Governor backs $12M loan to bail out Muncie schools

INDIANAPOLIS — Gov. Eric Holcomb will call legislators back to the Statehouse in mid-May for a special session to complete unfinished business, including a $12 million state loan to financially distressed Muncie Community Schools.

The governor called the remaining agenda "urgent."

► More on what Gov. Holcomb wants out of a special session.

The school district is in "dire need" of the loan to ensure it continues to operate while funding capital improvements including HVAC upgrades and roof repairs, Holcomb said. The loan "cannot wait" and the funding shortage at the school district needs to be addressed "ASAP," he said at a news conference.

House Bill 1315 was one of several important pieces of legislation that the GOP-controlled Legislature ran out of time to act on before last Wednesday's midnight deadline to wrap up the 2018 legislative session.

►JEFF WARD: Lawmakers fail Muncie Schools, BSU without vote on HB 1315

The wide-ranging HB 1315 would have authorized Ball State University to take over the Muncie school district; provided an interest-free state loan to the school district; made changes to the way the state is managing the distressed Gary Community Schools; required financial monitoring of all school corporations; and made other changes.

Muncie School Board President Debbie Feick was left with the impression on Monday that the only provision of HB 1315 to be considered in special session would be the loan.

But who knows?

"Every day the game changes, and from that standpoint it disrupts the stability we are trying to create as a school district," Feick said of the state's takeover of the school district, currently governed by a state-appointed emergency management firm.

►JEFF WARD: Indiana special session good and not-so-good for Muncie schools

Feick is afraid the uncertainty will cause parents "to a greater degree than we projected" to leave the district, exacerbating enrollment decline and thus revenue.

The important capital projects to be funded by the state loan are facing a completion deadline of April of 2019, according to Feick. That will have been five years since the district approved a $10 million bond issue, aka debt, to fund the projects. The money was misused on expenses to help keep the school operating.

►Bill to give BSU control of Muncie schools died last week

►Looking back: MCS sitting on $9.5 milion in 2015 for capital projects

Failure to complete the work by the deadline means the bond holders would be taxed. "The bond owners will then sue the district — or the IRS will sue the district — for the taxes they will owe because of our failure to meet the deadline," Feick said.

She noted that much of the work would have to be done during summer months.

Other bills the Legislature will hear during the special session concern school safety, conforming with federal tax reform changes, and complying with IRS rules.

Whatever the special session costs (including legislators' per diem and expenses)  — "whatever the cost is, is dwarfed by the cost of inaction," Holcomb said.

The governor told reporters it would be his preference to not bring back the the entirety of HB 1315 during the special session.

"I would prefer to wait," he said. " …I don't believe that it rises to the level of urgency to  be dealt with right now, but I'm sure this will be on the list of items we discuss with leaders this week."

Sen. Tim Lanane, D-Anderson, told The Star Press: "I'll take the governor at his word, that he wants to keep it a streamlined special session. He mentioned only the $12 million loan, which, quite frankly, should have been proposed last year and we could have avoided all of this. But better late than never as far as that goes."

Rep. Sue Errington, D-Muncie, filed a bill that never got heard during this year's session to allow the Muncie school district to ask the state for an interest-free loan. 

"I hate to see us go into special session that costs the taxpayers extra money, but if we're going to do it, which I see we are, I'm glad this was the decision he made for Muncie Community Schools," Errington said.

Jud Fisher, president of Ball Brothers Foundation, a school district partner, acknowledged that some people were opposed to HB 1315 but told The Star Press,  "I think everyone would have gotten on the same page and moved forward" had it passed. "You had a lot of people moving in the same direction here and getting ready for this."

►Muncie citizens speak against bill that would allow Ball State to operate schools

Seth Slabaugh is an education reporter who can be reached at (765) 213-5834 or seths@muncie.gannett.com.