Analysis of the “Early Warning” Financial Legislation
Based on Introduced Bills – May 2014
Bill #
Law Amended
Current Law – Description
Amendments – Description
949
Uniform Budgeting
and Accounting
Act– several
sections (MCL
141.421 et al)
 This law defines several terms such as General
Appropriation Act.
 Current law provides a separate audit requirement for
units with population less than 4,000.
 Current law provides specific annual audit requirements
for a unit with a population of 4,000 or more.
 Clarifies “uniform” chart of accounts and requires any
budget and appropriation act to conform
 Allows the State Treasurer to determine if / when a
school district, ISD or PSA cannot adequately maintain
the uniform chart of accounts
 Clarifies definition for “general appropriation act”
(GAA) as ordinance or resolution authorizing
expenditures consistent with the budget
 Requires financial audits to be completed within 150
days after end of fiscal year; if a district, ISD or PSA fail
to comply, Treasury will perform or contract at district
expense
 Stipulates that districts, ISDs and PSAs SHALL NOT adopt
or operate under a deficit budget; if a district incurs
deficit fund balance or adopts a budget projecting a
deficit, it must immediately notify State Treasurer
 Within 90 days of above, district must submit a Deficit
Elimination Plan (DEP) to State Treasurer (form and
manner prescribed by Treasury) – a “financial plan to
correct a deficit” may suffice as DEP
 Allows the Treasurer to withhold state aid as necessary
to assure compliance
 Adds reporting compliance (as detailed in 380.1219 and
.1220), the “periodic financial status report” as well as
other data: pupil count (current and 2 prior years),
projected cash flow (current and next 3 years), “cash
flow borrowing ratio”, “operating reserve ratio”,
“operating margin ratio”, & “fund balance change ratio”
 Clarifies an GAA is NOT a mandate to spend
While school districts are defined as local units of
government, there are some specific provisions to
municipalities.
Rocho/Calhoun ISD
4/1/2014
Page 1
Bill #
Law Amended
949
Uniform Budgeting
and Accounting
Act– several
sections (MCL
141.421 et al)
[Continued]
Conditions under which a district, ISD or PSA operate its
financial transactions, budgets, etc.
[continued]
Current Law – Description
950
Revised School
Code – Section 12
(MCL 380.12)
Conditions under which a school district is dissolved under
the Revised School Code
Stipulates that the ISD, or the State Superintendent upon
ISD request, immediately attach the territory of the
dissolved district to one or more districts within the ISD.
Stipulates that the ISD must assign pupils, weighting
certain factors, within 60 days of dissolution
Rocho/Calhoun ISD
4/1/2014
Amendments – Description
 If a district subject to Enhanced Deficit Elimination Plan
(EDEP) under 380.1220, allows Treasurer to require an
amendment, and amount of amendment, to General
Appropriations Act (GAA)
 Requires at least quarterly report to the “legislative
body” or School Board
 Requires Chief Administrative Officer to present Board
with an amendment to GAA if actual enrollments are
less than projected enrollments to prevent expenditures
from exceeding revenues
 Allows the State Treasurer to require that the district
divide the GAA into “allotments”
 Adds requirement for Treasury and MDE to provide and
cooperate in provision of training/education
 Clarifies that any dissolution will be effective at the end
of the school / fiscal year when such action occurs
 Adds a new provision for a board to adopt a resolution
to voluntarily dissolve their school district under certain
conditions:
o District lacks capability to implement the DEP or EDEP
or otherwise provide educational services
o District is not financially viable (ability to carry out
educational programs required by law, pay debts)
 Clarifies that the ISD, or State Superintendent, transfers
property, if above conditions are present, effective with
the first day of the next school year
 Clarifies that the ISD, or State Superintendent, assigns
pupils by the end of the fiscal year during which the
dissolution occurs
 Adds new subsection (10) which transfers dissolved
district property to the State Land Bank Authority (SLBA)
and stipulates a timeline for transfer of said property to
receiving district, ISD or public auction based on certain
conditions
Page 2
Bill #
Law Amended
Current Law – Description
Amendments – Description
951
State School Aid Act
- Section 17a and 18
(MCL 388.1617a,
.1618)
Section 17a - Conditions under which MDE or the State
Treasurer may withhold state aid if: district is party to
agreement with Municipal Finance Authority, district under
an Emergency Manager, or district is party to a DEP,
reporting requirements and adds EDEP
 Clarifies the sections under which such action can be
taken (adds: Emergency Municipal Loan Act, Local
Financial Stability and Choice Act and School Code to
existing Municipal Finance Act)
 Adds provision that funding under the School Aid Act is
contingent upon compliance with this Section 17a
952
Revised School
Code – Section 1220
(MCL 380.1220)
Rocho/Calhoun ISD
Section 18 of the State Aid Act sets up expectations for
financing in Districts / ISDs and stipulates reporting
requirements.
 Under current law, a district is required to post their
operating budget or budget amendments within 30 days
of adoption.
 Under current law, financial audits are required by
November 15
This legislation would create a new Section of the Revised
School Code relating to Enhanced Deficit Elimination
Planning (EDEP) as governed by Treasury
4/1/2014
 Adds requirement district, ISD or PSA adopt an annual
budget that conforms with Uniform Budgeting and
Accounting Act; requires that posting of budget or
amendments occur within 15 days
 Requires annual audit be filed not later than October 15
 Adds a provision for 10% of total state aid penalty for
non-compliance
 Prohibits a District from adopting a deficit budget or
operate under a deficit or the following shall apply:
o District must notify MDE and Treasury immediately
and provide ISD with copy of notice
o Within 30 days a ‘Preplan Financial Report’ must be
submitted to MDE and Treasury in form and manner
prescribed by Treasury; prior to submission, Board
and ISD must receive copy of report
o Within 90 days of notifying the department, the
district shall submit an amended budget and DEP in
form and manner as prescribed by MDE
o Department may withhold or release some or all
State Aid
o MDE may require an academic plan to be included
with the DEP
o After MDE approval, DEP shall be posted on the
district’s website
 March 1 date for MDE report on deficits to legislature
 Monthly monitoring reports for districts with DEP’s
submitted to MDE and Treasury and posted on website
Page 3
Bill #
Law Amended
Current Law – Description
Amendments – Description
952
Revised School
Code – Section 1220
(MCL 380.1220)
[continued]
This legislation would create a new Section of the Revised
School Code re EDEP
[Continued]
 MDE approval and allotment of funds and allows for
timeframe and special conditions the district must meet
to be in compliance with DEP
 DEP does not apply for those with EDEP’s
 If, through the reporting and exchange of information,
the Treasurer determines the District is subject to the
certain risk factors, the Treasurer may require an
Enhanced Deficit Elimination Plan (EDEP)
 A Financial Recovery Agreement may be made between
the District and Treasurer including the following:
o Assistance and guidance from Treasury or other
state departments
o A financial or operating plan for the district
o Appointment of a local auditor or inspector or both
o Remedial measures or other action under this act
necessary to address the financial circumstance
o Require retention of a consultant or other
professionals and experts to assist in achieving the
goals and objectives of the consent agreement
(Financial Recovery Agreement)
 Requires District Board approval of EDEP before
submission to Treasury
 Similar language on withholding state aid, timeframes
and circumstances as in the DEP process (Sec. 1219) but
under Treasury control for the EDEP
 Specific posting requirements of the EDEP on the
district’s website
 If district is subject to EDEP, they shall submit to MDE
and Treasury an ‘Enhanced Monthly Monitoring Report’
on the following in the form and manner prescribed by
Treasury: revenue, expenditures, cash flow, debt, other
liabilities, assets, budget amendments, pupil
membership, and other information relating to finances
Rocho/Calhoun ISD
4/1/2014
Page 4
Bill #
Law Amended
Current Law – Description
Amendments – Description
952
Revised School
Code – Section 1220
(MCL 380.1220)
[continued]
Local Financial
Stability and Choice
Act – add Section 7a
(MCL 141.1547a)
This legislation would create a new Section of the Revised
School Code re: EDEP
[Continued]
State School Aid Act
– Section 102 (MCL
388.1702)
Provides for the DEP process and conditions in State Aid
 The Enhanced Monthly Monitoring Report must be
posted on website
 Definitions in the Act: DEP, Deficit Fund Balance, EDEP,
Preplan Financial Report
 This legislation provides a new Section allowing
Emergency Manager control of district for failure to
comply with EDEP
 Authorizes Treasury to declare that a financial
emergency exists based on the failure to comply with
the Enhanced Deficit Elimination Plan (EDEP).
 Authorizes Treasury to recommend to the Governor to
appoint an Emergency Manager; The bill would provide
for no MDE involvement
 This bill strikes the authorizing language and stipulates
that for a district required to submit a DEP, that does not
do so or the DEP is not approved, authorizes the MDE to
withhold some or all of state aid
 The DEP plan is in the form and manner required by
MDE until DEP submitted and approved
 This aligns with the provisions in the new School Code
Section 380.1220
 This legislation would clarify the MDE must release the
funds previously withheld when DEP submitted and
approved
 The DEP plan requirements are now as stipulated by
MDE
 Subsection (2) expanded to include consultation with
Treasury, Chief Administrative Officer or ISD to provide
greater coordination and effective partnerships in
development and implementation of DEP
953
954
This legislation would add a new section in the Act to
provide for placement of a school districts into control of
an Emergency Manager
Sec. 102 as currently written would prohibit a district from
operating under or incurring a deficit budget; The section
further provides for the suspension of state aid allocations;
Current law would allow for the suspension of state aid
until the District had a plan to eliminate the deficit
Subsections (2) – (5) are struck; these subsections in the
statute detailed the DEP plan requirements.
Rocho/Calhoun ISD
4/1/2014
Page 5
Bill #
Law Amended
954
State School Aid Act
– Section 102 (MCL
388.1702)
[continued]
Provides for the DEP process and conditions in State Aid
[continued]
Current Law – Description
955
Emergency
Municipal Loan Act
– Section 3 and
other sections (MCL
141.933 et al)
Conditions under which a district, ISD or PSA might qualify
for loans under the Act
 Current loans are up to $50M for school districts; single
districts are limited to not more than $20M
 The Act allows for the unit to restructure the payments
 The Act makes certain requirements of any unit
receiving a loan under this Act
Rocho/Calhoun ISD
4/1/2014
Amendments – Description
 The bill adds new language in subsection (3) and (4) that
describes Treasury authority in the Enhanced Deficit
Elimination Plan (EDEP), similar to DEP authority of
MDE; expanded to include consultation with MDE, Chief
Administrative Officer or ISD to provide greater
coordination and effective partnerships in development
and implementation of EDEP
 As with other provisions in this legislative package, this
bill would make the appropriation of all funds
contingent with compliance to this section
 Defines DEP (MDE authority), Deficit Fund Balance and
Enhanced Deficit Elimination Plan (Treasury Authority)
 This legislation would increase the cap to $100M;
leaving the single district cap at $20M
 This is allowed only if District in a consent agreement or
in compliance with the LFSC above.
 The criteria is changed for a School District as follows:
o Adds: “if the loan will assist the District in resolving a
financial emergency or fiscal stress within the District.
o Adds: subject to consent agreement “as required
under the Local Financial Stability and Choice Act.
 This legislation would authorize an Emergency Manager
to perform the functions “of a full-time professional
administrator under this Section”.
Page 6
Bill #
Law Amended
956
Revised School
Code – Section 1356
(MCL 380.1356)
Rocho/Calhoun ISD
Current Law – Description
This section of the Revised School Code sets forth
borrowing requirements and conditions under which a
school district may borrow and pledge refinancing
 Under current law, a district may borrow when they
are operating under or projecting a deficit in excess of
$100/pupil; they may use interest bearing notes or
bonds.

Subsection 2 provided the conditions under which a
District board would issue such notes/bonds.

Current law indicates a plan stating actions taken to
balance expenditures and revenues is adopted by the
District Board.

Under current law, the district may borrow up the
amount of the annual operating deficit.

Under Current law, a district must pledge state aid for
payment of bonds / notes.

Current law indicates that the District would submit its
budget under this Section to MDE.
4/1/2014
Amendments – Description
This legislation would make significant changes to this
Section; Treasury is the governing body on plan approvals
and actions
 Would allow borrowing if a district is operating under or
projecting a deficit OR has outstanding State Aid
Anticipation Notes (striking the $100/pupil threshold)
 Such instruments would now be referred to as “School
Financing Stability Bonds”; they could be issued only by
the Michigan Finance Authority
 The legislation would strike the sunset for such bonds
unless deficit caused by Tax Tribunal or Court Order
 The legislation would add if a district had outstanding
State Aid Anticipation Notes (strikes per pupil limit)
 The legislation strikes the ability of a District to seek
authority from the voters to increase millage to offset
the deficit
 Under this legislation, the plan would have to be
approved by the Treasurer; the Treasurer may use the
DEP or EDEP to satisfy this requirement; District must
demonstrate that finances of district are structurally
balanced
 Gives Treasury final and conclusive decision making
authority on the existence and amount of the projected
or current year operating deficit, and the amount of
note or bond needed and issued.
 Allows the District the choice to pledge state aid, tax
collections etc. for the repayment of the notes or bonds.
 The legislation would allow for other sources for
repayment; thus a district not receiving state aid would
fall under this section.
 This legislation would require the submission of
information to Department of Treasury.
Page 7
Bill #
957
Law Amended
Revised School
Code – Section
380.1219
Rocho/Calhoun ISD
Current Law – Description
Amendments – Description
This legislation would create a new Section of the Revised
School Code relating to district financial management,
reporting and Deficit Elimination Planning governed by
MDE and Treasury and “preplanned financial reporting”
 Provides that a district, ISD or PSA may request technical
assistance from the State Superintendent prior to State
intervention in addressing fiscal stress, deficit or
potential financial emergency
 Requires notification to State Superintendent, local ISD
or PSA authorizer of the request
 Upon receipt, MDE consults with Treasury and both
review the financial condition of the district to
determine technical assistance needs
 Assistance may include, but not limited to, data analysis
tools with the objective of avoiding financial conditions
of fiscal stress, before further state intervention
 Includes consultation with MDE and Treasury, Chief
Administrative Officer or ISD/Authorizer to help provide
coordination and partnerships, support state assistance
 Superintendent or Treasury may require a district to
submit periodic financial status reports if it is
determined that ‘Potential Financial Stress’ may exist in
the current year or following two fiscal years or the
inability to provide educational services.
 Financial Status Report includes at least:
o Information submitted to the department or other
state agency
o Audited financial statements
o Any information submitted for bonds, notes, other
debt
o Information contained in the district budget or
appropriation act
o Information from contractors, officers, employees or
agents
o Pupil enrollment information
4/1/2014
Page 8
Bill #
957
Law Amended
Revised School
Code – Section
380.1219
[Continued]
Rocho/Calhoun ISD
Current Law – Description
Amendments – Description
This legislation would create a new Section of the Revised
School Code relating to district financial management,
reporting and Deficit Elimination Planning governed by
MDE and Treasury and “preplanned financial reporting”
[Continued]
 Stipulates a minimum 14 day period of notification that
Potential Financial Stress exists. Notification to LEA and
ISD or PSA authorizer made by either State
Superintendent or Treasury.
 Considerations of the following would indicate that
“Potential Financial Stress” occurs:
o District/ISD/PSA failed to make timely MPSERS
payment
o District/ISD/PSA failed to make timely payment to
Michigan Unemployment Insurance Agency
o District/ISD/PSA failed to timely transmit Treasury
tax payments withheld from employees
o Information submitted by vendor indicates that
District/ISD/PSA has failed to make timely payments
under contract
o District/ISD/PSA has expended tax revenue for an
unauthorized purpose or deposited in unauthorized
manner
o District/ISD/PSA has failed to pay employees
o District/ISD/PSA has failed to comply with material
requirement of the Uniform Budgeting Act and such
was noted in an audit
o The General Fund balance of the District/ISD has
declined by 5% over three consecutive fiscal years
o An unanticipated reduction in payments to the
District/ISD/PSA in State School Aid or Local
Revenue occurs and in not accounted for in budget
or in budget amendments
o The District/PSA pupil enrollment has declined by
10% or more in a single school fiscal year or by 20%
or more over three consecutive fiscal years and the
district failed to reduce expenditures in a manner
proportionate to the decline in enrollment
4/1/2014
Page 9
Bill #
957
Law Amended
Revised School
Code – Section
380.1219
[Continued]
Rocho/Calhoun ISD
Current Law – Description
This legislation would create a new Section of the Revised
School Code relating to district financial management,
reporting and Deficit Elimination Planning governed by
MDE and Treasury and “preplanned financial reporting”
[Continued]
4/1/2014
Amendments – Description
o
The District/ISD/PSA Board makes a request for
this determination under the subsection to the
State Superintendent or Treasurer;
o Based on factors in this subsection, and subsection
(4) and data provided by an ISD, State
Superintendent or Treasury determine that a
deficit is likely to arise within the current or next
fiscal year and the District has not taken action to
prevent the deficit
 Financial Status Reports, in form and manner, are
determined by Treasury. In consultation with MDE and
CEPI, Treasury will determine the financial information
to include in the District/ISD/PSA report including some
of the following:
o Current, prior 2 years and next 3 years projected
student counts
o Projected cash flow for remained of current year
and next 3 fiscal years
o Cash Flow Borrowing Ratio for the current year,
prior 2 years, and next 3 years
o Operating Reserve Ratio for the current year, prior
2 years, and next 3 years
o Operating Margin Ratio for the current year, prior 2
years, and next 3 years
o Fund Balance Change Ratio for the current year,
prior 2 years, and next 3 years
 The district/PSA must transmit the report first to the
Board and ISD before submitting to Treasury
 If district/PSA is subject to reporting requirement they
shall do all of the following:
o Provide Treasury or MDE with other information as
requested
Page 10
Bill #
957
Law Amended
Revised School
Code – Section
380.1219
[Continued]
Current Law – Description
This legislation would create a new Section of the Revised
School Code relating to district financial management,
reporting and Deficit Elimination Planning governed by
MDE and Treasury and “preplanned financial reporting”
[Continued]
Amendments – Description
o







Rocho/Calhoun ISD
4/1/2014
Allow Treasury or MDE to examine all records or
books of account
o Promptly provide information requested
Failure to submit reporting or reporting that indicates
Financial Stress exists, that an operating deficit has
occurred, may occur by year end, or the next year that
the district lacks the capacity to address without State
assistance, Treasury may require the submittal of an
Enhanced Deficit Elimination Plan
Failure to submit is considered malfeasance and is
grounds to remove officer from office.
District/PSA is not required to submit ‘periodic reports’
if under an EDEP or Emergency Manager (EM).
District/PSA is no longer required to submit reporting
after the Treasurer determines that financial stress does
not exist; Treasury shall notify the District.
ISD may advise Treasury in the development and
implementation of periodic financial reports for a school
district within ISD; PSA authorizers have same option
Requires a workgroup to convene to develop
information system or process that would provide early
access to financial information to address budgetary and
financial difficulties earlier
Information or process should address:
o Expand upon existing data for analysis
o Allow uploading of budget and current year-to-date
information into FID on periodic basis
o Permit uploading of year-to-date information
quarterly
o Provide MDE and Treasury access to local data
o Reduce or consolidate reporting requirements
o Estimate the cost of the informational system or
process
Page 11
Bill #
957
Law Amended
Revised School
Code – Section
380.1219
[Concluded]
Rocho/Calhoun ISD
Current Law – Description
Amendments – Description
This legislation would create a new Section of the Revised
School Code relating to district financial management,
reporting and Deficit Elimination Planning governed by
MDE and Treasury and “preplanned financial reporting”
[Concluded]
 Workgroup representation to include:
o MDE, Treasury, CEPI and DTMB
o School Districts, ISDs, PSAs and Authorizers
o School Business Officials, CPAs
 Workgroup to complete work by September 30, 2015,
submit recommendations to Governor by December 31,
2015
 Workgroup shall also make recommendations on
changes in state laws relating to periodic financial
reports, DEP, EDEP, not limited to, new data analysis
tools, recommendations on ‘warning signs’, data needs
and proper timing of reports in a manner that reduces
Administrative bureaucracy
4/1/2014
Page 12