the money, it cannot be a part of the binding arbitration agreement." Sen. Colbeck said. "This bill is just making well with what was originally agreed to when the Legislature reformed PA 312."

A similar bill, HB 5097,  has already been introduced in the House with significant support.