Which Districts Get Into Financial Trouble and Why: Michigan's Story

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 distres...

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Bibliographic Details
Published in:Journal of education finance 2016, Vol.42 (2), p.100-126
Main Authors: Arsen, David, DeLuca, Thomas
Format: Article
Language:English
Subjects:
African American Students
Charter Schools
Educational Finance
Elementary Secondary Education
Enrollment
Financial Exigency
Government finance
Institutional Characteristics
Laws, regulations and rules
Low Income Students
Public Schools
Resource Allocation
School Choice
School Districts
Special Education
State Aid
State Policy
Student Characteristics
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Summary: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 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.
ISSN:0098-9495
1944-6470
1944-6470
DOI:10.1353/jef.2016.a649723