CHICAGO -- Michigan plans to shutter a pair of cash-strapped school districts, taking advantage of a new law that allows the state to dissolve districts with deficits.
Treasury and education officials late Monday announced they would move to dissolve the districts and force a merger with nearby schools after Inkster Public Schools and the Buena Vista School District failed to secure adequate private financing to allow them to remain open for another year. The Michigan Department of Treasury and education officials determined Thursday that Inkster and Buena Vista were broke and gave them two days to secure bank loans that would keep them afloat.
Buena Vista was one of two Michigan school districts to default on debt-service payments last year. The other, the Pontiac School District, is currently under state review for a possible takeover.
The state’s move is allowed under a new state law crafted and passed earlier this summer after Buena Vista closed for two weeks in May because it was out of cash and unable to pay its teachers until the state released previously witheld state aid. The new law allows the state to dissolve districts with 2,400 students or less that are close to running out of cash and force a merger with a nearby district. The state can dissolve districts that have no deficit elimination plan, lack the money to operate for a full year, and lost 10% of enrollment within the preceding two years.
The state could move to dissolve Inkster and Buena Vista within days. Local taxpayers within the district’s original municipalities will continue to pay off outstanding bonds until the debt is paid off.
Inkster officials put out a statement objecting to the closure, calling the state’s criteria for avoiding dissolution -- getting a bank loan and an auditing firm’s opinion that the new financing would allow the district to remain open for a full school year -- “impractical.”
Inkster said it was close to securing a loan from Comerica Bank, but was turned down because the bank said a loan was contingent upon the district having a state-approved deficit elimination plan. The state had previously refused to sign off on the district’s plan.
The district also argued that its auditing firm said it is prohibited under auditing standards for rendering any opinions on solvency.
“For the above reasons, the state has not given the district a viable alternative to dissolution,” Inkster said in its press release.
Buena Vista officials said three banks had turned down their loan requests. Buena Vista was one of two Michigan school districts to default on debt service payments earlier this year. The Pontiac School District, which is now under state review, is the other.
Detroit Public Schools, Highland Park school district, and Muskegon Heights are under state control. Michigan had 49 school districts with general fund deficits at the end of June 2012. The state has 549 regular school districts, 260 charter districts, and 56 county-based districts.