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Lessons Learned from a District in Debt

June 3, 2019 BY Autumn Miller

All across America, school districts big and small are facing a massive debt crisis. Perhaps unexpectedly, debt has grown since the recession, jumping from almost $323 billion in 2006 to $443 billion in 2016 per US Census date. Combine that with two decades of funding declines, and the fiscal forecast – at first glance – isn’t exactly rosy.

But, look deeper, and there’s hope to be found. All around the country, education leaders are finding a way through the financial storm. Take one Ann Arbor-area district that was recently profiled in The Hechinger Report. To make some badly needed facility investments, they took out millions in bonds. With jobs and residential developments coming to the area, paying back the bonds seemed like a sure thing…that is, until the recession hit. Fast forward to 2014 and “the district had just $24,000 in the bank with a $600,000 payment coming due for salaries, benefits and day-to-day operations, while owing about $60 million for long-term bonds,” the article reports.

The numbers are staggering – and not uncommon, as “cash-strapped school systems are a common occurrence” reports the article. David Martell, executive director of Michigan School Business Officials, explains the crisis “has been 20 years in the making.”

Fortunately, many districts are recovering. How? There’s always annexation or consolidation – which “can offer a lifeline to districts in over their heads financially,” the article reports. Less attractive are pay cuts and freezes (which the embattled Michigan district resorted to).

What also has worked, the article highlights, is:

  • renting out district buildings to community or charter organizations
  • closing one facility or school to phase its students into an under-populated school
  • consolidating administration jobs

The latter may be the most practical, as “renting out facilities and teachers willing to take a steep pay cut aren’t options for most districts,” realizes Martell. Cutting administrative overhead, to minimize the impact to student services and classroom instruction, he says, is “particularly critical where parents have many options to move their children to charter schools or neighboring districts that are in better financial shape. Once you have declining enrollment, you’re constantly cutting programs and services, which only adds to your problem.”

In San Leandro USD, reducing administrative costs played a part in their financial turnaround. Facing five years of declining enrollment, they adopted Strategic Enrollment Management strategies to save money in the district office and drive up enrollment, and they’ve created a $4 million surplus as a result.

That link between enrollment and finances can’t be overlooked in this conversation. Especially when local taxes bases can’t be tapped further. That was the case in the Connecticut district of New London, who actually overcame state takeover by strategically increasing enrollment. Enrollment may not be an overnight fix, but it’s certainly more sustainable than cutting salaries – or student resources – in the long run.