What Happens when a District Runs out of Money/Receivership
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1 What Happens when a District Runs out of Money/Receivership Presented by: Lisa Freiley, OSBA Associate Executive Director of Legal, Labor and Employment Services Haley Percell, OSBA Attorney P.O. Box 1068, Salem, OR Court St., NE, Salem, OR (503) OSBA FAX (503 )
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3 What Happens when a District Runs out of Money/Receivership Summer Board conference 2011 Presented by: Lisa Freiley, OSBA Associate Executive Director of Legal, Labor and Employment Services Haley Percell, OSBA Attorney Oregon School Boards Association Applicable Laws Consequences Solutions Bankruptcy Conclusion Agenda Can a school board simply vote to close the district s schools and go home? No, such an action would violate the law. Oregon School Boards Association 1
4 Applicable Laws ORS requires the board to admit all persons between the ages of 5 and 19 who reside within the school district, free of charge. ORS requires school districts to offer kindergarten through grade 12. Applicable Laws (cont d) ORS requires the board to educate children residing in the district. ORS requires the board to prepare a budget annually or biennially. What are the consequences? If district fails to maintain/operate a school for one year without approval of the State Board of Education then the education service district may merge the district with another district. Oregon School Boards Association 2
5 What are the consequences? (cont d) If the district is not located within an education service district, then the governing board of the county may merge the district with another district. (See ORS ) What are the consequences? (c0nt d) If a district does not offer kindergarten through grade 12, the district will be considered non standard. (See ORS ) Consequences of being non standard? If a district is determined to be nonstandard, the Board of Education may withhold money from the district. The Department of Education staff shall contact the school district and offer technical assistance. (See ORS ) Oregon School Boards Association 3
6 Are they additional consequences of failing to provide education? Maybe. Lawsuits from students and their parents. Personal liability. If a district is out of money, what can be done? Call the Department of Education. Call the Educational Service District. Call OSBA. Possible solutions Consolidation/merger with an adjacent district. Layoffs/program cuts. Bonds. Taxes. Negotiate debts with creditors. Oregon School Boards Association 4
7 Maybe. Can a school district file for bankruptcy? Chapter 9 of the federal bankruptcy code authorizes municipal bankruptcy. A school district is considered a municipality for purpose of Chapter 9. In order for a school district or other municipality to file for bankruptcy, the state must authorize its municipalities to file for bankruptcy. Can a school district file for bankruptcy? (c0nt d) It is unclear whether Oregon law allows Oregon municipalities to file for bankruptcy. There is no record of a municipal bankruptcy in Oregon history The first municipal bankruptcy was filed in 1991 by Bridgeport, Connecticut. The largest municipal bankruptcy was Orange County, California in Two Examples of Municipal Bankruptcy Westfall Township, Pennsylvania City of Vallejo, California Oregon School Boards Association 5
8 Potential Benefits of Bankruptcy? Avoiding running out of money. Allowing schools to continue operating. Avoiding and/or reducing debts. Forced renegotiation of labor contracts. A neutral decision maker to assist with the problem. Negative Consequences of Bankruptcy? Cost in attorney fees. Bad credit. Loss of goodwill. Conclusion You are obligated by law to keep the doors open. If you are having a problem, call for help! Oregon School Boards Association 6
9 Questions Lisa Freiley: Haley Percell: Oregon School Boards Association 7
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