House panel passes bill to take over Gary, Muncie schools

State-appointed emergency managers would take control of financially troubled school districts in Gary and Muncie under a bill advancing in the Indiana Legislature, which creates a blueprint that could be used to take over other distressed districts in the future.

Financial problems with both districts have been well documented, though officials for Muncie Community Schools joined lawmakers from the area to plead unsuccessfully for a reprieve during a Monday hearing.

"There is consensus in Muncie that we would request an opportunity to turn this ship around ourselves," said Sen. Tim Lanane, D-Anderson. "It's much better for the community if they are able to do this themselves. Given time, this can be done."

The House Ways and Means committee was unmoved and voted 18-3 to advance the bill to the full House for a vote.

School finance experts say the two districts are just the tip of the iceberg. A handful of other districts are prime candidates in the coming years.

A perfect storm of declining enrollments, decreased property values, voter-approved property tax caps and legislative changes to school funding has cut into many districts' ability to stay afloat. In some cases, voters have rejected referendums to increase property taxes, or the measures haven't raised enough money. In others, a history of fiscal mismanagement has turned a bad situation worse.

"I have concerns about a whole lot of other school corporations," said House Ways and Means committee Chairman Tim Brown, a Republican from Crawfordsville.

Under the measure, an emergency manager would have the power to control and reduce spending, sell property, renegotiate contracts, lay off staff and privatize services. But the bill would also help underwater districts secure no-interest loans and other state assistance.

Critics, including Democrats, argue many districts' financial troubles are rooted in tax and fiscal policies pushed by Republicans over the past decade. For example, the state's per-pupil allotment follows the student to wherever they attend, including charter and private voucher schools. And the voter-approved property tax caps championed by former Republican Gov. Mitch Daniels diminished schools' ability to raise local revenues without going to the ballot.

Republicans who control the Legislature said troubled districts need to do a better job adjusting to a new reality, downsizing or consolidating.

Some factors are beyond anyone's control. The decline of manufacturing has led to a sharp drop in property values, as tax-generating businesses and people have moved away.

When steel production cratered in Gary, shedding jobs and residents by the thousands, the schools took a hit. Gary Community School Corp. is now drowning in debt and has had trouble paying its bills, though state audits have revealed questionable spending and mismanagement.

"That vacancy rate has plagued us over the last 20 years and has resulted in our inability to collect property taxes at the rate that it has been collected in other parts of the state," Mayor Karen Freeman-Wilson testified during a February hearing. "The school corporation has borne the brunt of that."