DALLAS -- Indiana’s Distressed Unit Appeal Board voted Wednesday to take full control of Muncie Community Schools.

The DUAB approved designating the district as a distressed political subdivision, which gives the appointed emergency manager more control in the district.

Since the passage of Senate Enrolled Act 567 in April, the district has come under some limited state control as a designated fiscally impaired school corporation with the firm Administrator Assistance named to serve as emergency manager.

Wilson Junior High School in Muncie, Indiana
Wilson Junior High School is among Muncie Community School Corp.'s facilities. A state board voted to take full control of the district.

DUAB also voted Wednesday to keep Administrator Assistance on as emergency manager to steer the district's shift to full state takeover, subject to contract approval, until June 30th. The emergency manager’s contract was originally set to expire at the end of the year. The DUAB said it will review whether to continue the contract with Administrator Assistance once the academic year is completed.

Members of the DUAB acknowledged that Muncie has made progress in the six months since the partial state takeover but said there was still more work to be done. “I don’t see Muncie situation being resolved without some state involvement,” said state budget director and DUAB chairman Micah Vincent. “My expectation is the school district will request additional assistance from State of Indiana.”

The district has implemented a deficit-reduction plan that has included the closure of three elementary schools and the elimination of teaching and staffing positions. It's expected to have a balanced budget in 2018 as well as positive cash flow.

However, the district is expected to finish 2017 with a budget deficit of $12 million mostly created by the misspending of $10 million in bond revenue on operating expenses. The 2014 bond issue was earmarked for badly needed improvements to school buildings.

S&P Global ratings cut Muncie Schools’ rating to junk in August, lowering it to BB from BBB-plus.

Muncie was one of two Indiana School districts taken over by the state under the legislation. The legislation marked a first for the state. The other, Gary Community Schools, was given the more stringent distressed political subdivision designation immediately. Gary Schools Recovery LLC, a subsidiary of the MGT Consulting Group, was appointed as emergency manager in July to lead Gary schools out of financial distress.

Indiana has approved four loans for Gary Community School Corp. since May to help the fiscally distressed district stay afloat and meet payroll and other costs. Prior to the designation as a distressed political subdivision, three other loans were authorized while the financial specialist was in place, in 2015, March 2017, and April 2017.

The Gary district is trying to reduce the approximately $8.5 million it owes to the IRS for expenses a tax liability created when the school district failed to remit taxes it withheld from employee paychecks to the IRS on a quarterly basis.

Gary also owes $40 million for past state loans, another $40 million in private loans and $15 million on school construction bonds.

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