Plant Closings Spell New Budget Worries For School Officials

By Lonnie Harp — March 04, 1992 9 min read

The stream of plant closings and layoffs announced by leading companies hit by the continuing recession and pressures to become more competitive is forcing school districts to contend with local economic upheaval and vast uncertainties in preparing budgets and considering long-term plans

General Motors Corporation’s announcement last week identifying 10 U.S. plants in four states that it plans to close by 1995 marked one of the most visible moves in an economic spiral that has claimed jobs and factories and, in turn, is reshaping schools’ tax bases, enrollments, and surrounding communities.

The shutdown of a major plant can deal a harsh blow to the local school district, at once eliminating a substantial taxpayer, removing a prime source of students and personnel, and leaving other businesses in a weakened condition.

In Norwood, Ohio, outside Cincinnati, the five years since G.M. closed its plant and laid off 4,300 workers have proved “devastating” for the 3,600-student district, Superintendent of Schools John Lazares said last week.

“It had a dramatic impact,” he said, noting that the district lost $2.4 million in personal- property taxes paid by the factory.

Beginning in 1987, Mr. Lazares said, the district posted a slow but steady enrollment decline until this year, forcing cuts in teaching positions and programs and the closing of some facilities. The district currently faces a $2-million shortfall in its $15-million budget.

Even with new retail development in Norwood, the tax base has been greatly diluted.

“It will never generate the income that an industrial-based business would,” Mr. Lazares said.

General Motors, which lost a record $4.45 billion last year, said in December that it was planning a drastic restructuring that would close 21 plants in the United States and Canada by the mid-1990’s, slashing 74,000 jobs. Counting two U.S. closings announced in December and two Canadian shutdowns announced last week, G.M. has identified 14 of the facilities targeted for phaseout.

Hopes in ‘Prime Location’

For school districts that are home to the G.M. plants that last week learned of the impending shutdowns, the reaction was colored by surprise and uncertainty, as well as hopes that the facilities will attract a new suitor before the closings come.

In North Tarrytown, N.Y., where a minivan assembly plant is set to close in 1995 and take with it 3,456 jobs, school officials noted the plant’s “prime location” on the Hudson River. Local officials have struggled before to keep the plant in operation; in 1985, they gave G.M. a financial incentive package to induce the company to stay.

The package has offered administrators of the Public Schools of the Tarrytowns district a preview of what the loss of its largest taxpayer could mean. Under terms of the 1985 deal, G.M. agreed to make a $1.9-million annual payment to the district in lieu of property taxes, which had been more than twice that sum.

The drop in tax revenue, combined with recent declines in state aid, has led the 1,850-student district to cut 27 teachers, reduce after-school programs, and fold its student newspaper and an aptitude-test preparation course. The district has also eliminated a number of support positions, said Gary M. Loewenberg, the interim superintendent.

He said the remaining revenue provided by G.M. amounts to an important slice of the district’s $22.6- million budget.

“For us to lose that kind of revenue would be devastating, but our hope and the hope of the county is that in [the] three years [before the planned shutdown], a lot can happen,” Mr. Loewenberg said. “We’ve got all kinds of committees meeting.”

‘A State of Shock’

Officials of the Willow Run Community Schools in Ypsilanti, Mich.-a 4,200-student district formed to serve families that settled near the bomber plant that sprouted there during World War II- were also scrambling to gauge the repercussions of the G.M. announcement. The Willow Run plant, which now manufactures Chevrolet, Oldsmobile, and Buick sedans, will be closed in the summer of 1993.

School officials there were meeting last week to estimate how many students and district employees might leave the area along with the 4,014 workers at the plant. In addition to the cost of lower enrollments- the district estimates its budget, now at $21 million, will drop about $4,200 for every student who leaves-the Willow Run schools could lose $700,000 in local property taxes with the plant’s closing.

The property-tax loss, however, stands to be replaced by the state under Michigan’s school-finance system, according to Alan G. Dowdy, the district’s finance director.

Because the district is tied so closely to the G.M. plan, Mr. Dowdy said last week, officials have been preoccupied by news of the factory’s fate.

“We have been very supportive along the way with the effort to give moral support to the plant,” he said. “I am certain that most of us are still in a state of shock.”

Caught Off Guard

Shock was also the word used to describe school officials’ feelings in Flint, Mich., where the G.M. shutdown of an engine plant will cost 4,036 jobs.

In part, officials there were caught off guard because they had been working closely with representatives of the auto company in recent months in reaching a settlement in a dispute over the assessed value of G.M.'S three factories in Flint’s Carman-Ainsworth Community Schools district. School officials said they had no hint of the closing, which could potentially cost the district the $2.3 million it receives annually in personal-property taxes from the engine plant.

That loss would come on top of the district’s settlement with the company, which will lower G.M.'S property- tax bill by $1.3 million a year until the 1995 closing. The district has also agreed to pay the company $8.5 million in back taxes that were collected while the long-running dispute was being fought.

Because the district receives 36 percent of its local funding from the three nearby G.M. facilities, officials said the engine plant’s closing will have significant repercussions.

“We don’t have a lot of room for tax-base growth,” said Margaret J. Clinton, the business director for the Carman-Ainsworth district.

She explained that, while revenues have remained flat, expenses are continuing to grow. “Obviously,” she said, “anything that affects that tax base hits us pretty hard, and our district has been cutting back for several years now.”

Concessions in Texas

Meanwhile, the big winner in the G.M. reshuffling--the Arlington, Tex., sedan-assembly plant, which will stay open and be consolidated with the Willow Run factory- won at a price. An incentive package proposed by state and local officials to keep General Motors in Arlington will provide a property- tax abatement for any new construction at the facility.

With G.M. the largest local taxpayer for the Arlington Independent School District, the company’s decision to stay was good news for school officials there. But the Arlington schools may feel a pinch as they begin to deal with growth triggered by the consolidation.

The 47,000-student district, which is reliant on local property taxes for 80 percent of its $166-million annual budget, expects 2,000 more students next year.

General Motors now pays about $2.3 million in property taxes annually, according to George Hobson, the district’s associate superintendent.

Cuts by Other Companies

While the General Motors announcements have dominated the headlines, other corporations’ moves to downsize are also posing problems for school districts around the country.

Last week, the Phillips Petroleum Company announced it will eliminate 950 jobs from its headquarters staff of 5,200 in Bartlesville, Okla., later this month.

The layoffs, attributed to the general decline of profit margins in the petrochemical business, will save the company $150 million annually.

Superintendent of Schools Bill R. Beierschmitt predicted that, over the next two years, the district could lose 1,000 of its 6,500 students as a result of the Phillips cuts, triggering a significant drop in state aid.

The district already plans to eliminate 5 of its 28 administrative positions by the end of the school year, and will reduce the administrative budget by 4 percent.

Nevertheless, Mr. Beierschmitt said he remains sanguine about the future.

“This community has been through tornadoes,” he said. “It has been through floods. It has been through two takeovers [of Phillips], so I think our community will survive this; we’re resilient.”

In Flemington, N.J., the expected June closing of a Unisys Corporation plant that would layoff 675 workers is likely to mean larger classes and higher taxes, a local school-district official said last week.

A flagging economy in the middleclass, suburban K-8 district has already forced administrators to consider increasing class sizes from 22 to 26.

“It’ll only get more pronounced” with a Unisys shutdown, said Joe Barcellona, the business administrator for the 2,400-student Flemington-Raritan Regional School District.

Officials in the 3,800-student Greater Johnstown (Pa.) School District should know by the end of this school year whether Johnstown’s largest employer, Bethlehem Steel Corporation, will close a plant this year and put 1,900 people out of work.

Figures from the state labor department show that, in the past two years, plant closings and mass layoffs in Cambria County, which includes Johnstown, have accounted for 1,930 lost jobs. With the closing of the Bethlehem plant, the Johnstown district would stand to lose $384,000 in property-tax revenue, plus $141,000 in annual per-capita taxes, according to Superintendent Richard S. DeLuca.

The district’s current budget is $28 million.

Jobs Lost in California

Economists in Orange County, Calif., are warning of the fallout from layoffs in the technology and defense industries, manufacturing, and construction. While school districts said they have yet to see the impact in either enrollments or revenues, economists there warn that the 16,000 jobs lost during 1991 will indeed prove costly.

‘“There is no question that while education budgets have not been adversely affected yet, with reduced income growth and employment cutbacks they will find their way into education,” said James L. Doti, an economist and the president of Chapman University in Orange.

“There are some real pressures building, and we are beginning to feel the indirect effects.”

School administrators in the Irvine Unified School District have yet to notice any financial effects of the recession in the district’s budget, but Paul Reed, the deputy superintendent, said economic conditions are nonetheless being felt there.

“We’re seeing the impact in the kids,” he explained. “‘When you have an economy such as this, you see the impact as far as stress. It’s nothing you can quantify, but as a teacher or administrator, it is something of which you are acutely aware.”

On the California coast, the affluent Palos Verdes Peninsula Unified School District offers evidence that the grasp of the recession is reaching far and wide, even into this area where house prices range from $500,000 to $6 million.

Such houses are going unsold, and the 8,700-student school district saw a drop in enrollment this year that has forced administrative cuts and the consolidation of the district’s three high schools.

Michael W. Caston, the district’s superintendent, said the local difficulties reflect wider economic troubles evident in California’s state budget cuts.

“It’s all connected,” said Mr. Caston, who faces a 1.5-million deficit in next year’s $30-million budget. “It’s just a hard time for people, and that has a lot of effects.”

Staff Writers Millicent Lawton and Meg Sommerfeld contributed information for this report.

A version of this article appeared in the March 04, 1992 edition of Education Week as Plant Closings Spell New Budget Worries For School Officials