Beginning in the fall of 2012 all educational services in the Muskegon Heights School District will be turned over to a charter school operator and the District will no longer be involved in the direct provision of such services under a plan proposed by the state-appointed emergency manager. This plan would be implemented under Public Act 4 of 2011. As part of this "charter conversion" plan, the District's multi-year accumulated operating deficit, projected to be $12 million as of June 30, 2012, effectively will be eliminated through a state bailout.

CRC Memorandum State Bailouts to Erase School District Accumulated Deficits explores the plans being proffered by the Muskegon Heights School District emergency manager and what they mean for the District and the state at-large.

The state bailout comes as a result of the unique interaction of Public Act 4 and the architecture of the per-pupil foundation grant, the primary school operating funding source. By turning educational services over to a charter school operator, the Muskegon Heights School District will be able to retain 100 percent of proceeds from the local 18-mill school operating tax to finance its accumulated deficit; effectively redirecting the use of this dedicated millage. To make up for the lost local revenues used to finance the foundation grant, additional state School Aid Fund dollars will be provided, dollar-for-dollar. Thus, the foundation grant will be financed 100 percent by the School Aid Fund. In total, this bailout is expected to cost other districts in the state approximately $840,000 each year.

Both the conversion of the entire District to a charter school and the attendant increase in state funds that comes with the new foundation grant occurs without state legislative deliberations or actions. While it is entirely possible that a state bailout is the only option available, the method in which this will occur is not completely transparent nor is it the product of a consistent state policy concerning the provision of additional resources to financially distressed school districts.

"At a minimum, if the state is signaling its willingness to absorb the debt of failing school districts, it should do so in an overt manner rather than the less than overt approach that is being proposed," commented CRC's Director of State Affairs Craig Thiel.

CRC's analysis of the treatment of the Muskegon Heights School District is available at no cost on the Citizens Research Council's website, www.crcmich.org.

Founded in 1916, CRC works to improve government in Michigan. The organization provides factual, unbiased, independent information concerning significant issues of state and local government organization, policy, and finance. By delivery of this information to policymakers and citizens, CRC aims to ensure sound and rational public policy formation in Michigan. For more information, visit www.crcmich.org.