MSU Extension paper outlines early warning system for schools facing financial stress

Paper argues that Michigan should build fiscal scorecards for school districts using a number of readily available economic and environmental indicators.

A new paper from Michigan State University Extension outlines what a proactive, evidence-based financial health indicator system would look like and how it could prevent many school districts from reaching the crisis point. Fifty-seven Michigan school districts ended 2014 with a deficit or projected deficit, and many are in danger of entering a severe fiscal crisis.  

Michigan Gov. Rick Snyder has prioritized increased transparency and accountability in school finance, including during his State of the State address Tuesday evening when he called for the creation of a financial scorecard for Michigan schools.

Using research on what fiscal indicators best predict fiscal stress as well as information on what other states are doing to analyze the fiscal health of school districts, MSU graduate students Rachel White and Kacy Martin, MSU Extension economist Eric Scorsone and MSU law professor Kristi Bowman argue that Michigan should build fiscal scorecards for school districts using a number of readily available economic and environmental indicators.

“The best system would give both the school district and the state plenty of warning before schools ever reached the point of financial crisis,” Scorsone said.

The deficits in Michigan districts range anywhere from $5,000 to the more than $169 million deficit of Detroit Public Schools and are driven primarily by increasing obligations to retirement costs, Scorsone said. As recently as 2012, an average of nearly $1,400 of a district’s per-pupil revenue went directly toward payments into the Michigan Public School Employees Retirement System (MPSERS).

A recent crop of bills introduced to help Michigan schools before they incur deficits, however, only created mechanisms to intervene because of noncompliance with reporting requirements rather than indicators of fiscal stress. This, the paper argues, would be too little, too late for many Michigan schools.

“The goal should be about schools and the state working together to keep schools out of financial crisis and not just about intervention them once they already find themselves in one,” said White, a student of educational policy. “We looked at the available research and the results of evidence-based policy decisions made in places like New York and Pennsylvania and tried to build something that would work for Michigan.”

Many states have reactive solutions to school district fiscal troubles (like those in the proposed Michigan bills). Other states, such as New York and Pennsylvania, stand out for being more proactive. The Pennsylvania Department of Education regularly analyzes the fiscal condition of school districts and identifies schools that might require technical assistance in the future. The New York comptroller uses a number of fiscal indicators to give schools a score. Though the comptroller can’t intervene, the system allows school boards, legislators and the public to see how districts score and which might be in trouble.

The paper recommends creating scoring criteria that not only warn of fiscal stress but also provide measures of and rewards for fiscal health. Also, the paper argues, the system should not be built so that intervention occurs only when paperwork is not filed but instead allows the state and school districts to work together during early signs of fiscal stress.

“There is a huge amount of publicly available data about the financial health of schools,” White said. “State and local governments can capitalize on that data to keep the public informed and build an early warning system that works.”

Scorsone wrote papers on Detroit’s bankruptcy and the lack of funding for Michigan’s other postemployment benefits, which include healthcare costs.

The new paper can be found online on MSU Extension’s website at http://msue.anr.msu.edu/resources/addressing_school_district_fiscal_stress_in_michigan.

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