DALLAS -- Indiana lawmakers are considering a proposal that would give control of the fiscally distressed Muncie Community Schools to Ball State University.

Last month, the state’s Distressed Unit Appeals Board voted to take full control of Muncie Community Schools, setting the district up for at least two more years of emergency management. The district had been under some limited state control as a designated fiscally impaired school corporation with the firm Administrator Assistance named to serve as emergency manager since last April.

This new proposal would hand control of the district over to Ball State University on July 1, 2018.

Tim Brown, R-Crawfordsville, member Indiana House of Representatives in 2018
Rep. Tim Brown, R-Crawfordsville, sponsored legislation to hand Muncie schools over to Ball State University.

It was discussed Wednesday in the House Ways and Means Committee as an amendment to a bill sponsored by Rep. Tim Brown, R-Crawfordsville, that creates an early warning system for schools in financial trouble.

Ball State President Geoffrey Mearns called the proposal an extension of the university's "core mission of educating students" and said the university was "uniquely qualified " to take on the task. Ball State was founded as a teacher's college and for many years its faculty, staff, and students have been deeply engaged in Muncie school programs.

“The future of Muncie is dependent on the quality of our public schools, and our university’s future is affected by the vitality and vibrancy of Muncie,” Mearns said in a statement. “Our fortunes are linked: as we improve educational outcomes for MCS students, we will be securing an even brighter future for our university.”

Mearns said that the initial focus would be on MCS finances and stemming the decline in student enrollment in Muncie schools. Enrollment in the fall of 2017 stood at 5,215, down 8.3% from a year ago and down 32.2% since 2005-06. The district was slated 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.

The university would not use its financial resources to subsidize the operations of school district.

Rep. Sue Errington, D-Muncie, said the proposal came as a surprise. “I was caught off guard because I had no idea the amendment was in the works,” she said. “I think [Ball State is] making a very nice offer. But it has been sprung on us. And so it’s hard to wholeheartedly support it today.”

Errington said she spoke with Muncie's mayor, Dennis Tyler, before the committee hearing and he was not aware of the deal.

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

In addition to the amendment on Muncie, House Bill 1315 would create a dashboard of financial indicators to measure how districts are faring and act as an early warning system if districts start to run into trouble.

The bill paves the way for the state board of finance make an interest free loan to the Muncie Community Schools. It also allows the DUAB to revoke or suspend a superintendent's license if a school corporation remains on the watch list for four consecutive years.

A similar bill has been proposed in the Senate. It creates a financial health monitoring tool for schools and provides districts with new opportunities to receive technical assistance but does not include consequences for districts that fall into financial distress.

Muncie was one of two Indiana school districts taken over by the state last year. 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.

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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