David Arsen, Thomas A. DeLuca, Yongmei Ni and Michael Bates:
Like other states, Michigan has implemented a number of policies to change governance and administrative arrangements in local school districts deem to be in financial emergency. This paper examines two questions: (1) Which districts get into financial trouble and why? and (2) Among fiscally distressed districts, are there significant differences in the characteristics of districts in which the state does and does not intervene? We analyze factors influencing district fund balances utilizing fixed effect models on a statewide panel dataset of Michigan school districts from 1995 to 2012. We evaluate the impact of state school finance and choice policies, over which local districts have limited control, and local district resource allocation decisions (e.g., average class size, teacher salaries, and spending shares devoted to administration, employee health insurance, and contracted services). Our results indicate that 80% of the explained variation in district fiscal stress is due to changes in districts’ state funding, to enrollment changes including those associated with school choice policies, and to the enrollment of high-cost, special education students. We also find that the districts in which the state has intervened have significantly higher shares of African-American and low-income students than other financially troubled Michigan districts, and they are in worse financial shape by some measures.
Michigan offers an interesting case of a state with a highly centralized school finance system in which the state sets per pupil funding levels for each district, and most operating revenues follow students when they move among districts or charter schools. Districts have very limited authority to raise additional tax revenues for school operations from local sources. Consequently local responses to financial stress focus primarily on efforts to reduce spending.
Roughly ten percent of Michigan’s 550 districts had operating deficits at the end of each fiscal year from 2012 to 2014. Thus far, three districts, each predominantly African-American and urban, have been placed under an emergency manager’s control, including the state’s largest district, Detroit Public Schools. Two more predominantly African-American districts were dissolved soon after PA 96’s passage. State review teams have recently declared financial emergency in two additional predominantly African-American, urban districts that are currently operating under consent decrees.2 These recent laws and their implementation provide state officials with much greater authority to reshape not only the finances and operations, but also the educational programs in districts serving many of Michigan’s highest-need students. They simultaneously greatly diminish the power of local citizens and educators in these districts to shape education service provision.Although it has received limited attention, financial accountability could assume growing prominence in the accountability movement. Legislation such as Michigan’s emergency management law changes the politics of state intervention and governance reforms by providing state officials greater legitimacy to intervene in local districts (Arsen & Mason, 2013). To be viewed as legitimate, it is necessary to define the heart of the educational problem as administrative incompetence or the failure of local democratic governance structures. The legitimacy of state takeovers on academic grounds is sometimes undermined by concerns that test-based accountability penalizes schools for failing to overcome disadvantages related to students’ poverty over which they have little control. State takeovers of “academically failing” districts might be criticized, therefore, as unfairly targeting districts that face the greatest educational challenges or “blaming the victims” (McDermott, 2007).
In contrast, administrators and elected representatives in any local community, rich or poor, can be expected to handle public funds honestly and competently. If local officials lack the basic administrative competence to balance their budgets (like everyone else), it is hardly surprising that they also lack the capability to educate their students. By framing school failure in terms of financial accountability, state policy makers may undercut traditional education actors’ legitimacy over academic affairs and establish more politically salient grounds for changes in the control and operation of local schools.