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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
·4
·5
·6· · · · · · · TRANSCRIPT OF HEARING
·7
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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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·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
·6
· · ·GENERAL COUNSEL:
·7
· · · · ·Michael Duffy
·8
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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.
14· · · · CHAIRMAN VINCENT:· Okay.
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.
24· · · · CHAIRMAN VINCENT:· Okay.
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.
15· · · · CHAIRMAN VINCENT:· Okay.
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.
15· · · · CHAIRMAN VINCENT:· Okay.
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,
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