AE begins discussions for future deficit budgets
TWINING — The regular Arenac Eastern school board meeting Dec. 10 was dominated by the topic of school budget deficits and what options exist to deal with them.
School Board President Ann Brown said while AE has a balanced budget this year, a greater-than-expected decline in student enrollment means next year’s budget would likely be a deficit budget without action by the school board.
No decisions were made at the meeting. Instead, the board had invited Beverly Bonning with the Thrun law firm, who has worked on these issues with other school districts, to give a presentation about what options school districts have under state law to bring their budgets back in line, and moved the meeting into the school’s multipurpose room to accommodate a larger crowd than usual.
“We want the community and the staff involved as much as possible, no matter what we end up doing,” Brown said.
Interim Superintendent Brenda Wilson said while the district’s student count fell by two less than expected in October, for a small district like AE that can make a big difference for the budget.
Brown said the school district is continuing to look into shared services with neighboring districts. It already shares busing services with Standish-Sterling, and some of its sports programs with Au Gres-Sims.
Bonner said the major state laws that affect school deficit reduction are the Uniform Budget and Accounting Act, the School Code, the School Aid Act of 1979, and the Government Fiscal Responsibility Act, known more commonly as the emergency financial manager law.
Bonner explained to the board and the audience that school boards, like municipal, county and state governments, must balance their budget by law. To adapt to unexpected expenses and revenue changes, budget amendments must be passed throughout the year as soon as the board finds out about an issue to make sure everything is on target.
A district facing a deficit must report the issue immediately to the state superintendent, Bonner said, and develop a deficit reduction plan with the Michigan Department of Education within 30 days and submit it for approval by the state superintendent.
“If it’s not submitted or approved, the state superintendent can withhold state aid,” Bonner said. “It can be a substantial amount of money.”
Deficit reduction plans can go as long as two years under normal circumstances, though they can be extended — usually with strings attached — by the state superintendent.
If a school district suffers chronic debt problems, then the financial manager law goes into effect. Bonner said the school district will initially be offered a consent agreement with the state to get the deficit under control, and if that is not enough, the governor can appoint a financial manager.
While the financial manager law that gave managers the power to void employee contracts was repealed by voters in November, its preceding law is back in effect until the legislature passes a new version, Bonner said. That law gives managers the power to pass budgets, close buildings, and have the district consolidated or annexed.
Bonner said other districts she has worked with on budget matters have taken drastic steps to bring deficits under control. She cited one on the west side of the state, which started as a K-12 school, but dropped to a K-8, and later K-6 district as student enrollment dropped. When the board there found the district could no longer make ends meet, the district closed for two years, as per the statewide school code.
After two years, the district must either reopen or begin a dissolution process. Bonner said some schools simply reduce the number of grades they teach, and make agreements with neighboring districts to take their students past that point. Others will consolidate with a neighboring district, effectively eliminating both districts to form a brand new one. The districts in Willow Run and Ypsilanti are in the process of consolidating, Bonner said.
Under a consolidation, the millages set up by each original district stay in effect in the same areas and left to run their course unless voters decide to merge them.
The presentation was a free service, Wilson said.