School districts across the land are contending with rising education costs and constrained revenues. Yet state policies for assisting school districts in financial trouble are uneven and complex. Interventions are often haphazard, occur arbitrarily, and routinely place politics over sound economics.

This brief presents a menu of sensible state responses when districts are insolvent or nearly so, arranged into a tiered sequence of interventions.

1. Collaborative Supports

District leaders receive low-impact assistance in managing their finances. Supports might include convening a budget review committee to identify unnecessary expenditures or assisting district finance officers to develop more accurate projections of future revenue. The goal is to work with leaders to recognize and rectify the causes of distress.

2. Financial Management

At this stage, experts are no longer advisory; they now oversee and manage a district’s financial matters. The goal is immediately to improve district finances so as to avert costly bailouts down the line, while building the capacity of district leaders to manage once the experts leave.

3. Administrative Control

Otherwise known as a “state takeover.” Outside experts manage the entire district, not just its finances. A state-appointed administrator and/or governing commission replaces or supersedes the superintendent and board and operates with additional powers. Changes in district management can be accompanied by an emergency loan if necessary, although any major financial assistance should hinge on complete administrative control. The goal here is to remove ineffective leaders and prevent district bankruptcy and closure.

Few districts need drastic measures. Quiet technical assistance is often enough to help local leaders project revenue accurately and adjust expenditures to match. External advisors can also give district leaders political cover to make unpopular decisions. The fear of greater consequences is motivating too, which is welcome news since most states aren’t equipped to run districts. For districts on a catastrophic course, however, “takeover” is warranted—and from the perspective of students and taxpayers, it is even essential.

Download the brief for information on what each stage entails, as well as profiles of districts and states that have successfully implemented interventions (and those that didn’t).

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Dara Zeehandelaar Shaw was the national research director at the Thomas B. Fordham Institute, where she oversaw Fordham’s research pipeline, designs and executed new studies, managed ongoing projects, and conducted quantitative and qualitative research until the beginning of 2017. Her areas of study include education governance and school boards; finance and teacher pensions; policy design and implementation (…

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Victoria McDougald is the chief of staff at the Thomas B. Fordham Institute, where she manages external partnerships and oversees Fordham’s outreach and messaging to outside audiences, including policymakers, the media, and others in the education-policy world. In collaboration with the American Enterprise Institute, Victoria also manages Fordham's Emerging Education Policy Scholar (EEPS) Program that seeks to counter the…

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Alyssa Schwenk is the director of external relations at the Fordham Institute, where she leads Fordham’s outreach and messaging to outside audiences, including the media, policymakers, others in the education-policy sphere, and the funding community. Alyssa started her education career at a Ward 5 D.C. charter school via Teach For America, where she learned that everything important in life can be learned in…

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