CHICAGO – The Indiana House will vote this week on legislation that would place Gary Community School Corp. and Muncie Community Schools under state oversight.

Senate Bill 567 would declares the two to be distressed political subdivisions and pave the way for the appointment emergency managers and financial advisory boards with sweeping control over financial decisions. Both would have to show positive operations for two years before returning to self-control. The bill also provides fiscal help through grants and loans some of which could be forgiven.

The House Ways and Means Committee approved the legislation Monday in an 18-3 vote after it was amended to include Muncie schools. A final House floor vote is expected Thursday, according to a committee aide.

The bill passed the Senate in February in a bipartisan unanimous vote but the addition of Muncie schools means that the Senate must either concur with the change or have differences hashed out in a conference committee.

Committee chairman Tim Brown, R-Crawfordsville, added Muncie.

"There are a lot of school corporations out there that concern me greatly, but Muncie and Gary concern me the most," Brown said in several published reports. Gary faces an estimated $20 million deficit and Muncie is dealing with more than $18 million of red ink.

Gary asked for state intervention but the Muncie district did not and local officials including the district superintendent said they oppose the move and believe the district can solve its woes without the intervention. A co-sponsor of the original legislation also opposed including the second district.

"I caution the state on looking at broad actions of taking over school districts as there are multiple contributing factors for the financial state that districts face across the state," Sen. Eddie Melton, D-Merrillville, said in a statement.

Gary sought state intervention to help tackle a crisis that's led to late vendor payments, delayed payrolls, and annual operating deficits as its books are weighed down by a $100 million debt burden.

Voters in the Gary school district have twice within 18 months rejected referendums that would have raised property taxes.

The last vote on Nov. 8 asked voters to approve about $8.7 million of new taxes annually over the course of seven years. The vote came within 1% of passing and would have allowed to corporation to enact a financial stopgap measure and help fill the budget shortfall.

Under the legislation, the Indiana Distressed Unit Appeals Board would appoint an emergency manager and chief financial officer to replace the elected school trustees and take charge of all financial issues for up to five years.

The emergency manager, assisted by the CFO, would craft the school corporation's budget with a focus on paying off debt, could negotiate reduced payments to creditors, and could adjust employee salaries after current labor contracts expire.

The bill would also establish a three-person Fiscal Management Board, with members appointed by the school trustees, city mayor and state superintendent of public instruction, that could advise the emergency manager, but decisions would be subject to approval by DUAB.

DUAB also would be allowed to award grants to the school corporation if it hits specific financial targets, as well as forgive outstanding state loans to Gary schools or award additional zero-interest loans.

Gary Mayor Karen Freeman-Wilson supports the bill.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.