DALLAS -- Indiana moved a step closer to taking over the distressed Gary Community School Corp. with the unanimous committee passage of legislation that would pave the way for state oversight and appointment of an emergency manager.

Senate Bill 567, sponsored by state Sens. Luke Kenley, R-Noblesville, and Eddie Melton, D-Merrillville, passed unanimously in the Senate Appropriations Committee Thursday. It now heads to the full Senate for consideration.

The corporation, which has struggled to meet payroll, has seen two referendums that would have raised property taxes, rejected by voters over an 18-month period. 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 it faces.

Gary mayor Karen Freeman-Wilson said she supports the bill and lauded Kenley and Melton for their support of the Gary schools.

"I am a part of a working group that will meet next Tuesday to determine the best process to ensure that Gary schools get the support they need and that local citizens are ensured a voice through the process of bailing the schools out. It is a delicate balance, but as long as we are all focused on the children, then the children and community win," Freeman-Wilson said in a statement.

The school system is grappling with more than $100 million in debt, including a $25 million hole in its operating budget. As of June 30, 2015 the school corporation had $3.8 million in tax anticipation warrants outstanding, $11.8 million in school bonds, $42.9 million in notes and loans and $16.5 million in common school loans.

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 on 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.

Melton said he wants the fiscal management board to remain local and have more community input in the process of getting the corporation's finances back in order.

"I believe this would allow the current school board and superintendent to focus on improving the overall quality of education in Gary," Melton said in a written statement.

Rep. Vernon Smith, D-Gary, also introduced two bills last month that would offer relief to the ailing school district. HB 1628 asks that Gary Schools receive compensation from the state budget's General Fund to pay off existing debts and other school-related expenses. HB 1632 asks for $50.2 million from the General Fund to pay off existing bond obligations. Both bills have been assigned to the House Ways and Means Committee. To date, they have not received a hearing.

"The crisis facing Gary Schools is typical of those faced by urban districts across this state that have become hamstrung by school funding formulas that are giving increasing levels of state support to richer suburban schools, as well as the ongoing experiments conducted by recent administrations to expand and the voucher programs and charter schools, which is precedent because the legislature forgave their loans," Smith said in a press release. "Simply put, Gary cannot perform the duties required of it when the state refuses to provide the assistance that is necessary."

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