Mo. Weighs Plan To Aid Districts Facing Bankruptcy

By Peter West — December 11, 1991 3 min read

Spurred by concerns that up to 10 percent of Missouri school districts could go broke before the end of the school year, state officials are poised to adopt a policy aimed at identifying and assisting districts in danger of financial bankruptcy.

The state beard of education is expected this month to consider a draft version of “school-district financial crisis procedures” that would give the state power to declare insolvent districts “financially collapsed” and make alternative arrangements for educating their students.

The guidelines were dropped by the state education department in response to “alarming trends” that officials say “reveal a funding crisis for many of the public school districts.”

The department has estimated that more than 50 of the 544 school districts in Missouri may face insolvency before the end of the school year.

The board first considered drafting such a policy early this year. (See Education Week, Jan. 30, 1991) Some observers have suggested, however, that the board postponed action until state voters could decide the fate of Proposition B, a ballot initiative calling for tax increases to provide an additional $385 million for public schools and colleges.

Although Proposition B funds were supposed to go only for new reform efforts, many hard-pressed school districts came to view the proposal as rescuing them from their current fiscal plight. Nevertheless, the plan was roundly rejected by voters last month. (See Education Week, Nov. 13, 1991 .)

State officials said the delay in action on the bankruptcy rules was unrelated to Proposition B. The pause was necessary to allow the state to obtain updated financial reports and “see where we stood,” said James Morris, a spokesman for the education department.

Moreover, Mr. Morris noted, “Proposition B didn’t offer any financial [assistance] to any districts in the short term.”

Warning Signs Listed

A central feature of the new guidelines is that they are not primarily designed to keep districts in operation. Rather, they seek to ensure that ‘kids continue their education,” explained Terry Stewart, the assistant state commissioner for administration.

A draft of the rules establishes 14 criteria that officials are to use “on a case-by-case” basis to decide if, and to what degree, districts are experiencing “serious financial difficulties.”

The warning signs include “deficit spending’ attributable to increased salary costs, fund balances that are negative or equal to less than 5 percent of expenditures, a drop in the number of teachers employed in the last three years despite stable or rising enrollments, ‘high staff turnover, particularly in leadership positions,” and “tax-anticipation borrowing.”

The proposed guidelines provide that districts that report financial difficulties or are judged by the state to be experiencing such problems be required to submit a written budget plan designed to correct the situation.

The plan would have to include such elements as a two-year, month by-month cash-flow analysis, a “prioritized list” of instructional and non-instructional activities, and a detailed description of spending cuts or tax increases that might correct the situation.

The budget plan submitted by districts would also have to make clear “how the appropriate educational experiences of the children will continue uninterrupted in future years,” either within the existing system or in schools in an adjacent district.

The regulations would also empower the state to provide technical assistance to troubled districts to help them “identify and prioritize” their expenditures, with an emphasis on cutting “non-instructional activities"ten balance budgets.

A district that failed to meet the requirements of the guidelines could be declared “financially collapsed.” At that point, the state would begin negotiations to ensure that the education of students continued without interruption.

Legislative Action Needed

The board is expected to vote later this month on whether to adopt the guidelines.

Normally, the rules would then have to be advertised for public comment before being given final approval.

Mr. Morris noted, however, that the rules could be adopted under an emergency procedure allowing them to take effect immediately.

In either case, the board’s approval of the policy would have to be followed up by a request to the legislature for enforcement powers to apply the regulations.

“We don’t have much on the books now dealing with these types of situations,” Mr. Morris observed. ‘Where we don’t have clear authority is assigning students to the districts and trying to pick up the pieces. That’s where we would need some kind of approval by the legislature.”

A version of this article appeared in the December 11, 1991 edition of Education Week as Mo. Weighs Plan To Aid Districts Facing Bankruptcy