Retired Supt. James Hawkins had a simple and straightforward message for Niles Community Schools.

Do everything humanly possible to avoid going into deficit.

“There is great danger in becoming a deficit district because you lose all control and it stymies your ability to do the kinds of things you want to do to promote excellence,” said Hawkins in a presentation to the Niles board of education Monday night.

School officials are projecting the district will run out of money and become a deficit district in as few as two years if changes are not made.

The key to fixing the problem, board members say, is getting teachers to accept a new contract calling for a pay cut of around 8 percent, among other things.

Contract negotiations have been ongoing for more than a year, and neither side has come to an agreement.

Deficit consequences

Hawkins worked in public education for 46 years, including 25 years as a superintendent in two states and five school districts. He retired as superintendent for Ypsilanti Public Schools in 2009.

Hawkins said he knows what Niles is going through. He’s been there.

He explained what would happen if Niles — or any other school district in Michigan — went into deficit.

First, the school board would have to file a deficit elimination plan with the Michigan Department of Education specifying how it would get out of deficit. There are only two ways to get out of deficit, Hawkins said, either generate more revenue or decrease expenses.

Considering the current economic climate, he said, it would be unrealistic for a school district to expect to generate a meaningful amount of new revenue. That means a school district would have to find ways to reduce expenses, including getting pay concessions from labor groups and cutting programs. Typically, personnel costs account for 85 to 90 percent of a district’s budget.

He said the best-case scenario for the district would be to never become a deficit district in the first place.

“When you have to file a deficit elimination plan, you lose all flexibility to finesse your district forward,” he said. “You have lost much of your control because you’ve invited a new stakeholder to the table and that new stakeholder is the MDOE and that is like having a 10,000-pound elephant at the table.”

He said the state doesn’t care how a district gets rid of its deficit, just as long as it does. This could mean layoffs and the elimination of key programs, he said.

Things can get even worse for a district that goes into deficit and doesn’t file a deficit elimination plan or fails to implement the plan.

In that case, Hawkins said, the state can cut state aid to the district and make it so the district can’t borrow money. If things don’t progress, the state can appoint a financial manager to run the district.

“Then you have zero control,” Hawkins said. “As a matter of fact, they can get rid of you because the state runs it and that is not in the best interest of the district.”

Getting the message out

Board president Jeff Curry said there is a false perception the district is hoarding money. In reality, he said, the district has a fund equity of about 9 percent. Hawkins recommends districts should maintain a fund equity of 10 percent, while the state recommends 15 percent.

“We don’t have a secret bank account anywhere; we are audited,” Curry said. “No shenanigans.”

If nothing changes, the district’s fund equity will be gone sometime in the 2013-14 school year. The school district loses about $215,000 in projected savings for every month that goes by without a new teacher contract, according to the school district’s lead negotiator Eric Delaporte.

Board member Jon Martin said Niles Superintendent Richard Weigel has been unfairly criticized over the past several months. Martin and Curry praised Weigel for bringing to the district innovative and enrollment-boosting programs such as Niles New Tech Entrepreneurial Academy and the W-A-Y Niles program.

Curry said Weigel isn’t the bad guy and he and the board are all about keeping the district from going into deficit.

“If you want to throw darts, go ahead. I am the president of the board,” Curry said. “I will fall on the sword. I need to. He is the good guy.”