Indiana lawmakers dismissed opposition from representatives of the affected communities to pass legislation giving Ball State University the green light to take over financially distressed Muncie Community Schools and further tighten state control of the district in Gary.

The provision is part of House Bill 1315. Special session rules allowed lawmakers to comment on the bill but barred any alterations.

The House passed the bill in a 63-30 vote and the Senate passed the bill in a 34-14 vote and Gov. Eric Holcomb signed it Monday.

Eric Holcomb
Indiana Gov. Eric Holcomb signed legislation to require the takeover of schools in Muncie. Bloomberg

The bill shifts oversight of Muncie Community Schools to Ball State from an emergency manager and strips power from Gary Community School Corp. The bill also includes an emergency $12 million loan to fund Muncie's ongoing operations.

House members from Muncie and Gary voiced several concerns; chief among them was the loss of local control that ignores the concerns of local constituents.

Rep. Sue Errington, D-Muncie, said local Muncie representatives have been blindsided by the decision to allow Ball State take over the school corporation and were not invited to be part of the decision.

"I am just concerned about the democratic processes with this body," Errington said.

“I see this as a power grab for the state to dismantle a locally elected body completely ignoring the voting rights of Hoosiers living in Muncie,” she said.

“Representatives from outside my district have behaved like they know more about my district than I do,” said Sen. Tim Lanane, D-Anderson, who represents Muncie. “There is opposition to this bill; the citizens who oppose this feel like this is a state takeover because it certainly feels like that.”

Lanane said he supported Holcomb’s original request to make the $12 million loan to Muncie schools and allow the emergency manger to continue to make progress through the remainder of the year. “In that respect, the continued partnership and assistance of Ball State would be completely welcomed,” he said. “I do not, however, support the state using its power to dismantle a locally elected school board and disenfranchise the voters in my district.”

Republicans control the legislature and governor's office.

Another pressing concern among Democrats commenting on the bill is the lack of language on how long the takeover of the Muncie corporation would last.

Support for the bill came from Republicans who pointed to the mismanagement of funds in Muncie schools and the repeated need for Gary bailouts as key reasons why the provision was necessary. Gary has received nearly $4 million in funds just to meet payroll since entering state imposed emergency management last year.

Rep. Tim Brown, R-Crawfordsville, author of the bill, said it was debatable on whether the state's nascent emergency law enacted by Indiana last year to deal with the two troubled school districts was working. In the case of Muncie, he said, there had been no discussion yet on a long-term plan for the district to meet upcoming bond payments.

"The status quo has to change," said Brown said. "Indiana can't continue to educate children like in the 1940s and 1950s."

Ball State, which is in Muncie, will a seven-member panel to operate Muncie schools. Four of the members would be required to live in the school district. The bill hands control of the Muncie district to Ball State University on July 1.

The bill says the university has two years to come up with a comprehensive plan for the district’s future. Ball State University’s president said on Monday the school is ready to begin assisting Muncie Community Schools as soon as state lawmakers give it permission to do so.

The legislation also removes the "distressed" label from Muncie Community Schools and provides an interest-free state loan to the district for a term of up to 10 years. The school district needs the loan because it used proceeds from a $10 million general obligation bond issued in 2014 to cover operating expenses instead of completing building repairs and improvements.

HB 1315 further strips power from the Gary school board. Under the bill, the already powerless school trustees would become an advisory committee to the district's emergency manager, Peggy Hinckley. The board is limited to four public meetings a year. The bill also allows the emergency manager to fire teachers before Sept. 30 of a given school year.

The state in a first-time action took full control of the Gary district and partial control of the Muncie district last year. The state then expanded its oversight of Muncie. Both Muncie and Gary have struggled with falling student enrollment. Democrats said the emergency management law hasn’t been given enough time to take effect.

Muncie has a budget deficit of $12 million mostly created by misspending the bond proceeds. The 2014 bond issue was earmarked for badly needed improvements to school buildings. S&P Global Ratings downgraded the Muncie Community School bonds by one notch to BB-minus on Jan. 26. It had cut the rating to junk in August, lowering it to BB from BBB-plus.

Gary's debts include $40 million owed on past state loans, another $40 million in private loans, and $15 million on school construction bonds.

The district recently settled an $8.4 million tax liability with the Internal Revenue Service, after a compromise offer of paying $320,000 to settle the debt was accepted. Settling with the IRS is one of several hurdles the district must overcome before it can regain its financial footing.

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