DALLAS - The Arkansas Board of Education on Monday took over Greenland School District No. 95 of Washington County after rejecting the financial recovery plan proposed by the struggling district in northwest Arkansas.

The state will monitor the district's finances for a year and then decide whether to return control to the local school board or annex it to one or more neighboring districts.

The district has about $4.5 million of unrated debt from a $4.8 million, 25-year bond issue in 2003 and outstanding loans totaling $650,000 that are due in January 2009. It took out emergency loans of $500,000 in January and $121,000 in late June, said Bill Groom, president of the school board that was dissolved by the state board on Monday.

Groom said he supported the state takeover because the district could be returned to local control if the financial problems are resolved, but annexation would mean the end of the Greenland district. The district has an enrollment of 927 students.

The district would have had a negative balance at the end of fiscal 2008 without the emergency loans, said Bill Goff, assistant commissioner for finance and administration at the Arkansas Department of Education.

Goff said the Greenland school district had $973 in its general operating fund on July 3 and would have a deficit of more than $427,000 at the end of fiscal 2009 if spending and revenues remain at 2008 levels.

Greenland was put on the department's list of financially troubled districts in 2003 but removed in 2006. State officials again noticed a problem with the district's finances in January, and April 21 the state board voted to place the Greenland district on the fiscally distressed list.

The Omnibus Quality Education Act of 2003 requires resolution of financial problems within two years of a district being placed on the distressed list, or it must be merged with a nearby district.

Arkansas education commissioner Ken James last month recommended the Greenland school district be merged with one or two of the six surrounding districts. In a reversal, on Monday James asked the board to defer action on the annexation and give the state a year to fix the problem.

James will appoint a superintendent for the district. He said state officials would closely watch the district and provide a report to the state board of the district's finances every three months.

"This is going to be a very, very difficult fiscal situation, and it's going to take close monitoring," James said. "It's going to take some tough decisions. We will make them to make sure solvency ensues."

James said the district must continue to make the annual debt service payment of $300,000 on its outstanding bond debt while in state control as well as repay the emergency loans. That will probably require reductions in service and possibly layoffs, he said.

"There will have to be cuts somewhere," he said. "They have obligations, and they have outstanding loans that they have to pay."

District voters on June 10 approved a property tax increase of 2.6 mills to restructure its existing bond debt.

The restructuring is expected to cut debt service by about $57,000 a year, with the additional property tax expected to generate $203,000 annually. The district also receives about $100,000 a year for debt service from the state enhancement program.

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