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With Bankruptcy Looming, Iowa District Receives Unprecedented State Bailout

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Facing $10.6 million in unpaid bills and the threat of bankruptcy, the Waterloo, Iowa, school district has received an unprecedented bailout from the state.

The state's School Budget Review Committee voted last month to give the 11,000-student district authority to spend an additional $7.5 million in state education funds this school year--the state's largest school bailout ever.

The state also gave the district permission to spend extra money over the next five years, but the annual allotment of $1.5 million is far less than the northeast Iowa district had sought. In return, the district has agreed to trim its budget, which is now about $60 million.

"To get this authorization is extremely difficult," said Waterloo Superintendent Arlis Swartzendruber. "The community rallied to get the committee behind us."

A Rare Move

The debt represents five years of payments for special-education services the district owed the state area education agency that provides a variety of services to 22 districts in the region.

"The bills had just been put in a drawer," said Mr. Swartzendruber, who is in his first year as the district's chief. "I came along and found this had gotten so severe that we could not catch up."

As parents and educators in Waterloo sighed with relief, state officials warned other districts not to expect the same treatment.

"Waterloo was an extraordinary situation," said Klark Jessen, the spokesman for the state education department. "It's not a precedent to let other districts come to the committee to wipe out their deficits."

But Waterloo will pay a price for the relief, which must come out of state cash reserves.

To compensate for this year's higher-than-expected spending, the district hopes to save $4 million in its 1996-97 budget by trimming 130 staff positions.

The school board has also adopted stricter auditing and accounting practices, and must report yearly on its fiscal health to the state.

"I welcome that," Mr. Swartzendruber said. "They needed to do it."

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