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The financially-troubled city of Central Falls filed for Chapter 9 bankruptcy protection on Aug. 1, 2011, after receiver Robert Flanders Jr. was unable to get enough concessions from past and current employees.
Flanders took the action because of the city’s dire financial problems, driven in part by a grossly underfunded pension plan for police officers and firefighters. According to the filing, unless major changes are made, the city will have a deficit of $5.6 million by June 30, 2012.
Central Falls is the first municipality in Rhode Island history to file for bankruptcy.
In reacting to the development, Daniel McKee, mayor of bordering Cumberland, suggested in a radio interview that the tiny city's financial problems might be solved by shifting money the state is spending on Central Falls schools into the municipal budget.
"Just on the state funding formula alone, you know that the schools are overfunded by state money by as much as $8 million," he told WPRO talk show host Dan Yorke. "In terms of the student base and the student count, the new school funding formula details somewhere in the vicinity of about $8 million more than they need to operate the schools."
McKee went on to say that "just basic math says if they're four to five million under in the municipal side and eight million over on the school side, I know if that was in Cumberland, if I added the two together, I'd be running a plus $3 million. I think there are dollars on the table that, on a long term, hopefully the people who are going to make the decisions there are going to figure that out."
So does Central Falls really have $8 million allocated to schools that it could use to cover the shortfall in its municipal budget?
First, a little background on the unique nature of the Central Falls school system.
In 1991, following years of financial difficulties in the city, the state took over operation and financing of the city’s school system. A board of trustees appointed by the Rhode Island Board of Regents now oversees the system.
Rhode Island taxpayers pay almost the entire cost of running the schools -- a total of $42.9 million in the fiscal year that ended June 30. (The city pays only to maintain the school buildings.) All other Rhode Island school systems are financed through a combination of local tax revenue and state and federal aid.
Now, back to McKee. We asked the mayor where he got his $8-million estimate.
He sent us to a web page from the state Department of Education, dated June 10, 2010, outlining year-by-year changes in the amount of money the state was planning to give the various school systems. The web site referred to overfunding for Central Falls schools.
To understand what the numbers mean, some explanation, courtesy of department spokesman Elliot Krieger.
Up until the mid-1990s, Rhode Island had a formula to determine how much state money to send to school districts. But the General Assembly froze the aid formula in the 1994-1995 fiscal year, opting instead to simply increase the amount each year in various ways that didn't necessarily reflect important elements such as student enrollment or poverty levels. It eliminated the formula altogether three years later.
After that, the increases varied year to year.
A year ago, the General Assembly passed a new funding formula that takes into account several factors, including enrollment, student need and local taxing capacity. Under the new formula, some school districts get a lot more money, and some a lot less.
Applying the new funding formula immediately would have been a huge shock to the system, at least for the communities that -- according to the formula -- had been getting far more state money than they deserved. So, under the plan, the overfunded communities would get their allotment cut, in steps, over 10 years. Underfunded communities would see their aid levels rise over 7 years.
According to the latest calculation from the Department of Education, the Central Falls school system is actually overfunded this fiscal year by about $14.3 million. The $42.9 million it received during the last fiscal year will be reduced by $1.4 million per year over the next decade, an amount that the state will adjust as enrollment and the city's demographics change.
That means this year the city is getting nearly $13 million more for its school system than the state says it should need -- $5 million more than McKee’s estimate.
McKee said that when he cited the $8-million figure, he was trying to avoid exaggerating the potential for savings.
But there is another problem with McKee’s statement and his underlying point.
Just because the state says a community SHOULD be able to run its school system on the level of funding calculated by the state doesn't mean that it CAN. Some expenses, such as teacher salaries, can remain locked in by contract for a few years.
McKee argues that things are different now that Central Falls is in bankruptcy proceedings. The bankruptcy judge, at the recommendation of the state-appointed receiver, can make unilateral changes in just about everything, including contracts, and quickly bring expenses into line.
The result, he contends, would be immediate savings in the school budget that can be transferred to the municipal side of the ledger to solve the city's short-term fiscal problems.
"You've already got enough money internally inside of that community right now to operate without pestering the taxpayers of the state of Rhode Island," he said.
Finally, and fundamentally, it's not at all clear that the "excess" money can be tapped by the bankruptcy court. According to Krieger, the education spokesman, those funds are in the state general fund and not earmarked for Central Falls itself.
"Basic math," as McKee puts it, may not apply here. We'll have to wait and see.
But that issue goes beyond the scope of the statement that we're checking.
In the end, while he was right about the overfunding, the dollar amount he cited was off by so much, we rate his statement Half True.
(Get updates from PolitiFactRI on Twitter. To comment or offer your ruling, visit us on our PolitiFact Rhode Island Facebook page.)
630WPRO.com, "Dan Yorke> Mayor Dan McKee | 8-2-11," accessed Aug. 2, 2011
Interviews and email, Daniel McKee, mayor, Cumberland, Aug. 2 and 3, 2011
Interview and emails, Elliot Krieger, spokesman, Rhode Island Department of Elementary and Secondary Education, Aug. 2-5, 2011
RIDE.RI.gov, "Funding Formula Implementation Calculations - FY 2012 Enacted," June 29, 2011, accessed Aug. 2, 2011
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