Whodunit? How did Muncie Schools get into this mess?
MUNCIE, Ind. — Having difficulty deciding who is responsible for Muncie Community Schools' financial crisis?
Is it the school board? The GOP-controlled Statehouse? The Muncie Teachers Association? Or could it be Muncie voters, who defeated a referendum asking for a tax increase for school bus service — and who object when it's their school's turn to close, or when school cafeterias are privatized.
The Star Press asked two experts in school financing for a verdict, which they more or less agreed on after some arguing.
The district is talking about closing at least five schools, including Northside Middle School. Last week, a state-appointed fact-finder said MCS’s reaction to the “extraordinarily difficult financial position” that it has “created for itself” appears to be “haphazard and disorganized.” Also last week, the Indiana House voted 77-19 for a bill to place the school district under the control of a state-appointed emergency manager. The school board would serve only as an advisor to the emergency manager.
Michael Hicks, the George and Frances Ball Distinguished Professor of Economics and director of the Center for Business and Economic Research at Ball State University, asserts the school board and MTA for years have gotten away with falsely blaming their budget woes on the state. He calls the school board "a wholly owned subsidiary" of MTA.
But Larry Deboer, an agricultural economist at Purdue University who has been counseling state and local government on budgets, taxing options, property tax assessment, and revenue options since the 1980s, didn't exactly agree with Hicks and vice versa, at least at first.
"It's easy to see why Muncie schools are in financial difficulty and are closing school buildings, with declining enrollment, declining state aid and lost (property tax) cap credit revenue," Deboer told The Star Press. "… state aid has declined a lot," by a "significant amount."
Muncie lost a large measure of its property tax levy to tax caps, which were voted into the Indiana Constitution in November 2010. Property tax bills on houses were capped at 1 percent of a house's value, for example no more than $1,500 per year on a $150,000 house. Tax bills on farmland are capped at 2 percent of farmland's value, and tax bills on commercial, industrial and utility property are capped at 3 percent of their value.
That cost MCS money for capital projects and transportation, according to Deboer. The Muncie district lost 42 percent of its levy to the caps, "surely one of the biggest losses among all school corporations," he said. The state eliminated the general fund property tax levy for schools in 2008-09, but MCS still has tax levies for bus replacement, debt service, capital projects and transportation.
Meanwhile, a study published by Deboer in December identified Delaware as one of the most "fiscally disadvantaged" counties in the state, along with others in East Central Indiana, apparently due to the loss of manufacturing jobs the region had been heavily dependent on.
Factory closings are related to an enrollment decline at MCS that began 50 years ago. "The (school) board has profoundly failed the entire city of Muncie and everyone who works, goes to school or lives here," Hicks told The Star Press. "The schools are overstaffed and overbuilt."
On a per-student basis, MCS is the best-funded school in the region, Hicks has found.
"The Legislature pays MCS much more than surrounding school corporations so that the school can attract highly skilled teachers and extra staff to provide a more comprehensive education to a more challenging student population,'' Hicks says. "The (school) board chose … to keep open half-empty schools, along with excess staff."
Indiana's funding formula establishes a basic state aid amount to pay for each student's education, but there are increases in per-student payments from the state for districts with high shares of low-income households and children who have special needs. Property tax revenue also varies from school to school.
For example, Cowan Community School Corp. is receiving $6,096 in state funding per student in 2016-17 and another $1,319 per student from local property taxes, for total per student funding of $7,415, according to Hicks. By comparison, MCS receives $7,636 per student from the state and another $1,939 from local property taxes for total per-student funding of $9,575.
Deboer countered that state aid per pupil to MCS declined from 2009 to 2015, even as aid per pupil was increasing statewide.
There is "no outside culprit here," according to Hicks, "no vagaries of school financing or out-sized tax dollar losses. The board of MCS is wholly and personally responsible for the mess. The only way to fix this is to right size the facilities and staff, double down on improving the performance of the school and demonstrate to the wider community that they can be responsible stewards of the school system. The only question is whether it will be an elected (school) board or the state who makes these decisions."
Deboer didn't want to put himself in the middle of an argument over this. But he agreed to step in anyway.
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He does agree with Hicks that declining enrollment is the main problem. It was 18,813 students in 1965 and 5,690 today at MCS.
"If the generations of school boards did not adjust to this reality, financial problems would be inevitable," Deboer told The Star Press. "Closing schools is hard, though. People — and voters — really don't like it, and it's understandable that school boards would try to delay or resist downsizing."
His point is that there have been several state-level decisions in the past decade that have made life more difficult for school districts in cities and for those with declining enrollment.
In addition to the tax caps, the state has reduced the size of the state budget since the Great Recession, and because K-12 schools account for about half of the budget, school aid has grown more slowly, according to Deboer. The budget freeze during and after the recession, followed by cuts in the income, corporate and inheritance taxes, have reduced the rate of state aid. "This has made Muncie schools' problems worse," Deboer says.
In addition, the state's school funding formula was "de-ghosted" in the past several years, which has reduced aid to declining-enrollment districts and made Muncie's problems worse, according to Deboer.
"Of course Muncie schools should have made the hard decisions to close schools and reduce employment starting in the 1970s," Deboer says. "And their current state aid and property tax revenues may be enough to provide school services if the districts had 'right sized.' But Muncie's budget problems are worse and their decisions harder than they would have been without the tax caps, slow-growing state budget and current-enrollment count formula changes."
Hicks agrees that tax caps have reduced funding for MCS but again points out the per-student funding remains substantially higher than any other local school corporation and among the highest in the state. "Yes, state budgets have declined, but so, too, has school enrollment," Hicks added. "Yes, the de-ghoster formulary moved money more quickly to adjust funding to enrollment … " But MCS was the largest beneficiary in the state in terms of the "complexity formula" changes applying to schools serving high-poverty children, he added.
"Finally, there's no doubt that ending the practice of paying schools to educate students who have relocated elsewhere reduces funding from the losing school, while increasing funding to the gaining school," Hicks told The Star Press. "Still, nearly all of the 290 or so school corporations in Indiana manage to do all these things with less money than MCS. That is the real story."
To which Deboer responded: "I don't think Mike and I disagree very much at all. He gave me a 'yes' on all three points. His point is that these state decisions are not the primary cause of Muncie schools' problems, and I agree. The failure to adjust the budget … is the primary cause. My point is that these state decisions make Muncie's problems harder to solve, and I think he agrees."
To which Hicks replied: "Couldn't have said it better myself. The MCS board and the MTA have, for several years, incorrectly placed the blame for their budget woes on the state. That has permitted them to politically dodge the tough but obvious decisions to reduce staff and close schools. Had they done so prudently over the past decade, they would not now be in the position of slashing teacher salaries, laying off talented staff and making 25 years of gradual and deliberate school closings in a matter of weeks …"
Hicks concluded: " …the academic performance of MCS and the fiscal ineptitude of the board is exhibit A against any argument for more money to Indiana schools. Nobody, except maybe Gary schools, has done less with more than MCS. That is why they are on the cusp of a state takeover."
In late December of 2009, during the recession, Gov. Mitch Daniels "unilaterally and arbitrarily" cut $300 million from the 2010 state funding formula "to help stabilize state fund balances which already had over $1 billion in reserves," MTA President Pat Kennedy told The Star Press.
For MCS, the cut totaled $4.6 million for 2010 and each year after, including this year. While the cut did apply proportionately to all school districts, the impact on MCS, combined with several other state funding changes, was disproportionate to MCS compared to most school districts, she said.
Hicks appears to "seriously downplay or ignore the impact of uncontrollable variables imposed on schools by the state," especially the impact on MCS, responds Kennedy.
She also disputes Hicks' contention that MCS has ignored declining enrollment/revenue.
"MCS has downsized/right-sized aggressively … until the state accelerated funding changes," some of which "were actually implemented retroactively, making it difficult to keep a balance between cutting operational costs and meeting the needs of students," Kennedy said. "Muncie has not 'avoided' making cuts."
She gave these examples of right-sizing at MCS:
• Reduction of employees from 2,069 to 1,381 between 2000 and 2015, a loss of 33 percent of the workforce. More than 40 teaching positions have been scrapped since January 2015.
• Since 1972, MCS has closed 27 schools, seven of which have been re-purposed for other uses, resulting in a net loss of 20 facilities.
Kennedy isn't denying some mismanagement. For example, she points to a "major error in the 2016 debt service property-tax budget. This error was approved in late 2015 by four of the current school board members … the error totals about $3.9 million," of which MCS would have received about 58 percent after tax-cap deductions.
Though they have fought over a collective-bargaining agreement for the past two years, MTA and the school board are united in their opposition to the proposed state takeover. The House last week added Muncie to a bill to place Gary schools under state control, which Gary asked for and Muncie didn't. The Senate has not yet concurred with the takeover.
"Comparing the academic and financial concerns in Gary with the financial concerns in Muncie is wrong, and these two cities should not be lumped together at the legislative level," Kennedy says. "Considering the current engagement of the community and the widespread desire to solve our financial issues locally at least in the short term, perhaps a referendum to increase revenue should be considered …
"… Loss of local control of our school system and the negative impact on Muncie will be massive. Jam classrooms with children — putting a largely at-risk population even more at-risk — and the negative long-term consequences will be disastrous and enhance the cycle of poverty."
The plan to place MCS under state control, which one opponent called "a hostile takeover," is a partisan political issue. Including Muncie in the takeover bill was backed by House Republicans and opposed by House Democrats.
State Rep. Greg Beumer, R-Modoc, says the situation in Muncie has become so emotional that the state must act.
Two retired educators have been banned from school property for "disruptive behavior," school board members have received anonymous, threatening mail, the superintendent's dog was reportedly poisoned, security has been increased at board meetings, and some teachers wore masks at a public rally out of fear of "retaliation" by the administration.
The situation reminds Beumer of tiny Union School Corp. (enrollment 256) in Randolph County. He's a former member of the Union school board. It made sense to him for Union to consolidate with Monroe Central or Randolph Southern. "We went down the path to try to bring about consolidation on two separate occasions," he recalled. "In both cases, it boiled down to emotions. School board members couldn't bring themselves to make that tough decision when a huge majority said don't close our school." He calls the position of school board member in a rural or urban district facing declining enrollment and declining assessed value "the toughest job in politics now."
Debbie Feick, president of the MCS board, told The Star Press emotion is derived from love and support for the school district as well as loss of job security. "People often see schools as the glue that holds neighborhoods together," she said. She called social media attacks on the school board and superintendent "just awful."
Feick asked lawmakers last week for more time to correct the "catastrophic financial issues" that MCS self-reported. Since hiring Steve Baule as superintendent less than two years ago, "we have embraced an aggressive debt-reduction process," she testified.
"Since Dr. Baule's arrival, we have privatized our custodial, cafeteria and nursing services," Feick told lawmakers. "These decisions were not popular … We also have reduced the number of administrators from 41 to 33 in 1½ years. We have also placed eight additional administrators on notice that their positions may not be renewed in anticipation of further (school) closings and cutbacks … We awarded a transportation contract to a vendor outside the district. For 30 years, a local provider has transported our children without benefit of a competitive bidding process."
She concluded, "But we are not done. As a board, we all recognized that we were hovering close to state financial control. Yet our goal as a board was to avoid this option as long as possible. We have undergone major confrontation and, yes, even verbal and written assault as we have committed to this end. But we are all committed to making those decisions."
Contact Seth Slabaugh at (765) 213-5834.