CHICAGO — Michigan Gov. Rick Snyder's push to create a new authority to take over the state's troubled schools — a growing sore spot for the state — advanced last week when the Senate passed controversial legislation.
The bill expanding the Educational Achievement Authority, the subject of debate for more than a year, squeaked through the Senate on a narrow 20-18 vote.
But it stalled entirely in the House, where lawmakers declined to consider the bill before leaving Thursday for a three-week holiday break.
Created by Snyder in 2011, the authority was crafted as an agreement between Detroit Public Schools and Eastern Michigan University.
It currently operates only in Detroit, where it has taken over 15 of the lowest-performing schools.
The governor and other supporters have pushed for an expansion of the EAA to allow it to take over the 5% lowest performing schools in the state. That's a total of around 137 districts, according to the state.
The EAA is a key part of Snyder's plan to improve the academics of the state's K-12 schools.
The governor this summer signed into law a pair of bills that broadens the state's authority to intervene in troubled districts and dissolve small ones. The state's emergency management for distressed local governments also allows the state to take over districts found to be in a financial emergency.
State education officials are considering working with the attorney general to investigate some districts with deficits, and the state budget office is developing a new five-year financial trend information outlook for districts.
A rising number of Michigan schools are suffering from general fund deficits. Moody's Investors Service has put out a series of reports in the last year warning of problems facing the state's districts. The ratings firm said last month it had downgraded nearly a quarter of the local school districts that it rates in Michigan. Falling enrollment, rising retirement costs and charter school competition all contribute to the problem.
The EAA legislation debate last week came as state School Superintendent Mike Flanagan told lawmakers that 50 districts faced deficits in fiscal 2013. That's up from roughly 48 last year.
Flanagan told lawmakers that a Marshall Plan of sorts is needed for some financially troubled districts, according to local reports.
He also said that up to 10 districts would be placed into a state-controlled reform district as early as January. He has yet to announce which districts.
"Placing schools in this statewide district is an extraordinary step to take and we want to make sure it's done right," Flanagan said in a statement. "We want to be certain which schools these should be and whether they are making the satisfactory progress that the law requires of them."
The statewide district, dubbed the State School Reform/Redesign District, contracts out management of the schools to the EAA.
The EAA has sparked strong criticism since its 2011 launch, and critics last week lobbied lawmakers to reject an expansion.
Opponents, including school associations and lawmakers, say it's an attempt to create a new district entirely under the governor's control. The president of the State Board of Education argues it's an effort to encourage the "unlimited" growth of charter schools in the state.
One Detroit lawmaker last week called the legislation "hot garbage" and another compared it to rotting fish.
"And what we'd like to do with that, when you see rancid food, you throw it out," said state Rep. Ellen Cogen-Lipton, D-Huntington Woods.
Flanagan's testimony last week focused in part on the troubled Pontiac School District, one of two districts that defaulted on debt payments last year.
Pontiac schools' deficit totals 88% of its total revenues for fiscal 2013, according to Flanagan.
The district recently entered into a consent agreement with the state, but Flanagan reportedly told lawmakers that the district might not be able to comply with the agreement. Its recent deficit elimination plan would take 15 years to eliminate the deficit, he said.
The district, which already owes money to the state Treasury, will need to issue tax anticipation notes — issued through the state — in the next few weeks in order to make January payroll, he said.
Pontiac is one of the 50 districts — out of a total of 550 districts, with another 275 charter schools — that ended fiscal 2013 with a general fund deficit.
That's the largest number since 1994, according to an independent research group.
"Clearly it's trending up," Craig Thiel, senior research associate at the nonpartisan Citizens Research Council, said of districts with red ink.
"There's also a lot more districts in that band that are pretty close to going into deficits just because their fund balance is being tapped into as a way to try to ride out this storm," Thiel said.
The EAA was created to try to improve academics, but an already struggling district could suffer financially if the authority steps in and takes over some of its schools, due to the loss of per-pupil revenue, Thiel said. That has already happened in Detroit, he added.
"Over time you can manage," he said. "But 8,500 students got pulled out of DPS in one full swoop. Over time, budgets can be rightsized to match the decline in revenue, but in the immediate term it's really hard to do that.
"It was put in place to improve academics and maybe they'll start turning around schools, and people won't be fleeing," he said. "But clearly as Detroit shows, the schools pull out there's an immediate effect on the bottom line."
There are 137 districts that fall into the 5% lowest-performing and would be eligible to be taken over by the EAA.
"Right now, there's a great many more districts in that lower 5% percent, and which ones would ultimately be subject to being moved over is a source of great uncertainty right now," Thiel said.
The House originally passed EAA legislation in March but the Senate version passed last week features substantial changes, so the modified version would have to pass the House to take effect.
The original House legislation had more restrictions on the authority. The Senate version, for example, eliminates a 50-school cap on the number of buildings that the EAA can take over.
The districts under EAA control would be able to issue bonds or notes for operations. The district would be required to use state aid as a pledge on the debt.
The authority would also be allowed to opt out of the state teachers' pension system.
An analysis by the independent Senate Fiscal Agency said the bill's impact on the state's finances would largely be limited to the extent that staff leave the Michigan Public School Employees' Retirement System and no longer contribute to system's unfunded liability.
The state's school aid fund would then make up for the shortfall, according to the fiscal analysis.