An Extra Layer of School Bureaucracy

Many people do not realize that their property taxes support two school districts – the one that neighborhood kids attend, plus one of 57 Intermediate School Districts (ISDs) in Michigan. As the name suggests, ISDs are an intermediate level of bureaucracy between regular school districts and the state Department of Education. They are run by boards selected by the elected school boards of regular school districts within the ISD area, or in a few cases by direct election by voters. Prior to the passage of Proposal A in 1994, ISDs were heavily engaged in overseeing the wide variety of "categorical grant" programs. As a result of Proposal A these "categoricals" were mostly eliminated and replaced by basic per-student foundation grants to regular school districts. Since then, the ISDs have specialized in special education and vocational education programs.

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Most taxpayers also do not realize that Proposal A’s prohibition on new school operating fund millages contains a big loophole: ISDs. Unlike regular school districts, which can only request new millages for buildings and other capital improvement projects, ISDs can go to the voters for more taxes to pay for day-to-day operations — the very practice that led to the taxpayer revolt which brought about Proposal A.

Oakland Intermediate School District an Example of ISD Abuse

The Oakland Intermediate School District (OISD) is an example of this, and of much else that is wrong with ISDs. On Sept. 25, 2001, OISD voters were asked to approve special education and vocational education millage increases of 1.1704 and 0.2279 respectively. The Oakland Press referred to this vote as a "stealth" election, because less than 8 percent of registered voters participated. The cost to run this special election was approximately $300,000. Passage of the new millage meant that the owner of a home worth $150,000 is now paying an additional $104.87 in new taxes each year: $87.78 for special education and $17.09 for vocational education programs.

Within weeks of the vote, OISD announced it was building a new $29 million headquarters to house its nearly 600 administrators. Of the $29 million, $18 million came from the new taxes imposed for special and vocational education. Some have referred to the new building as a state-of-the-art "taj mahal."

This abuse of the public trust was partly responsible for the ouster of James Redmond, the OISD superintendent at the time. When he was fired Redmond was collecting $270,000 a year in salary and "stipends." On top of this he was reimbursed for his Social Security taxes, and had an unrestricted expense account, on which he rang up $133,588 in 2002 alone. An example of the many questionable expenses picked up by taxpayers was personal flying lessons for Redmond.

Redmond may be gone, but his big compensation package is not unusual at OISD. State Rep. Ruth Johnson, R-Holly, represents citizens and taxpayers who live within the area covered by the district. She chairs a House subcommittee that has been granted subpoena power in its investigation of OISD shenanigans. Among other things, Johnson has discovered that more than 20 OISD employees have gross annual salaries of $100,000 or more.

The amounts include unexplained "stipends" of up to $30,000. Johnson has uncovered many other abuses, including boatloads of outrageous travel and entertainment expenses paid for by taxpayers. She reports that the district has apparently gone to great lengths to hide evidence of these expenses, for example, hiding travel records in a file labeled with the name of a low-level employee. (Note: Michigan’s Freedom of Information Act requires governments to give citizens records upon request, but citizens need to know which documents or files to ask for.)

The Oakland intermediate district is emblematic of the larger problem with ISDs — their lack of accountability. Redmond’s dismissal was a necessary first step for OISD, but much more needs to be done there. For example, the district’s board has either been asleep at the wheel, or complicit in the abuses. The individual members should resign and the district should adopt a system of direct election of board members by the public, instead of the current one of appointment by the boards of the regular school districts which make up the OISD. Next, the $29 million building constructed with tax dollars raised under the deceptive 2001 millage vote should be sold to a private developer, and the proceeds returned to the taxpayers.

Intermediate Reforms Introduced

More broadly, in the short term, the Legislature should adopt some of the bills Rep. Johnson and others have introduced to clean up the governance of ISDs, and make them more accountable. Already mentioned is making the direct election of all ISD boards mandatory, not optional, as it is under current law (House Bill 4338, sponsor: Rep. Ruth Johnson).

Along with this must come election consolidation, which would take school millage elections out of the hands of those who benefit from them, and would end the days of single-digit voter participation percentages in school elections. An election consolidation package establishing four dates each year for all elections in the state has already passed in the House (House Bills 4820 to 4828, various sponsors). The Senate should quickly follow suit. Gov. Jennifer Granholm has already indicated she is disposed to signing the bill.

Other reform bills include:

  • House Bill 5043, sponsored by Rep. Ruth Johnson, R-Oakland, to authorize the recall of Intermediate School District (ISD) board members by voters.

  • House Bill 4935 also sponsored by Johnson, to establish a procedure by which voters in an ISD could replace the current board with a "reform board." Among other powers, such a reform board could cancel contracts entered into by the previous board, including labor agreements.

  • Senate Bill 643; House Bills 4979 and 4947 (various sponsors), to require that the selection of ISD board members by regular school district boards be an open process, rather than selection by secret ballot, as is now allowed (but not required). These bills have been introduced in response to controversies at two other ISDs, in Genesee and St. Clair Counties. They are half-way measures at best; direct election of ISD boards is a better solution.

  • House Bill 5025, also sponsored by Johnson, to prohibit a public body (including an ISD) from charging a fee under the Freedom of Information Act to separate exempt information (such as employee Social Security numbers, etc.) from nonexempt information in a document, if it had been possible to keep the information separated when the document was created or modified. Gratuitously inserting such personal data into unrelated records is one of the techniques OISD has used to hide its fancy bookkeeping. When citizens (including Rep. Johnson, before getting subpoena power) attempted to acquire the records, OISD threatened to charge thousands of dollars to excise the superfluous information.

  • House Bill 4934, also sponsored by Johnson, to establish a procedure for reconsideration by voters of a school or ISD millage vote, if the money is used for a purpose other than that stated in the original ballot language. Were this now the law, Oakland voters could act to obtain a refund of the $18 million misappropriated from the September 2001 millage authorization.

The Real Problem, and the Real Solution

These reforms are a start, but they do not go far enough. ISDs have become purposeless bureaucracies in search of a mission, with abuses such as those at OISD the result. No one has dug into other ISDs yet, the way Rep. Johnson has in Oakland County, but it would be surprising if OISD turns out to be much different from the rest. As mentioned, the Genesee ISD is also wrapped up in a current controversy, this one over some $245,000 in travel expenses.

Intermediate school districts should be eliminated altogether. To the extent that there may be opportunities for regular school districts to realize economies of scale in the joint provision of special education, vocational training, or other programs, nothing prevents them from doing so on a case-by-case basis. They can do this and skip the overhead expense imposed by a permanent additional layer of bureaucracy.

Michigan’s 554 school districts already have enough problems reining in their own bloated bureaucracies: More than 10 percent of the $12.5 billion school aid budget is spent on bureaucratic overhead, and only 58 percent of all school spending is directly related to instruction. (Some of the non-instructional spending is necessary overhead, such as heating bills, etc.) Another superfluous layer of government bureaucracy — which each year imposes some $878 million in additional property taxes statewide — is the last thing schools or taxpayers need.

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Note: Jack McHugh is legislative analyst for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, and editor of Brennan Brown is former director of operations and advancement for the Michigan School Board Leaders Association and holds a Masters of Business Administration degree from Central Michigan University.

CRC: Eliminate intermediate school districts. A number of changes have occurred over the past decade that have reduced the need for intermediate school districts. Proposal A eliminated categorical grants that were so prevalent under the former school funding system. With this elimination, ISDs no longer serve a role in auditing the local school districts. The growth of the personal computer industry has reduced the need for local school districts to cooperate in administrative tasks such as scheduling through the ISD. ISDs are typically associated with special education and vocational education programs. With more and more special education students being "mainstreamed," and with community colleges offering a wide array of vocational education programs, ISDs are either acting as pass-through agencies or offering duplicative services.
Michigan administrative expenses top $1.4 billion
Figure 1: About 48.3 Percent of Michigan’s Education Budget is Spent on Teachers
Per Pupil Amounts for Current Spending of Public Elementary-Secondary School Systems for 2000-01