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Early Warning Bills Pass Senate

Jennifer Smith

By Jennifer Smith, MASB Director of Government Relations

DashBoard, June 24, 2015

Last week, the Senate debated and on voted on House Bills 4325-4330, which create an early warning system for schools in possible fiscal distress. MASB supports the creation of an effective and fair early warning system, but we could not support the bills as they were passed by the House.

During debate in the Senate Education Committee, substantial changes were made to the main bill, HB 4325. Discussions between MASB, the Department of Treasury and other education organizations continued throughout the week to rework the bills. Under the Senate version of the bill, the districts that have to submit their budget assumptions to the state are limited to those that have less than a 5 percent fund balance. We supported this change so that districts on solid fiscal ground will not be subject to the extra reporting required under this bill. This threshold limits the number of affected districts to about 230.

The Senate also included the ability for an intermediate school district to lend assistance as a first step for a district that is heading into financial distress. Once Treasury reviews the district’s financial data and determines that fiscal distress exists, it must notify the district within 14 days. The district then has the option to contract with an ISD to address its financial situation. If a contract is entered into, Treasury may not step in for 730 days or until the contract is rescinded, whichever occurs first.

If a district does not contract with an ISD, it may be required to submit periodic financial reports to Treasury. In order for that to be required, all of the following must occur:

  • State Treasurer has declared the potential for fiscal distress exists;
  • More than 60 days have passed since Treasury notified the district;
  • District has not contracted with an ISD;
  • District has not had a positive fund balance of at least 5 percent for the last two fiscal years;
  • District’s fund balance has been in decline in one or both of the two most recent fiscal years; and
  • District has applied for a loan under the Emergency Municipal Loan Act.

If all of these factors apply, Treasury may require the district to submit periodic financial reports in the form and manner they choose. The report would also have to be approved by the local school board.

If a district does not report, it would trigger some of the other provisions in the package, including being required to have an enhanced deficit elimination plan or the placement of an emergency manager.

In the end, the changes to HB4325 significantly lessened the burden of reporting on our local districts than what was in the House-passed version. This, and the inclusion of an option for an ISD to lend assistance, led MASB to withdraw its opposition and take a neutral position on the bill.

However, we did continue to oppose HB4329 because it allows Treasury to determine if a school district should receive an emergency manager and bypass all of the due process and transparency that was put in place in the emergency financial manager law. We also opposed HB4326 because it would move oversight of districts with a deficit elimination plan from the Department of Education to Treasury. As Treasury has stated repeatedly and MASB agrees, this package of bills deals with districts before they go into deficit so this bill shouldn’t be included.

All of the bills were passed by a vote of 25-12 with Sens. Rick Jones (R-Grand Ledge) and Tory Rocca (R-Sterling Heights) joining the Democratic Caucus in opposition.

All of the bills, except HB4325, were sent to the Governor for his consideration. Treasury requested one last change of the House when the bills were returned there for concurrence with the Senate changes. They had the House remove the very last factor that would be required in order for the district to have to submit reports—the district has applied for a loan under the Emergency Municipal Loan Act.

This language was removed and the bill was sent back to the Senate, however, the Senate had adjourned for the day. Because this was not a part of the agreed upon changes between Treasury and the stakeholders, the Senate has agreed to look closely at it before deciding whether or not to accept it. This change also delayed HB4331, which is tie barred to this package.

HB4331 would increase the cap on the emergency loans available to schools. There are districts in our state in great need of this change, but it can’t go into effect unless HB4325 does, too. Now, the earliest these bills can be sent to the Governor is July 14 when the House returns.

MASB will continue to monitor the progress of these bills and alert the membership if action is needed.

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