Detroit Official to Propose Tobacco Bonds for Schools

CHICAGO — A Detroit legislator was poised Wednesday to sponsor a package of bills that would allow Michigan to securitize up to $400 million of its tobacco settlement payments to erase the deficits carried by Detroit Public Schools and 41 other state school districts.

The legislative proposal was crafted by Detroit Public Schools’ emergency financial manager Robert Bobb. Participating school districts would be required to implement major academic and fiscal reforms in return for the funds.

Michigan has issued three series of bonds, including one refunding, backed by its portion of annual payments under the 1998 Master Settlement Agreement between 46 states and the major tobacco companies.

Under that agreement, Michigan receives about $300 million annually. The state has issued about $1 billion of tobacco bonds, securitizing about 25% of its payments.

Detroit Rep. Fred Durhal Jr., D-6th District, was expected Wednesday to introduce a four-bill package outlining Bobb’s proposal.

But it is considered unlikely that the bills will gain much ground, at least this year. Lawmakers this week are on deer-hunting break, returning Nov. 30. They are then expected to be in session for only a few days before adjourning for the year.

Even if the House passed the bills in its short lame-duck session, state law requires a five-day break between each chamber’s hearings on a bill’s hearing.

The Senate has set an adjournment date of Dec. 2 — three days after reconvening.

The new year, meanwhile, will bring in a sea of new faces — more than three-quarters of the entire Legislature — as well as a new Republican majority in the House and a new Republican governor.

The bills call for securitizing $400 million of the state’s payments under the 1998 national tobacco settlement during fiscal 2011 and depositing the proceeds in a Merit Trust Fund.

The money would be used to erase deficits carried by each school district that has agreed to a so-called renaissance plan that features a series of academic and financial reforms, many of which are modeled on President Obama’s Race to the Top school program.

In a letter to Gov. Jennifer Granholm touting the plan, Bobb wrote that the proposal is a “solution for all deficit districts in Michigan.”

“Despite what has previously been reported in the media about DPS’ plans, this proposal is not one in which the state will be asked to provide a handout to troubled school districts,” he wrote. “To the contrary, this proposal calls on deficit school districts to participate in significant academic and financial reform in exchange for deficit assistance from the state.”

He warned that the alternative for DPS would be draconian cuts and the closure of up to 60 schools. DPS faces a $332 million accumulated deficit.

Granholm appointed Bobb as the long-troubled district’s EFM in January 2009. She renewed his one-year contract last year. He is expected to leave next March.

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