The Gary Community School Corp. faces a crucial milestone as lawmakers negotiate an unprecedented state takeover proposal.
The question they will attempt to answer is who is best positioned to pull the troubled district away from further debt while working to improve its worst-in-the-state academic rating.
For nearly two years, former Detroit Public Schools emergency manager Jack Martin has acted as the state-mandated financial adviser to the district's superintendent and school board.
Local lawmakers have criticized Martin's tenure and efforts to bring down the district's deficit since his appointment in 2015 as ineffective. Partly due to their criticism of Martin's tenure, lawmakers unsuccessfully attempted to require an emergency manager overseeing Gary schools to have ties to Northwest Indiana.
'A difficult situation to face'
In the two years since the state appointed Martin's Michigan-based accounting firm, lawmakers have watched as Gary has been unable to dig itself out of massive debt, said Rep. Tim Brown, R-Crawfordsville.
"Since his start, there has still been a struggle on making ends meet, there has been a struggle on making payroll" and keeping up maintenance on buildings, Brown said.
The heart of what lawmakers will decide is if how much authority a superintendent and school board would retain if the state would appoint an emergency manager to oversee the school district. Brown said the conference committee's work is expected to be finalized for Gary and Muncie by the end of the week.
The harsher House bill installs an emergency manager who's vested with fiscal and academic responsibilities, leaving Gary's school chief and board with little say in the district. The Senate version allows the district to retain academic authority and its school board, while ceding finances to the emergency manager and an advisory board composed of two state members, and appointees by the mayor and the school board.
In an interview Tuesday, Martin said Gary has several unique factors that explain why it continues to struggle to address its debt burden: the narrow defeat of an $8 million referendum last November, declining enrollment and declining revenues from dropping property tax assessments and collections.
"It's difficult," he said. "You can only cut so much until there's nothing left to cut."
Many of the district's buildings are in disrepair, he said, and it has struggled to find money for necessary repairs to leaky roofs and damaged boilers. The problem was much more acute than he saw in Detroit, he said. Even after the board voted to close three schools last year, Gary still has more buildings that could be shuttered, he said.
"No matter who is responsible, be it the board or superintendent, or an emergency manager, you are going still going to have problem of declining enrollment, you are still going to have the problem of declining property tax revenue," he said. "That is something that probably requires a fix at a higher level" with lawmakers and policy makers.
Gary is the state's only F-rated district this year, although it does have a few consistently well-rated elementary schools such as the Benjamin Banneker Achievement Center and the Frankie McCullough Girls Academy.
In September 2015, a State Board of Accounts audit criticized the district for mismanagement including failing to maintain adequate records to account for cash and investment balances. State auditors found the district also didn't maintain records to account for payroll disbursements. It questioned whether the district's ability "to continue as a going concern."
The State Board of Accounts is scheduled to release its latest two-year audit on Gary's books in September, said Director of Audit Service Ryan Preston.
The district is grappling with $103 million in long-term liabilities including $30 million in common school loan funds owed to the state, about $55 million in bonds and about $20 million owed to creditors and vendors including $8 million owed to the Internal Revenue Service. It has an $8.5 million deficit this year and is projected to run a $6.4 million operating deficit in 2017-18.
Adding to that financial strain is declining enrollment, the rise of charter schools, cuts to revenue under state-mandated property tax caps, property tax collection rates estimated under 50 percent and changes to the school funding formula.
Gary's public school enrollment has plunged to under 6,000 students in 2016. That compares to 15,119 in 2006, according to figures from the Indiana Department of Education.
"We do not have a bankruptcy" law for school districts, Brown said. "This is the mechanism" lawmakers hope will allow Gary to address its long standing deficiencies.
"It's a difficult situation to face," he said. "You're not paying your bills. You have to try to think about how to live within the resources you have."
Michigan emergency managers 'less accountable'
In practice, Michigan's emergency manager laws over school districts were "not about increased accountability," said David Arsen, professor of Education Policy and Educational Administration at Michigan State University. "It wasn't more accountable. Actually, it was less accountable. It was mainly about a shift in control."
Policy makers wanted managers "not as tainted by local politics" or connected to a past history of mismanagement would give them a "freer hand" to make drastic changes like cutting central administration or outsources services, he said.
The thought was "all you need is good managers who are above politics, who can make hard decisions and these problems can be solved," Arsen said. "We learned in Michigan, that is not so simple."
As a former Chief Financial Officer in the U.S. Department of Education under George W. Bush from 2002 to 2005, Martin became the third of nine emergency managers overseeing Detroit Public Schools in 2013. He previously worked as an was appointed as an emergency manager in Highland Park Schools in Michigan in 2012.
"Under emergency management, situations that were already difficult because much worse," said Thomas Pedroni, associate professor of Curriculum Studies at Wayne State University in Detroit. "What we saw (was) a shifting of funds away from the classroom to administration and external contracts and consultants."
Path to Gary
In January 2015, Martin resigned after 18 months as emergency manager of Detroit Public Schools. During his tenure, he received $340,962 in compensation, not including $50,000 in bonuses he collected under his state-approved contract, according to the Detroit Free Press.
Martin "was a total disaster here in Detroit Public Schools," said LaMar Lemmons, a member of the Detroit school board and vocal Martin critic. "It was a total dictatorship without him working in any way in collaboration with the elected school board."
Michigan state officials argued Martin was able to make some headway on Detroit's financial woes, including leasing vacant property and restoring some elementary and middle school programs.
Martin settled an agreement to give 57 vacant school buildings and 20 vacant lots to the city of Detroit in return for having $11.6 million of the district's unpaid electric bills wiped clean, according to the Detroit Free-Press. For years, Gary has struggled to sell its nearly two dozen vacant schools.
"I don't think the situations are very comparable," Martin said. "I think we were more aggressive in Detroit in terms of trying to sell our buildings. And, the city had an interest in the buildings, because they had set up a land bank authority. The mayor in Detroit, I believe, wanted to assemble as much land as possible. That's why we negotiated for him to essentially take our buildings.
"I don't think I know what the (Gary) mayor's plans are," he said. The district "controls a lot of vacant land that could be of interest," he said. "Right now, I have not seen any (good) offers."
"We've had a couple of offers," Martin said. "But, in my position as the financial specialist, I was not going to recommend to the board that they sell the building and 20 or 30 acres for $10,000."
In 2015, the Distressed Unit Appeals Board presented a list of three candidates: Robert Bobb, of the Robert Bobb Group in Washington; Gilbert Hopkins with McConnell, Jones, Lanier and Murphy LLP, of Houston; Jack Martin with Martin, Arrington, Desai and Meyers, of Bingham Farms, Mich.
Bobb, Martin's predecessor, was Detroit's first emergency manager from 2009 to 2011. Under his tenure, the power structure shifted to a stronger emergency manager model, consolidating both academics and finances under his office. He hired former Chicago Public Schools superintendent Barbara Byrd-Bennett as a chief academic officer. Byrd-Bennett pleaded guilty criminal charges in a bribery scheme last year.
Under Bobb, an early challenge was "who really had academic control at that time," Pedroni said. "Everyone seemed to agree that (the) elected board maintained" that authority. But, "because anything a penny touched — including academics — both involved the spending of money," he said, "Bobb argued that he had to have complete control."
Martin's firm was selected unanimously by the Gary school board. Former school board president Antuwan Clemons then told the Post-Tribune that the board was drawn to its experience in Detroit dealing with declining enrollment and losing students to charter schools.
The board concluded Martin's firm "has the array of experience to help turn this district around," Clemons wrote in a letter to DUAB in July 2015.
In Indiana, lawmakers approved paying Martin's firm $650,000 for his first year overseeing Gary's books in 2015. In June 2016, the firm's pay between August 2015 and August 2016 was boosted by $250,000, in exchange for coming up with a "deficit elimination plan" for paying down its outstanding bills and devising a long-term solvency strategy by July 2016 while updating the DUAB board on a biweekly basis.
The firm's compensation totaled $1.5 million over two years, according to DUAB staff attorney Mike Duffy. Martin's contract runs through August. He said he has not been contacted by the state regarding the emergency manager role.
Pedroni said Martin's performance and Michigan's experience with emergency managers is instructive.
"If you are going to say that imposing state control is the answer, then show me...where that single point of authority has lead to positive results," he said. "That's what you need to show."