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State provides Gary schools another loan, bringing total above $16.5 million for the year

The State Board of Finance — from left, State Auditor Tera Klutz, State Budget Director Jason Dudich and Chief Deputy State Treasurer Michael Frick — unanimously agreed Tuesday to provide a $3.255 million operating loan to the Gary Community School Corp. from Indiana's Common School Fund.

INDIANAPOLIS — One of the two high schools operated by the Gary Community School Corp. is likely to be shuttered at the end of the academic year as part of a cost-cutting move by the emergency management firm in charge of the cash-strapped district.

Emergency Manager Peggy Hinckley told the State Board of Finance on Tuesday that she doesn't yet know whether West Side Leadership Academy will be combined with Wirt-Emerson Visual and Performing Arts High Ability Academy, or vice versa, but she insisted the district does not have the enrollment to justify more than one high school.

"High schools are the most expensive facilities to operate, and we must move to one," Hinckley said.

The veteran educator and leader of Gary Schools Recovery LLC, the state-appointed emergency management firm running the district in lieu of its elected trustees, expects that closing a high school "will not necessarily bring out a roaring crowd of approval" from Gary residents.

But Hickley explained that it is "a necessary step to take to get our expenses and our cost numbers down."

Loans the plan for now

The district's expenses were scrutinized again Tuesday by the state finance board — composed of representatives from the governor's office, state auditor and state treasurer — prior to its approving another no-interest loan to cover operating costs for Gary schools through the end of the calendar year.

Gary Schools Recovery plans to use the $3.255 million in borrowed funds to pay employee salaries and health insurance premiums.

The new loan is the sixth approved for the school corporation in 2017. The district this year has been authorized to borrow $16,570,144 from Indiana's Common School Fund, though state records show it only has drawn about $15 million in actual loans.

Micah Vincent, chairman of the Indiana Distressed Unit Appeals Board that oversees the district, said he expects the state will continue loaning money to Gary schools, roughly every other month, until the emergency management firm is able to fully implement its plans to right-size the district's spending and attract more students to grow its revenue.

"This is something that we expect," Vincent said. "It's something that has been in the plan, and as we move forward through that longer-looking document and plan that we'll see in the coming months, that's where this will start to taper off."

Hinckley said the budget she'll present to DUAB by Jan. 31 will begin to reduce the need for borrowing due in part to "aggressive reductions in expenditures" that she hopes to implement as soon as possible.

Reducing expenses, attracting students

Preliminary budget data provided by the emergency management firm show the district is on track to spend $78.6 million during calendar year 2018 but only will collect $57.5 million in revenue, producing a deficit of $21.1 million.

Hinckley hopes to grow the revenue number by attracting more students for the 2018-19 school year, boosting enrollment from the current 4,700 pupils to 6,000 or more.

Another 1,150 students would bring the district about $10 million in additional state support.

On the cost-cutting side, Hinckley said she's already worked with the Gary Teachers Union to reduce what she described as "abusive sick leave" by some teachers dissatisfied with the uncertainty in the district, which had pushed substitute teacher costs up to an unsustainable $750,000 a year.

It's not clear how spending reductions connected to high school consolidation would affect Roosevelt College and Career Academy.

The consistently underperforming high school was taken over by the State Board of Education in 2011 and given to EdisonLearning to operate, though the district still is required to maintain the Roosevelt building.

Dealing with debt, IRS payments

Separately, DUAB approved a contract Tuesday between the Gary school district and Merrillville-based Laszlo and Associates for the company to negotiate a reduction of the school corporation's debt to the Internal Revenue Service in exchange for 12 percent of the reduced obligation.

During the 2013-14 school year, the district withheld payroll taxes from its employees but neglected to send the money to the IRS using it instead to cover operating costs.

As a result, the district now owes $8.4 million in back taxes, penalties and interest that has prompted the IRS to put liens on all of the district's open and closed school buildings, which prevents their sale to other entities.

The Gary school district is the first to be completely taken over by the state after its elected trustees repeatedly failed to adopt balanced budgets and ran up $100 million in debt.

Senate Enrolled Act 567, signed in April by Republican Gov. Eric Holcomb, gives the district's emergency manager sweeping powers to reduce expenditures, rewrite contracts and make other changes necessary to bring the district's spending in line with its revenue, subject to DUAB oversight.

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Dan is Statehouse Bureau Chief for The Times. Since 2009, he's reported on Indiana government and politics — and how both impact the Region — from the state capital in Indianapolis. He originally is from Orland Park, Ill.