distressed unit appeal board transcript

8/20/2019 Distressed Unit Appeal Board transcript

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In the Matter Of:

DISTRESSED UNIT APPEAL BOARD

TRANSCRIPT OF· HEARING

October 22, 2015


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·2· · · · · ·BEFORE THE STATE OF INDIANA

·3· · · · · DISTRESSED UNIT APPEAL BOARD

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·6· · · · · · · TRANSCRIPT OF HEARING

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· · · · · Hearing heard on the 22nd day of October,

·9· ·2015, in the offices of the State Library, 140

· · ·N. Senate Avenue, Indianapolis, Indiana.10

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17· · · · · · · A STENOGRAPHIC RECORD

18· · · · · · · ·By:· Tamara J. Brown

· · · · · · · · · · · Notary Public

19· · · · · · · · · · Stenographic Reporter

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Transcript of· HearingOctober 22, 2015

Connor Reportingwww.connorreporting.com

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·1· · · · · · · · · A P P E A R A N C E S

·2· ·BOARD MEMBERS:

·3· · · ·Micah G. Vincent, Chairman

· · · · ·Ryan Mishler·4· · · ·Tammy White

· · · · ·Lisa Acobert

·5· · · ·Courtney Schaafsma

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· · ·GENERAL COUNSEL:

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· · · · ·Michael Duffy

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· · ·GARY COMMUNITY SCHOOL CORPORATION:10

· · · · ·Jack Martin

11· · · ·Mark Schrupp

· · · · ·Jerry Greenblatt

12· · · ·William Aldridge

· · · · ·Marvin Ward

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·1· · · · (Time Noted 12:33 p.m.)

·2· · · · CHAIRMAN VINCENT:· I hereby call this

·3· ·meeting of the Distressed Unit Appeals Board to

·4· ·order.

·5· · · · I'll go ahead and introduce myself and have

·6· ·the board and the staff introduce themselves as

·7· ·well.· My name is Micah Vincent.· I am the

·8· ·director of the Office of Management and Budget.

·9· ·And I serve as the chairman of the board.

10· · · · Let's go this way first.

11· · · · MS. ACOBERT:· Thank you, Micah.· My name is

12· ·Lisa Acobert.· I'm the executive director of

13· ·finance and business operations for the Indiana

14· ·Department of Education.

15· · · · MS. WHITE:· My name is Tammy White.· I am

16· ·one of the deputy state examiners for the State

17· ·Board of Accounts.

18· · · · SEN. MISHLER:· Ryan Mishler.· I serve in

19· ·the senate, and represent Elkhart, Kosciusko,

20· ·Marshall and St. Joe Counties.

21· · · · MS. SCHAAFSMA:· Courtney Schaafsma,

22· ·Commissioner with the Indiana Department of

23· ·Local Government Finance.

24· · · · MR. DUFFY:· I'm Mike Duffy, general counsel

25· ·for the Department of Local Government Finance.



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·1· · · · CHAIRMAN VINCENT:· The first thing I want

·2· ·to make note of is that this meeting is in

·3· ·compliance with the Open Door Law.· And the

·4· ·agenda was posted outside the door.· So we are

·5· ·good there.

·6· · · · And the next order of business was the

·7· ·approval of minutes for the July 13, 2015, DUAB

·8· ·hearing.

·9· · · · Do we have those minutes?

10· · · · MR. DUFFY:· Yes.

11· · · · CHAIRMAN VINCENT:· Do we have a motion?

12· · · · MS. ACOBERT:· I'll make a motion to approve

13· ·the minutes.

14· · · · CHAIRMAN VINCENT:· Second?

15· · · · MS. SCHAAFSMA:· Second.

16· · · · CHAIRMAN VINCENT:· All in favor?

17· · · · (Chorus of ayes.)

18· · · · CHAIRMAN VINCENT:· Okay.· The minutes

19· ·should show that we approved the minutes for

20· ·July 13th, 2015 -- if that's the right way to

21· ·say it -- Roberts Rules of Order.

22· · · · The next portion of our meeting today is

23· ·going to be a presentation by Jack Martin, who

24· ·is the financial specialist for the Gary

25· ·Community School Corporation.



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·1· · · · So Jack, if you want to go through that

·2· ·presentation.· Maybe, Jack, if you could start

·3· ·off with a little of your background, some of

·4· ·your other work as well, I think that would be

·5· ·helpful, and then we'll move from that

·6· ·discussion to a discussion with the board.

·7· · · · I believe that today Gary Schools is

·8· ·requesting the DUAB to approve or move forward

·9· ·in the process for a 15 million-dollar loan.

10· · · · So Jack, if you want to jump in and kick us

11· ·off, and if you're comfortable with it, we'll

12· ·ask questions as we move along.

13· · · · MR. MARTIN:· I think that's probably best,

14· ·rather than to save the questions, frankly.

15· · · · CHAIRMAN VINCENT:· Okay.

16· · · · MR. MARTIN:· Let me first introduce the

17· ·team that is with me, Mark Schrupp, Jerry

18· ·Greenblatt, and Bill Aldridge.

19· · · · A little bit about my background, I am a

20· ·certified public accountant, currently chairman

21· ·of Martin, Arrington, Desai & Meyers, CPA firm

22· ·headquartered in Bingham Farms, Michigan.

23· · · · Related to restructuring work, my most

24· ·recent experience with appointments by Governor

25· ·Rick Snyder as the emergency manager of Highland



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·1· ·Park Schools, chief financial officer appointed

·2· ·by the governor and Mayor Dave Bingham, chief

·3· ·financial officer of the City of Detroit, so

·4· ·we've worked through a lot of the bankruptcy

·5· ·issues; and most recently, emergency manager of

·6· ·Detroit Public Schools.

·7· · · · And the two members of my team, Mark

·8· ·Schrupp -- well, all the members of this team

·9· ·have DPS experience.

10· · · · I am a graduate of Detroit Public Schools,

11· ·a BS and MBA from Wayne State, and an unfinished

12· ·doctorate from University of Minnesota --

13· ·transferred campus, so I dropped out of the

14· ·program years ago.

15· · · · CHAIRMAN VINCENT:· Jack, you're also the

16· ·CFO for the U.S. Department of Education; is

17· ·that right?

18· · · · MR. MARTIN:· Oh, yes.· Thanks, Micah. I

19· ·was secretary -- well, under the first George

20· ·H.W., I was administrative law judge for the

21· ·Provider Reimbursement Review Board -- that's a

22· ·quasi judicial board at the U.S. Department of

23· ·Health and Human Services, a three-year term

24· ·appointment.

25· · · · I went back in 2001, and was nominated



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·1· ·assistant secretary, chief financial officer of

·2· ·the U.S. Department of Education, and since we

·3· ·sort of got the U.S. Department of Education

·4· ·turned around, the president gave me in

·5· ·addition, what they called additional duties,

·6· ·assigned as executive director of the Selective

·7· ·Service System.· So when the war started, I was

·8· ·in charge of Selective Service, and had to go

·9· ·out and talk frequently about the fact, when the

10· ·president was running for reelection, he was not

11· ·going to draft.· That was all over the place,

12· ·that if he was reelected he was going to draft

13· ·for the Iraq war.

14· · · · It was an interesting assignment.· I did

15· ·that for about nine months.· Then I became the

16· ·sole nomination, and the guy that had been

17· ·nominated, so I was in the job almost a year,

18· ·and spent a lot of time figuring out

19· ·briefings -- and it was interesting.

20· · · · Interestingly enough, that was when they

21· ·first called me from presidential personnel

22· ·about what I wanted to do in this new Bush

23· ·Administration.· I said defense or health and

24· ·human services, but they said that the

25· ·Department of Education had such serious



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·1· ·problems, would I mind doing that, and that's

·2· ·how I ended up here.

·3· · · · Okay.· So let me thank you all for allowing

·4· ·me to make this presentation today.· And I would

·5· ·first, I think, direct you to page 3, just to

·6· ·comment about 213.· Right now, I think in terms

·7· ·of my relationship with the Board and

·8· ·superintendent and the general community in

·9· ·Gary, PL 213 implementation is on time.· We're

10· ·all working together.

11· · · · The only thing we've gotten any pushback on

12· ·so far is discussion of one school closure, and

13· ·that was from, I think, one board member, maybe

14· ·two.· So things are going well, and we expect

15· ·they will continue.· But I think we're still in

16· ·the honeymoon period, so anything could happen.

17· · · · So going to page 4, just some background on

18· ·Gary, which I'm sure many of you are already

19· ·familiar, founded in 1906.· Population has seen

20· ·significant decreases, 178,000 people in 1960,

21· ·down to 77,000 in 2014, and I think still

22· ·declining.

23· · · · A large land mass, which makes delivering

24· ·certain services inefficient, and really I think

25· ·it hurts the bus routes, because you have people



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·1· ·scattered all over the place, which increases

·2· ·your student transportation costs.

·3· · · · Per capita income is significantly lower

·4· ·than the rest of the state, $15,900, versus

·5· ·24,600, and median home value of 65,400 versus

·6· ·123,000 for the rest of the state of Indiana.

·7· · · · Population history, the high point was the

·8· ·1960 census, 178,000 folks, down right now to an

·9· ·estimated 78,000 residents of the city of Gary.

10· · · · And I'm on page 6.· The screen is behind

11· ·you.· I'm on 6.

12· · · · The school corporation was incorporated in

13· ·1909, and did some pioneering work at that time,

14· ·the platoon system of work study, where you go

15· ·take academic classes in the morning and go to a

16· ·trade school type training in the afternoon, and

17· ·reverse, depending on where the students are

18· ·located.

19· · · · The number of schools in 1970 was 43, right

20· ·now it's down to 15.· And I would guess that the

21· ·percent occupancy of those schools probably

22· ·averages 30 percent, or something like that.

23· · · · MR. SCHRUPP:· 48 percent.

24· · · · MR. MARTIN:· And this is, I think, true in

25· ·other stressed districts.· We in Detroit had the



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·1· ·same kind of history, lots of buildings, most of

·2· ·them pretty much empty.

·3· · · · CHAIRMAN VINCENT:· You said it was 48

·4· ·percent occupancy?

·5· · · · MR. SCHRUPP:· I'll give you the exact

·6· ·number, but yeah.

·7· · · · CHAIRMAN VINCENT:· What is typical, I mean,

·8· ·in a school corporation?· Would you expect them

·9· ·to be -- you don't expect them to be a hundred

10· ·percent, I would assume -- but what is a typical

11· ·school occupancy?

12· · · · MR. SCHRUPP:· You want to be in the 70s and

13· ·higher, to be efficient.


15· · · · MR. SCHRUPP:· And the newer buildings are

16· ·close to that number.· We have three new

17· ·buildings that are close to 75 percent.· We've

18· ·got some older ones that are in the 20, 30

19· ·percent.

20· · · · MR. MARTIN:· I think the high schools are

21· ·probably 30 percent.

22· · · · MR. SCHRUPP:· Yeah, the high schools are

23· ·really low.

24· · · · MR. MARTIN:· 2000, probably 800 kids.

25· · · · CHAIRMAN VINCENT:· And are those schools



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·1· ·still operating because of geographic concerns,

·2· ·or because of just local operational concern,

·3· ·you know, local neighborhood concerns of having

·4· ·kids?

·5· · · · MR. SCHRUPP:· We closed a lot of schools in

·6· ·the last ten years, and when they closed they

·7· ·are at a certain enrollment level, and the next

·8· ·two years, it keeps dropping.· So when they

·9· ·closed a lot of schools, their percentages were

10· ·higher.· They just closed four more last year.

11· ·And there's a fair amount of exhaustion from all

12· ·the school closures.· 38 in 2000 to 15, closed

13· ·over 60 percent of their schools in about 15

14· ·years.

15· · · · But it's continuing to drop, so each year

16· ·the occupancy rate goes down.

17· · · · MR. MARTIN:· And the phenomenon I talked

18· ·about a whole lot, when we close the school,

19· ·those kids don't stay, all those kids don't stay

20· ·in your system, they go someplace else.· So

21· ·closing a school to save money, you're going to

22· ·lose population, and your basic rent is going to

23· ·go down.· Because they will go to charters or go

24· ·someplace else.· If the charter is closer

25· ·they'll go there rather than be bussed across



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·1· ·town someplace.· That's what the parents will

·2· ·elect.

·3· · · · Slide 7, student population history, 2010

·4· ·it was 11,000, almost 12,000; 2011 down to 9800;

·5· ·2012, 9100, 9200; 2013, 8900; 2014, almost 8600;

·6· ·and 2015, 7107.· And right now we're looking at

·7· ·a total student population of 6,996.· But that

·8· ·includes Roosevelt School, which we're

·9· ·estimating about 630 kids, and preschool kids,

10· ·which is about 400.

11· · · · CHAIRMAN VINCENT:· And is this -- do you

12· ·have a sense of the total number of possible

13· ·students?· And I guess the question I'm kind

14· ·getting at is, the school I grew up in Randolph

15· ·County, it's very small, it has a thousand kids,

16· ·and that's all the kids that are there.· So

17· ·there's no charters, there's no vouchers in that

18· ·area.

19· · · · Do you have a sense of the total number of

20· ·kids that could potentially be in the Gary

21· ·School Corporation?

22· · · · MR. MARTIN:· I think it's about double.

23· · · · MR. SCHRUPP:· We've seen some demographic

24· ·data that suggests that it's about half and

25· ·half, charter and Gary Schools.· And some are



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·1· ·going across borders, Hammond and some others,

·2· ·so about 50 percent.

·3· · · · MR. MARTIN:· And interestingly, that's

·4· ·about the same in Detroit, about 50 percent of

·5· ·the kids are in Detroit Public Schools, and the

·6· ·other 50 percent are a lot of school choice

·7· ·charters.

·8· · · · MS. SCHAAFSMA:· Is there, on this, what's

·9· ·the reasoning for the estimate for the

10· ·expectation for 2016, in terms of what you're

11· ·seeing?

12· · · · MR. MARTIN:· The numbers, it's close, but

13· ·it goes up and down.

14· · · · MR. SCHRUPP:· I think it's not final yet.

15· · · · CHAIRMAN VINCENT:· Lisa, is that right?

16· · · · MS. ACOBERT:· Yes, we're still finalizing

17· ·it.

18· · · · MR. MARTIN:· Financial troubles, slide 8.

19· ·Dramatic four-year decline, cash and investments

20· ·down 8.4 million dollars, in '11, 16.6 in '12,

21· ·2.1 in '13, and that drop was due to a

22· ·significant borrowing, which is shown on the

23· ·following page, page 9, and 2014, 2.6 million.

24· ·So it's been a decline driven a lot by losses in

25· ·student enrollment.



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·1· · · · And the causes, I think probably a major

·2· ·cause is the historic overstaffing.· You know, I

·3· ·think right now, I think we've got 200 more

·4· ·folks than we need.· And I think that has been

·5· ·the case over several years.· My understanding

·6· ·is that principals are pretty much given leave

·7· ·to hire -- to do their own hiring -- and I think

·8· ·it's true here, as it was true in Detroit and

·9· ·other districts, that if they are given that

10· ·option, they will have people there that

11· ·shouldn't be there.

12· · · · CHAIRMAN VINCENT:· So there's no

13· ·centralized hiring.

14· · · · MR. MARTIN:· Right.· The hiring is

15· ·centralized, but there's no central control.

16· ·We're trying to implement those controls.

17· · · · CHAIRMAN VINCENT:· Okay.· Can I ask you a

18· ·question on the first part of that, on the first

19· ·part of that slide.· These numbers, it says 18.4

20· ·million in 2011 and 16.6 million in 2012, that

21· ·is the amount in reduction in the cash and

22· ·investment in that year.· Is that correct?

23· · · · MR. MARTIN:· Yes.

24· · · · CHAIRMAN VINCENT:· So it's not the overall

25· ·balance, was negative 18.4.· The point I'm



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·1· ·trying to make is it did not improve --

·2· · · · MR. SCHRUPP:· It's on the next slide.· That

·3· ·slide will show you the balance.

·4· · · · MR. MARTIN:· Right.· If you look on slide

·5· ·9, cash and investment balances, you can see how

·6· ·they have declined from 2010, 37.2, down to 1.7

·7· ·in 2014.

·8· · · · CHAIRMAN VINCENT:· Okay.

·9· · · · MR. MARTIN:· Did you want to say any more

10· ·on the causes?

11· · · · MR. SCHRUPP:· You mentioned the declining

12· ·enrollment, the declining population, people in

13· ·the city are leaving and taking their kids with

14· ·them.· The overstaffing, making the adjustments

15· ·fast enough to match the enrollment is hard to

16· ·do.

17· · · · Bill had a chart on the per-pupil rent

18· ·figure going down.· This table shows what it was

19· ·in 2010, and where it declined to currently.· So

20· ·we're losing kids, but the amount per child is

21· ·going down.

22· · · · MR. MARTIN:· And that decline was about 21

23· ·percent, I believe.

24· · · · MR. SCHRUPP:· Over five years.· And then

25· ·that's the per pupil.



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·1· · · · And we mentioned the inability to cut fast

·2· ·enough.· You lose 10 percent, or you lose your

·3· ·enrollment, but you're predicting the number of

·4· ·teachers you need in May and June, and you're

·5· ·kind of locked in for a year, you know.

·6· · · · There's some legacy costs, things,

·7· ·decisions made in prior years, you're still

·8· ·carrying those costs.· There's some litigation

·9· ·that's still hanging around, they are still

10· ·paying for those things.

11· · · · And then last, the inefficiencies

12· ·associated with the decline.· When you lose 10

13· ·percent of your kids, they don't come all out of

14· ·one building, so you can't just close that one.

15· · · · CHAIRMAN VINCENT:· You can't just close one

16· ·corner?

17· · · · MR. SCHRUPP:· You close 10 percent.· You

18· ·still have a principal, you still have some of

19· ·your fixed costs, but your revenue is down and

20· ·you can't spread that out.· And central office

21· ·cost, it shard to take 10 percent out of

22· ·everybody when you lose that.

23· · · · So those are the kinds of things that make

24· ·it challenging as you decline, you can't cut

25· ·fast enough.



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·1· · · · MR. MARTIN:· You can't cut fast enough.

·2· ·Bill?

·3· · · · MR. ALDRIDGE:· Yeah.· There have been a

·4· ·number of studies nationwide, in terms of school

·5· ·districts, that are faced with continuing

·6· ·decline in the number of students.· And one of

·7· ·the most notable ones was done by the senate

·8· ·fiscal agency in Michigan.· It was, again,

·9· ·spread throughout the country, because obviously

10· ·a number of states, cities, and other units are

11· ·facing the same kind of problem.

12· · · · But the bottom line to the study was, you

13· ·simply can't cut fast enough.· By the time you

14· ·find out where you're at in terms of number of

15· ·students, you have an immediate revenue hit.· In

16· ·other words, the impact on revenue happens

17· ·instantaneous.· It takes time to wean and to

18· ·ream certain costs out of a school district, for

19· ·operational reasons.

20· · · · So, again, the issue is when you have

21· ·continuous decline in school districts, chances

22· ·are they really won't be able to cut at the same

23· ·rate that they shared revenue.

24· · · · MR. MARTIN:· Page 9 is all funds.· And we

25· ·go to selected funds, which would be general



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·1· ·fund, debt service, exempt debt, capital

·2· ·projects, and transportation.· The decline in

·3· ·cash investment balance is even more, 8.6

·4· ·million in 2010, down to minus 12.7 million in

·5· ·2014.

·6· · · · So that's, again, as we said, the decline

·7· ·in student population -- and then I think most

·8· ·importantly, not managing expenses.· Expenses,

·9· ·particularly labor, payroll, fringe benefits,

10· ·the numbers are huge, as we'll see soon.· And I

11· ·think they have made some staff cuts, but the

12· ·staff cuts have not met the revenue losses.

13· · · · Bill, you want to say a few words about the

14· ·debt summary real quick?

15· · · · MR. ALDRIDGE:· Sure.· In reviewing the

16· ·corporation, Gary Corporation's records, as well

17· ·as utilizing the fantastic system that the State

18· ·has, Gateway, we were able to -- and very --

19· · · · CHAIRMAN VINCENT:· Well done.

20· · · · MR. ALDRIDGE:· We were able to drill

21· ·down -- and that's fantastic.

22· · · · MS. SCHAAFSMA:· Only mildly appropriate.

23· · · · MR. ALDRIDGE:· We drilled down to get some

24· ·idea as to the existing debt structure.· And

25· ·these balances are as of June 15, 2015.· And we



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·1· ·selected that date primarily because there were

·2· ·various -- I'll say documentation -- that

·3· ·allowed us to confirm within a certain range of

·4· ·accuracy what the outstanding debt was.

·5· · · · The next slides essentially, again, is the

·6· ·drill down.· It shows the interest rate, the

·7· ·name of the particular debt structure.· And what

·8· ·we really revealed this for, the purpose of

·9· ·reviewing this was really the debt is about 75

10· ·million dollars.· And again, looking at that

11· ·number doesn't tell us much.· But looking at

12· ·what the debt service is, the kind of interest

13· ·that is being paid on that debt, gives us some

14· ·idea as to whether, again, whether there are

15· ·options in terms of dealing with the 75 million.

16· ·And we're still looking at that.

17· · · · CHAIRMAN VINCENT:· Bill, you brought us to

18· ·a point -- and I'll ask about this later -- but

19· ·I'm just going to interrupt and reference it

20· ·now -- is the quality and accuracy of financial

21· ·records.

22· · · · MR. ALDRIDGE:· Yes.

23· · · · CHAIRMAN VINCENT:· We'll talk about that

24· ·later.

25· · · · MR. MARTIN:· Okay.· I guess I will now



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·1· ·direct you to slide 15.· And we don't have that,

·2· ·for folks behind you, we don't have that, but

·3· ·it's in the packet.· It's on page 15.

·4· · · · And just go to the extreme left total

·5· ·column.· And I think this pretty well summarizes

·6· ·what's happening in the City of Gary.· And I

·7· ·think some of you have seen this before.

·8· · · · But the total base rent is 53 million

·9· ·dollars.· We -- there are a number of offsets.

10· ·The first one, common school debt service, TRF

11· ·and PERF, since we don't make those payments on

12· ·time, and Roosevelt High School, those offsets

13· ·total 6.8 million dollars.

14· · · · There is a debt service bank intercept,

15· ·633,595 a month, that will total, through

16· ·December, $3,800,000.

17· · · · There are net basic -- I'm sorry -- there's

18· ·a loss due to enrollment declines, and the

19· ·Department of Education is claiming overpayments

20· ·that have occurred since, probably since June,

21· ·July.

22· · · · MS. ACOBERT:· It's the reconciliation of

23· ·the two accounts.


25· · · · MR. MARTIN:· So we're estimating that to be



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·1· ·5.9 million.· And that may be high.· Once the

·2· ·enrollment numbers settle down, we'll, I think

·3· ·we'll know exactly what that will be.· But right

·4· ·now we're saying it's close to six million.

·5· · · · So those are deducts.· And that gets us

·6· ·down to non-grant funded or net basic grant

·7· ·available for payroll and other non-grant funded

·8· ·expenses of 36.7 million dollars.· And that's

·9· ·starting off at 53, and we're down to 36.7 at

10· ·this point.

11· · · · Then we added back in our special education

12· ·funding, food service, Medicaid and Medicaid

13· ·Recovery, and federal indirect costs,

14· ·administrative costs that can go to the general

15· ·fund.· And that took us to 42 million dollars,

16· ·43.3 million dollars in revenue.

17· · · · We deducted from that payroll, which is

18· ·$50,926,000.· And that's detailed on Schedule,

19· ·Exhibit A.· And other expenses, which are

20· ·expenses that would normally be paid monthly,

21· ·that are really not being paid, but I put them

22· ·in here to show just what it should look like.

23· ·But these expenses aren't being paid on any

24· ·routine basis, it's just whoever screams the

25· ·loudest and threatens to cut something off, then



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·1· ·we've got to find a way to pay them.

·2· · · · So you deduct all of that, and you come up

·3· ·with a negative $11,350,175.· Deducting the

·4· ·critical vendors, which is basically the reason

·5· ·we're here for this, requesting this loan, and

·6· ·I've got 16,564,536.· We're not -- we're

·7· ·requesting 15 million, which soon we'll make up

·8· ·that delta through some cuts in personnel and

·9· ·some other savings.

10· · · · But the any rate, if you add all that up,

11· ·we get down to a negative 27,815,711.· And it

12· ·doesn't stop there.· So that does not include

13· ·their critical vendor payments, additional

14· ·critical vendor payments of 10,549,528, that

15· ·aren't accounted for here.

16· · · · The biggest part of that is the Internal

17· ·Revenue Service, which we do have a good number

18· ·now.· I thought it was 12 million.· Micah, I may

19· ·have said that to you at some point.· But the

20· ·actual amount is about almost eight million.

21· ·And that includes penalty and interest through,

22· ·I think, September 15th.

23· · · · They are on the payment plan.· We are

24· ·thinking about -- we're going to go to the IRS

25· ·and ask -- probably propose an offer and



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·1· ·compromise, and ask what they'll settle for.

·2· ·But I don't want to do that until I have some

·3· ·idea if we'll be able to offer them $500,000 or

·4· ·a million to go away.· So --

·5· · · · CHAIRMAN VINCENT:· In your experience with

·6· ·IRS settlements, what's possible?

·7· · · · MR. MARTIN:· I think -- and I'm not a tax

·8· ·person, I hate taxes -- but I think, no, I think

·9· ·given the situation in Gary, it's a public

10· ·entity, you've got the welfare kids, the welfare

11· ·of city and state, so I think that they would

12· ·probably -- and there's no way they are going to

13· ·collect the money.· Typically they look at all

14· ·our assets.· There are no assets to look at.

15· ·They have liens, I think, on most of the

16· ·buildings and vacant property.· But, you know,

17· ·the likelihood they are going to get seven,

18· ·eight million dollars, is poor.· So I think they

19· ·would be willing to talk.

20· · · · And I'm told that they were talking about

21· ·an offer and compromise before, and the account

22· ·wasn't paid so everything just shut down.

23· · · · MR. ALDRIDGE:· And we were informed that

24· ·another school district in Indiana, which ran

25· ·into a similar situation with the Internal



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·1· ·Revenue Service, was successful in terms of

·2· ·negotiating a fairly reasonable arrangement with

·3· ·the Service.· So we most certainly will push

·4· ·that.· That's eight million dollars that the

·5· ·corporation simply does not have.

·6· · · · MR. MARTIN:· At any rate, talking about the

·7· ·trench that they are in, so we have got the 27,

·8· ·plus the 10-five -- 37, 38 -- and we've got

·9· ·other vendors that they just aren't paying, and

10· ·that gets us up another 15 million.· It's over

11· ·50.

12· · · · And then we've got 47 potential lawsuits

13· ·hanging out there.· We don't know what the

14· ·outcome of those might be.

15· · · · So they are in really, really bad shape.

16· · · · CHAIRMAN VINCENT:· Jack, on critical

17· ·vendors -- and I know that we'll talk more in

18· ·detail, or maybe we'll do some of this now --

19· ·critical vendors, there is a type of vendor that

20· ·your belief is we are going to have to, you

21· ·know, the amount of haircut we can achieve is

22· ·limited.· And then there's another set of

23· ·vendors that the amount of haircut we can

24· ·achieve is very significant.

25· · · · MR. MARTIN:· Right.



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·1· · · · CHAIRMAN VINCENT:· So it just, it kind of

·2· ·depends on the class of vendor and the type of

·3· ·service they provide and whether they are still

·4· ·providing services.· Am I kind of right on my

·5· ·thinking?

·6· · · · MR. MARTIN:· That is absolutely correct.

·7· · · · CHAIRMAN VINCENT:· So all in, though,

·8· ·there's the existing critical vendor piece you

·9· ·think you have to pay, there's the critical

10· ·vendor piece that you think you can negotiate

11· ·down, and then there's another vendor class

12· ·which you think you can significantly reduce.

13· ·So a 15 million-dollar loan could pay a very

14· ·significant amount of those.· Is that accurate?

15· · · · MR. MARTIN:· (Nods head up and down.)

16· · · · And if we had -- probably, Micah, for the

17· ·vendors, the 15 million, just on our aged

18· ·accounts payable, a lot of those folks would

19· ·take 10, 15 cents on the dollar.

20· · · · MR. SCHRUPP:· You don't have the leverage

21· ·of bankruptcy.· That always helps get their

22· ·attention.· But cash in front of them might make

23· ·them interested in taking a smaller payment.

24· · · · But we'd have to orchestrate some sort of,

25· ·you know, timeframe for them to take payment or



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·1· ·else wait.

·2· · · · MR. MARTIN:· And the other critical

·3· ·vendors, for example, Gary Sanitation District,

·4· ·the corporation's counsel said we might try to

·5· ·negotiate with the mayor to get some of that

·6· ·forgiven.· I don't know how that would play in

·7· ·Gary, but we're going to try that.

·8· · · · CIGNA, they basically told us no.· NIPSCO

·9· ·said they might forgive interest.· But it's --

10· ·it's a big number.· And these are venders that

11· ·if we don't pay them, we're going to basically

12· ·have to shut the schools down.· Then we've got

13· ·some other things, such as fire safety, we need

14· ·money for that.

15· · · · MR. SCHRUPP:· We're out of funds.

16· · · · CHAIRMAN VINCENT:· And this is with the

17· ·state fire marshal.

18· · · · MR. MARTIN:· Right.· We've talked to the

19· ·fire marshal, and they are working with us so, I

20· ·think they are going to give us time to make all

21· ·these repairs.

22· · · · CHAIRMAN VINCENT:· Okay.· What do those

23· ·repairs come to?· Do you have a number on those

24· ·repairs?· I know that initially the school

25· ·estimated one amount, and then I had a much



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·1· ·lower amount from the fire marshal.

·2· · · · MR. SCHRUPP:· Until you get in to see what

·3· ·the problems are, the systems are working fine,

·4· ·you might not have to make many repairs, but

·5· ·they haven't done any inspections for two years.

·6· ·So you don't know which, you know, what the

·7· ·problems are.· We gave a conservative estimate.

·8· · · · MR. MARTIN:· If you go to slide 18, you can

·9· ·see, I think, we had the fire systems, 419,000.

10· ·Micah, I think the number that you had was like

11· ·60,000 --

12· · · · CHAIRMAN VINCENT:· I think I had 60,000,

13· ·yeah.

14· · · · MR. MARTIN:· And I think we talked about,

15· ·that might be one school.

16· · · · MR. SCHRUPP:· 419 is probably a

17· ·conservative number, but until we know what is

18· ·wrong with each of the systems, you know, they

19· ·haven't been maintained in most of the schools,

20· ·so there could be some big charges.· And I think

21· ·you have to look at the whole portfolio, which

22· ·schools are going to be around, and how much

23· ·more you invest in each of them.

24· · · · CHAIRMAN VINCENT:· Right.· Obviously we

25· ·don't want to invest in schools that won't be



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·1· ·there.

·2· · · · MR. SCHRUPP:· Right.

·3· · · · MR. MARTIN:· Other issues, we were just on

·4· ·the phone with the corporation a few minutes

·5· ·ago, and we've got boiler issues in some of the

·6· ·schools now.· And one vendor is demanding we pay

·7· ·all past due bills, in addition to half of what

·8· ·it's going to cost to fix the boilers right now.

·9· ·So we're trying to work through that.

10· · · · We have two schools that we've got in the

11· ·old administration --

12· · · · MR. SCHRUPP:· Two schools in the former

13· ·administration building.· The systems just have

14· ·not been maintained, so they are actually

15· ·falling apart faster.

16· · · · MR. GREENBLATT:· Schools that are

17· ·unoccupied invite theft, looking for copper,

18· ·looking for metals, looking for value.

19· · · · CHAIRMAN VINCENT:· So does that mean it's

20· ·important that if a school goes to vacancy, it

21· ·needs to go off the books?· Is that kind of the

22· ·message that you're making?

23· · · · MR. MARTIN:· Well, it needs to be secured.

24· ·Because, you know -- and it's not as bad in

25· ·Gary, I think, as it was for us in Detroit --



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·1· ·but the buildings here appear to be fairly well

·2· ·secured, the ones I saw.

·3· · · · MR. SCHRUPP:· The newspaper had one the

·4· ·other day, there are some that are wide open.

·5· ·Some are fairly well secured, but some have been

·6· ·completely ripped open.· The old Emerson High

·7· ·School is wide open.· They found a body in

·8· ·there.

·9· · · · MR. GREENBLATT:· So they take the window

10· ·frames, the metal window frames.

11· · · · CHAIRMAN VINCENT:· For scrap metal.

12· · · · MR. MARTIN:· Having that as a nextdoor

13· ·neighbor kills your property values.

14· · · · And I think some of the pushback in terms

15· ·of closing schools is we don't want a vacant

16· ·building next to us causing our property values

17· ·to decline.· And I understand that.· Some of our

18· ·buildings in Detroit, really nice neighborhoods,

19· ·close a school and two months later the

20· ·scrappers are there.

21· · · · And I don't know -- we passed a new law,

22· ·and I think that helped a little bit, but I'm

23· ·not sure.

24· · · · MR. SCHRUPP:· But then you drive more

25· ·people out with another unoccupied school, but



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·1· ·if it's open, it's safe, you close it, it

·2· ·becomes unsafe, and people will move.

·3· · · · MR. MARTIN:· Okay.· Let's go to slide 22.

·4· ·And Martin will talk about the facilities and

·5· ·maintenance.

·6· · · · MR. SCHRUPP:· Just some background on where

·7· ·the corporation is right now, they are down to

·8· ·15 buildings.· That includes Roosevelt and a

·9· ·couple support buildings.

10· · · · 2.5 million square feet of space in use,

11· ·most -- a lot of that is empty, some of the

12· ·schools, you know, whole floors are empty -- 416

13· ·acre.· You have really large parcels in Indiana.

14· ·Some of the schools are 40-acre sites, and cost

15· ·a lot of keep the grass cut.

16· · · · In 2013, that seems to be the last year

17· ·that actual preventive maintenance has been

18· ·done.· You have got three newer buildings that

19· ·came online in 2005.· You know, when you heat up

20· ·a building, you bring water into the system, you

21· ·have to chemically treat the water before you

22· ·let it run through.· They haven't done chemical

23· ·treatment in two years, which is causing their

24· ·boilers to shut down, and they are spending a

25· ·lot of money on expensive repairs that could



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·1· ·have been prevented.· But because their cash has

·2· ·been so tight, they haven't even being buying

·3· ·boiler chemicals.

·4· · · · CHAIRMAN VINCENT:· So is that like skipping

·5· ·the oil change to save money?

·6· · · · MR. SCHRUPP:· It's like driving a car

·7· ·80,000 miles on one oil change.· So it really

·8· ·causes damage.· So we're, some of the boilers

·9· ·we're dealing with right now are repairs you

10· ·shouldn't have to make, but because they haven't

11· ·been spending money on the preventative

12· ·maintenance it's causing more.

13· · · · They have a lot of roof issues as well,

14· ·even on some of the newer buildings there are

15· ·some roof issues.

16· · · · No fire system maintenance, as we said, so

17· ·we've got buildings that are just out of

18· ·compliance, but we're working with the fire

19· ·marshal.· So we had six schools at the beginning

20· ·of the year that had HVAC issues, down to two,

21· ·but we're Band-aiding a lot of these.· We're not

22· ·actually making complete repairs because of

23· ·limited cash.

24· · · · The roof replacements, if we did them all,

25· ·would be over five million.· Obviously we don't



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·1· ·have that money, and we have to make some

·2· ·decisions about which schools.

·3· · · · West Side High School could hold 3,000

·4· ·students, there are about 800, and it needs a

·5· ·two million-dollar roof.

·6· · · · You know, we've got -- did an evaluation of

·7· ·the staff and productivity -- the productivity

·8· ·levels are really low.· You've got a custodial

·9· ·crew with hardly any equipment that works, so

10· ·cleaning floors is being done with a mop and a

11· ·bucket instead of big labor-saving equipment,

12· ·because the equipment hasn't been maintained,

13· ·and maybe it just needs a battery or some filter

14· ·cleaning, but they are shut down.

15· · · · And so the morale is pretty low.· Everyone

16· ·is sort of predicting doom.

17· · · · MR. MARTIN:· Micah, I would say that part

18· ·of the eight million, a tiny fraction would go

19· ·to repair equipment and buy some new equipment

20· ·so they can work more efficiently.

21· · · · CHAIRMAN VINCENT:· Which would add to or

22· ·make more possible some of the labor changes

23· ·your corporation is looking at.

24· · · · MR. MARTIN:· Right.

25· · · · MR. SCHRUPP:· Separate from outsourcing,



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·1· ·with the 74 custodians, if we got all the

·2· ·equipment working you probably could get by with

·3· ·65.

·4· · · · One thing I noticed in the labor contracts,

·5· ·you get almost two months off paid, which is

·6· ·extraordinary.· You've got 14 paid holidays.

·7· ·And a lot of workers have three to four weeks

·8· ·paid vacation.· So keeping a consistent staff to

·9· ·get projects done is really hard to do, because

10· ·people are using their time.· And so it just

11· ·makes it really challenging.

12· · · · The next slide just kind of gives some

13· ·rough numbers in terms of overall cost.· We're

14· ·looking at four and a half million dollars for

15· ·custodians, the maintenance, that includes

16· ·plumbers and electricians, about 14 people that

17· ·make repairs, and then four people overseeing

18· ·all of that -- two managers and two clerical --

19· ·about 6.3 million dollars.

20· · · · And that's -- that exceeds their levy for

21· ·capital and maintenance -- so just their own

22· ·staffing, that doesn't include any parts or

23· ·outside repairs or anything.

24· · · · The utilities, we're estimating at about

25· ·3.4 million, so they're heating a lot of empty



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·1· ·space, a lot of utilities.

·2· · · · Just some metrics down below, we calculated

·3· ·that they're spending almost $1500 per child on

·4· ·M and O.· And counsel of great city schools, you

·5· ·want to try keep that number below a thousand.

·6· ·But when you've got low enrollment, lots of

·7· ·empty space, your cost per student is going to

·8· ·be a little bit higher.

·9· · · · Eighteen percent of the budget is going to

10· ·just operation and maintenance.· It should be

11· ·below 10 percent, but when you've got these are

12· ·sort of the inefficiencies of shrinkage that we

13· ·talked about...

14· · · · We looked at student transportation,

15· ·something the State has actually been helping

16· ·the corporation with the last year.· They are

17· ·outsourced under a three-year contract -- it's

18· ·the third year of it -- about 3200 students are

19· ·transported daily.· It's over 55 percent of the

20· ·enrollment.· They have a pretty large walk zone

21· ·for schools.· In Detroit we had a three-quarter

22· ·mile walk zone, so if you are within

23· ·three-quarters of a mile you walk.· They have

24· ·extended it to a full mile, even for

25· ·kindergartens.



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·1· · · · What happens is if you are on the outside

·2· ·of that walk zone, you just walk over here to

·3· ·the bus instead of walking a mile to the school.

·4· ·So it increases their numbers.· And the bus

·5· ·drivers aren't turning away students that are at

·6· ·the stop.

·7· · · · In 2014, at the beginning of the year, they

·8· ·had 87 routes they were running.· And that was

·9· ·going to track for about 6.1 million for the

10· ·year.· You're charged on a per day, per route

11· ·cost of about $380.

12· · · · They reduced the routes by combining --

13· ·some of the routes didn't have full, full buses,

14· ·so they -- by December they have reduced the

15· ·routes to 69, which saved about 1.4 million.

16· · · · This year we started at 65 routes, and we

17· ·were tracking at 4.8 million.· Since opening

18· ·day, they have combined several routes and are

19· ·down to 61, which is pretty good.

20· · · · We're in a bid year for the contract, so

21· ·depending on how things go, we'll put it out for

22· ·bid, I think the last time they bid this they

23· ·only got one bidder, so they may not have gotten

24· ·tight pricing.

25· · · · CHAIRMAN VINCENT:· This is Illinois



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·1· ·Central?

·2· · · · MR. SCHRUPP:· Illinois Central.

·3· · · · CHAIRMAN VINCENT:· You expect on a

·4· ·three-year contract, that can go one of a couple

·5· ·ways.· I mean, that's --

·6· · · · MR. SCHRUPP:· There's an option for

·7· ·renewal, so you could negotiate a reduction.

·8· ·Gas prices are a lot lower than they were three

·9· ·years ago, so they may have built in a little

10· ·bit more cost for that, and now they're, you

11· ·know, they have got a little more cushion.· But

12· ·you may put it out for bid and get some others.

13· · · · I think to get anyone to bid, we've got to

14· ·improve the picture.· Because bidders are real

15· ·nervous about providing work without money up

16· ·front.· And that's going to be a challenge.

17· · · · But the State has been helping, Mike Rocka

18· ·has been real helpful.

19· · · · Food services, I'm not clear on all of the

20· ·history of it, but there were certainly some

21· ·accounting and compliance issues that cause the

22· ·service to go from partially outsourced with

23· ·management and staffing by the district to a

24· ·hundred percent outsourcing, so all of the food

25· ·service staff is employed by Sodexo.· Initially



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·1· ·payments were coming to the school corporation

·2· ·and then going out to Sodexo -- maybe they

·3· ·weren't going out to Sodexo -- so they changed

·4· ·the arrangement, and now it goes to the State,

·5· ·Sodexo gets paid and the rest goes to the school

·6· ·corporation.

·7· · · · They have a contracted, sort of guaranteed

·8· ·amount, 580,000 Sodexo guarantees.· There's not

·9· ·a lot of oversight right now with the contract

10· ·and the buildings, the monthly invoices.· That's

11· ·a minimum guarantee.· So if, if the invoices

12· ·were scrutinized a little more tightly, they

13· ·might even get more.· But that's all within the

14· ·food service fund.· It doesn't really help the

15· ·general fund.

16· · · · MR. MARTIN:· We think that's a revenue

17· ·opportunity.· Because if we can double that,

18· ·which our understanding of this business says we

19· ·can, then we could use that additional money to

20· ·make repairs to kitchen equipment, any services

21· ·that support food service, we could use money

22· ·and take that pressure off the general fund.

23· · · · MR. SCHRUPP:· They may not be directly

24· ·charging food service for all legitimate things,

25· ·like cleaning cafeterias, garbage related to



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·1· ·cafeterias.· So if we can increase the 580 to a

·2· ·higher number, then shift some of those garbage

·3· ·costs and cleaning costs over to food service,

·4· ·that would relieve the general fund of some

·5· ·pressure.

·6· · · · MR. MARTIN:· And that's consistent with

·7· ·federal regulations.

·8· · · · MR. SCHRUPP:· Yeah.· IT.· Jerry?

·9· · · · MR. GREENBLATT:· The IT organization, you

10· ·might want to indicate is a pretty inflexible

11· ·group, because no matter how many users you have

12· ·for the system, you still have to maintain the

13· ·system.· The more users you have, obviously the

14· ·more efficient.

15· · · · The Department now has 12 staff members.

16· ·Eight of them are involved in help desk and

17· ·field service, meaning wiring the schools,

18· ·keeping the schools going, keeping the equipment

19· ·and computers that the students use and the

20· ·schools use going.

21· · · · There is no -- the -- they are very

22· ·deficient in their project planning, what they

23· ·plan to do, when they plan to do it, and what

24· ·the tasks are and what their costs are.· And

25· ·this is something that's -- that we're working



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·1· ·on very hard right now.· Because their

·2· ·computers, their IBM AS/400 old computer, plus

·3· ·their networks, are in a building which is one

·4· ·of the ones that's not safe.

·5· · · · So we're working very hard to get them to

·6· ·get out of there.· And that's, that's an

·7· ·important piece.· The management has not been

·8· ·very cooperative.· And we're pushing on that

·9· ·very hard.

10· · · · Technology, the system --

11· · · · CHAIRMAN VINCENT:· I want to ask you on

12· ·that, you said study of the cost/benefit of

13· ·outsourcing help desk and field services.· I'm

14· ·sure that's something you guys have come across

15· ·in past projects.· Is that typically a pretty

16· ·good option for savings, or does it really

17· ·depend on the situation?

18· · · · MR. GREENBLATT:· What happened is -- the

19· ·beginning of the year, particularly with the

20· ·changes of closing schools and moving around of

21· ·students, the infrastructure has to be changed.

22· ·So you have at the beginning of the year a much

23· ·higher intensity of work by the help desks and

24· ·by the people who are taking care of the wiring

25· ·and the computers.· And during the year that's



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·1· ·going to go down.· So that is something that we

·2· ·could flex by outsourcing.

·3· · · · The -- we have a mixture of modern

·4· ·mainframe network computer servers and an older

·5· ·AS/400 that runs an ERP system from a company

·6· ·called RDS, which has been around for some time.

·7· ·But a few years ago, somebody at the time

·8· ·convinced the superintendent or the powers that

·9· ·be that they ought to convert to SunGuard, which

10· ·is a big national ERP system for education.· And

11· ·that was partially done.· It was done for the --

12· ·it was done for the student management system.

13· ·And, of course, that interfaces with the system

14· ·that built the bus routes.


16· · · · MR. GREENBLATT:· There is also the

17· ·opportunity -- because the RDS system is old,

18· ·it's green screen, in case anybody still

19· ·remembers those kinds of things.· I remembered

20· ·last night the term -- you've were heard the

21· ·term GUI, that's a graphic interface, this was

22· ·called CUI, character interface.· You don't see

23· ·these much anymore.· But within that group --

24· · · · CHAIRMAN VINCENT:· Can we sell them as

25· ·antiques?· I mean, I followed how Detroit sold,



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·1· ·you know, about selling artwork in fundraising.

·2· · · · MR. GREENBLATT:· If we can.

·3· · · · The integrated system -- which, by the way,

·4· ·is very much liked the RDS system -- but we're

·5· ·not using the inventory management, the

·6· ·budgeting part of it, the accounts payable part

·7· ·of it, the general ledger part of it, or the

·8· ·financial reporting part of it.· They simply

·9· ·stopped.

10· · · · CHAIRMAN VINCENT:· So they have the

11· ·technology.

12· · · · MR. GREENBLATT:· The systems are sitting

13· ·there to be used, they just stopped using them.

14· ·There were no -- there have not been budgets in

15· ·years, there is not a general ledger, or at

16· ·least one that is active.· So they simply

17· ·stopped using it, and they said we didn't have

18· ·the people, and so we stopped.

19· · · · And one of the areas is payroll and the

20· ·human -- related human resources.· The school

21· ·system uses paper checks, and they are all --

22· ·everybody gets paper checks.· And they are

23· ·carried around with a guard.· And there's no

24· ·direct deposit.

25· · · · And that surprised me when I found out



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·1· ·recently there's no direct deposit.· Because

·2· ·some months ago the banks said you're not

·3· ·putting the money in, or at least putting the

·4· ·money in, in time, we can't do direct deposit

·5· ·anymore.

·6· · · · The SunGuard system is expensive to

·7· ·maintain.· It's about $65,000 a year for

·8· ·licensing it.· And it takes a good deal of the

·9· ·staff to use it for scheduling the classes and

10· ·the schools.

11· · · · And the users don't like it.· It's been

12· ·difficult, and there's been a case recently

13· ·where they did not report to the State properly

14· ·or in time because they couldn't get that

15· ·information out of SunGuard, and they were

16· ·depending on them to do it.· So it's a big

17· ·national system, but it's not very reactive to

18· ·Indiana.

19· · · · There's also, because one of the systems

20· ·that they are not using, but they have, is fixed

21· ·assets.· So they used to tag properties, they

22· ·used to do those things, but they stopped doing

23· ·that sometime ago as well.

24· · · · And the Title I people there are required

25· ·to tag assets and to account for assets that are



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·1· ·supplied by Title I.· So a system called WASP,

·2· ·which actually involves some funds and RFID

·3· ·technology was bought or was licensed and

·4· ·installed by IT, but is not being implemented,

·5· ·because there is really nobody to implement it.

·6· · · · CHAIRMAN VINCENT:· Does that mean they are

·7· ·missing out on Title I possible revenue because

·8· ·of this?

·9· · · · MR. GREENBLATT:· I haven't heard that they

10· ·are.· But I think the rope is playing out,

11· ·before somebody's going to say you haven't

12· ·implemented.

13· · · · MR. SCHRUPP:· It's a compliance issue.

14· · · · CHAIRMAN VINCENT:· It's a compliance issue

15· ·with Title I, but not as though they are missing

16· ·revenue, but it is a potential issue.

17· · · · MR. GREENBLATT:· There is another issue

18· ·here or another possibility exists, it's newer

19· ·technology, and generally people call it cloud

20· ·technology.· And that is that you don't have

21· ·your servers, you don't have the computers you

22· ·did, you simply change to the idea that your

23· ·systems will run, quote, in the cloud.· And you

24· ·will access all of your systems through the

25· ·internet.



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·1· · · · This is a growing phenomenon.· It's growing

·2· ·technology.· Corporations are making -- the

·3· ·providers of this technology are putting huge

·4· ·investments into making this possible.

·5· · · · CHAIRMAN VINCENT:· Is this being used much

·6· ·in the K-12 setting in other places?

·7· · · · MR. GREENBLATT:· No, I would guess not.

·8· · · · MR. MARTIN:· I don't know.

·9· · · · MR. ALDRIDGE:· Michigan is moving towards

10· ·that.· That's under the former treasurer.

11· · · · MR. SCHRUPP:· There is a mixture of some

12· ·things that are already in the cloud, the email

13· ·systems and other things, but not everything

14· ·goes up.

15· · · · MR. GREENBLATT:· The philosophy that we

16· ·found in the systems organization in the schools

17· ·now is, we take care of it ourselves, we do it

18· ·ourselves, and we keep it ourselves.

19· · · · Another subject which is getting some

20· ·notoriety --

21· · · · MR. MARTIN:· Let me say, I think in DPS, I

22· ·think we had maybe 10 or 12 full-time employees

23· ·and the rest contractors in IT.

24· · · · MR. ALDRIDGE:· That's exactly right, yes.

25· · · · CHAIRMAN VINCENT:· And where are they at



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·1· ·here?

·2· · · · MR. MARTIN:· We have about the same number

·3· ·of salaried DPS employees in IT as they have at

·4· ·Gary Schools, but a lot of the rest of it was

·5· ·all outsourced.

·6· · · · MR. ALDRIDGE:· Having outsourcing, as I

·7· ·think was mentioned, really allows you to take

·8· ·advantage of the peaks and valleys in terms of

·9· ·your IT operation.· But if you have got 40-hour

10· ·weeks, X number of days, there's no opportunity

11· ·in terms of, again, generating those savings

12· ·that could result again from outsourcing, to

13· ·have the flexibility to utilize resources only

14· ·when needed versus just there all the time.

15· · · · MR. GREENBLATT:· I was amazed at how -- the

16· ·length of service of some of the help desk

17· ·people, some of them with 30 years or more with

18· ·the corporation.

19· · · · MR. MARTIN:· The superintendent thinks they

20· ·should all be fired, and we should automatically

21· ·get rid of the floor people, because they don't

22· ·believe they do anything.

23· · · · MR. GREENBLATT:· Well, they track their

24· ·calls, they track those things, so they are

25· ·doing that.



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·1· · · · CHAIRMAN VINCENT:· Are you commenting on

·2· ·that proposal?

·3· · · · MR. MARTIN:· Oh, no, we're going to get rid

·4· ·of them, I think.

·5· · · · MR. GREENBLATT:· People are very interested

·6· ·in the famous art collection of the Gary School

·7· ·System.· I don't know if you know much about it,

·8· ·but it goes back as far as almost the school

·9· ·system.· So some of the pieces in this

10· ·collection were added more than a century ago.

11· · · · And as schools have closed and people have

12· ·changed, the way you run the school changes,

13· ·what was -- and I have been in some schools just

14· ·a couple days ago where some of the old oil

15· ·paintings were very, very valuable, are still

16· ·behind other things on the walls.

17· · · · But we -- as schools close, the art, good

18· ·and bad, was moved to a warehouse, which is

19· ·also -- which is very perilous because of the

20· ·condition of the warehouse.

21· · · · I'm glad to say that yesterday we moved

22· ·about 80 paintings out of there to the

23· ·Conservation Center, which is in Chicago.· They

24· ·are only for preserving and fixing if you want

25· ·to pay for it.· And what we're asking them to do



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·1· ·is to take it, assess it, store it until we make

·2· ·decisions on exactly what to do with it.

·3· · · · There are many stories out there about

·4· ·where some of the other paintings are, who might

·5· ·have taken them, and those things.· Some of them

·6· ·appear to be true, but we're not going to go

·7· ·running, you know, "The Woman in Gold" story

·8· ·looking for multimillion dollars worth of stolen

·9· ·art.

10· · · · The restoration or the Conservation Center

11· ·is not authorized -- they do not do

12· ·appraisals -- and so any restoration work or

13· ·appraisal work is still to be considered.

14· · · · MR. MARTIN:· I'd say that the Board of

15· ·Education, when we first talked about moving

16· ·art, I think the first investigator had the name

17· ·auctioneer in its title, the name of the

18· ·company, and they really reacted to that.

19· · · · So we met with them and told them that all

20· ·we're interested in doing is preserving that

21· ·art.· We don't want it disappearing or

22· ·continuing to deteriorate while we're working in

23· ·the school corporation.· They all seemed to

24· ·understand that, so they agreed to let it go to

25· ·Chicago.· But we've got to get them the



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·1· ·inventory list.

·2· · · · MR. GREENBLATT:· Yeah.

·3· · · · MR. MARTIN:· Okay.· Revenue enhancement

·4· ·initiatives.· We are looking at a total of 60

·5· ·million dollars.· I don't think there are any

·6· ·revenue enhancements that are going to

·7· ·significantly dent that.· But we have to look at

·8· ·trying to bring as much revenue into the

·9· ·corporation as we can.

10· · · · So we've -- we are trying to get all of the

11· ·required budget submissions into the State.· And

12· ·Marvin is helping us out with that a lot.· We

13· ·think that, just submitting those various

14· ·reports, the Form 1, 2, 3, and all the rest of

15· ·the complicated system, just getting those in

16· ·will help us generate revenue.

17· · · · And Courtney has been helping us get that

18· ·done, so we appreciate that.

19· · · · Auction, we have an RFP that's gone out to

20· ·auction our surplus materials -- I mean,

21· ·materials, equipment, whatever we have.· There's

22· ·a lot of stuff sitting around in warehouses.

23· ·It's not a lot of money, but it's something that

24· ·we might be able to use to maintain and fix

25· ·equipment.· So that RFP is out.



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·1· ·300,000 versus 600,000, so we just want to

·2· ·maximize what we receive, but it's not going to

·3· ·fix the problem.

·4· · · · Transportation fund, we think that with

·5· ·additional collections there, we might, there

·6· ·might be some excess that we can use for general

·7· ·operating purposes.

·8· · · · MS. SCHAAFSMA:· When you say additional

·9· ·collections there --

10· · · · MR. SCHRUPP:· The collections, if we can

11· ·tighten up the cost on transportation, there may

12· ·be a little bit of a surplus, and it goes to the

13· ·rainy day fund.

14· · · · MR. MARTIN:· We talked a little bit about

15· ·food services already.

16· · · · Cost reduction initiatives, I think we were

17· ·just looking at the previous slides that I went

18· ·through on the dollars.· We've got to

19· ·significantly reduce labor and transportation

20· ·costs.· That's, if there's any prayer for a

21· ·school corporation, it's going to have to come

22· ·from significantly cutting back on that.· And

23· ·that's how we're pursuing.

24· · · · CHAIRMAN VINCENT:· How does health

25· ·insurance match the typical market?· I mean, are



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·1· ·they --

·2· · · · MR. MARTIN:· I think that their plan is

·3· ·probably Brad's plan.· That's what it's gotten

·4· ·down to.· I think it started to cut -- I don't

·5· ·know -- last year they cut once, and when I met

·6· ·with CIGNA in Chicago, they confirmed it's not a

·7· ·great plan, but it is a plan so it's better than

·8· ·nothing.

·9· · · · CHAIRMAN VINCENT:· How about salaries and

10· ·other, other benefits to employees, teachers or

11· ·other employees, as compared to kind of the

12· ·market?

13· · · · MR. MARTIN:· I think the salaries -- you

14· ·would have to talk to HR and Dr. Pruitt -- I

15· ·think salaries are competitive, which is

16· ·different than Detroit.· We were quite a bit

17· ·under the market there.· But I think they

18· ·started 40, 42 thousand dollars, or something

19· ·like that.· I think that's compared to other

20· ·school corporations.

21· · · · And I think they also have an issue with a

22· ·lot of the teachers.· Some of the teachers, we

23· ·had one that left that was 91 or 81.

24· · · · MR. GREENBLATT:· There's at least one.

25· · · · MR. MARTIN:· So they have got a lot of



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·1· ·teachers that are maxed out.· So to the extent

·2· ·that we can get those folks to retire --

·3· ·probably the only way to get them out is to

·4· ·retire, and we can save a lot of money.

·5· · · · CHAIRMAN VINCENT:· We've seen school

·6· ·corporations do the incentive packages and some

·7· ·of those other things.

·8· · · · MR. SCHRUPP:· And the other one was

·9· ·shifting folks to Medicare.

10· · · · MR. MARTIN:· Yeah, we've looked at that,

11· ·and I think based on, I think federal law, I

12· ·don't think we can force them, as long as they

13· ·are working full-time, we can't force them to go

14· ·to Medicare.

15· · · · But we are looking at -- we know, I believe

16· ·that most of the folks that could be on Medicare

17· ·are still on the corporation's health plan, and

18· ·doing that because they have dependents.

19· · · · And we are going to do an independent

20· ·audit, both the Medicare eligible and all the

21· ·employees.· And typically -- we think we'll have

22· ·some -- I know we'll have some savings at least

23· ·in that.

24· · · · CHAIRMAN VINCENT:· Is there a rule of thumb

25· ·for an independent care audit?· I know we did



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·1· ·one in the State of Indiana four years ago

·2· ·maybe.

·3· · · · MS. SCHAAFSMA:· 2010.

·4· · · · CHAIRMAN VINCENT:· And I don't know what

·5· ·kind of savings they got.

·6· · · · MR. MARTIN:· 570, something like that.

·7· ·This group that we're working with out of

·8· ·California, they say they can maybe add three or

·9· ·four percent to that.· Because they do -- they

10· ·really drill down to transfer the birth

11· ·certificates and all the documentation.

12· ·Typically it's not asked for in an independent

13· ·audit.· But we're going to get that started

14· ·shortly.


16· · · · MR. MARTIN:· And there is an RFI out for

17· ·outsourcing maintenance.· And the noise level on

18· ·that is less than I expected, and there may be

19· ·more coming.· But so far, you know, the board

20· ·went along with it, with some questions, and the

21· ·union is having --

22· · · · MR. SCHRUPP:· I think a lot of the workers

23· ·are kind of wondering when it would happen.· But

24· ·other school corporations that have done it have

25· ·faced some opposition, more political, and I



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·1· ·don't think there's really much -- and I don't

·2· ·know if there's a legal challenge that anybody

·3· ·could bring, but it's certainly a political

·4· ·thing.

·5· · · · CHAIRMAN VINCENT:· How about -- and maybe

·6· ·you have some of this on here -- but what about

·7· ·shared services?· So opportunities to, whether

·8· ·it's shared services with, you know, the City of

·9· ·Gary, or shared services with Hammond School

10· ·Corporation or some other entity, or it's even

11· ·just kind of the shared purchase agreements,

12· ·sort of taking advantage of those, and what kind

13· ·of opportunities are in that space?

14· · · · MR. MARTIN:· There are -- we actually

15· ·talked to the charter school company that's

16· ·running Roosevelt.· And they have the

17· ·capacity --

18· · · · CHAIRMAN VINCENT:· Edison?

19· · · · MR. MARTIN:· Yeah.· And they are ready to

20· ·take over probably HR and payroll.· But that's

21· ·kind of a political issue through not only the

22· ·local folks but through you, the State, about

23· ·the -- doing something like that.

24· · · · But in Michigan there's big shared services

25· ·initiative.· As a matter of fact, the DPS, we,

Transcript of· HearingOct

distressed unit appeal board transcript

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