CHICAGO — Michigan should take over some of Detroit Public Schools' $2.1 billion of debt as well as its pension obligations, according to a coalition tasked with giving Michigan Gov. Rick Snyder recommendations to improve the long-troubled school system.
The Coalition for the Future of Detroit Schoolchildren made the recommendations in a long-anticipated
The coalition also wants the state to give control back to the local school board — DPS is under state-appointed emergency management — and create a new commission that oversees all of the city's educational facilities, including charter schools.
The state should take over the debt, the coalition argues, in part because it was incurred while the state controlled the district, which it has for 10 of the last 15 years.
The district's enrollment has fallen so sharply — 40% since 2002 — that the current student body can't carry the original debt burden, the coalition said.
The coalition wants the state to take over its state-aid debt bonds, which the district has issued to cover operating deficits and pay for operations over the last 10 years. It appears to total roughly $350 million, according to the report.
Debt service is $53 million a year, or $1,200 per pupil, and is paid for out of the general fund.
"It's unfair for the students to bear this responsibility," John Rakolta, chief executive of construction firm Walbridge and one of five coalition co-chairs, said at a Monday afternoon press conference releasing the report. "How are we ever going to prepare them if $1,200 is taken out of their education to pay the debt back every single year?"
The bonds, some of which were originally issued as notes and later refinanced, are backed by state aid and carry a lien that is "perfected," a status that affords them strong protection even in legal proceedings. The aid, which is intercepted by the state treasurer to the bond trustee, is exempt from being taken, sequestered or applied to other debts or liabilities.
The coalition did not recommend having the state take on bonds issued for capital projects, which are structured as unlimited-tax general obligation bonds. The district pays for those bonds with a local tax millage that goes into a capital projects fund.
"The state of Michigan should take responsibility for past operating debt that occurred on its watch: $53 million a year," said the report. "Furthermore, the state should exempt Detroit from paying the legacy cost of retired DPS employees to the Michigan Public Schools Employees Retirement System, as the state failed to sufficiently save to support the secure retirement of these teachers and staff and today's student population is too small to carry the expense."
The district also owes $48.2 million in back pension payments and $59.4 million of accounts payable.
General fund debt service totals 13% of DPS' annual budget compared to 3% for Ann Arbor and 2% for Bloomfield Hills, Grand Rapids and Utica, the report said.
Coalition members were not immediately available for comment.
DPS has a total of $2.1 billion of debt, according to Moody's Investors Service. That includes $1.5 billion of unlimited-tax GOs, $300 million of state aid revenue bonds — less than the $350 million the coalition identifies — and a $165 million obligation to Michigan's School Loan Revolving Fund, according to Moody's.
Debt service on the state-aid debt remains flat at $53 million through 2021, said Moody's. But the bond agreements limit to 50% the amount of appropriated state aid that the district can use to repay debt with a state aid pledge, the ratings firm said. If state aid remains flat, the district's future borrowing would be limited and could decline over time, analysts said.
In return for the state taking over the debt, the coalition said the district should "immediately undertake an operational audit that identifies ways to adopt best practices so that its funds better support student achievement," according to the report.
"All we're asking for is a level playing field so that all kids can attend quality schools," David Hecker, president of the AFT Michigan-AFL-CIO, and one of five co-chairs of the coalition, said at the press conference.
Detroit Mayor Mike Duggan Tuesday issued a statement in support of the coalition's goals. Duggan said he "fully supports" DPS in its effort to "resolve its debt burden," and that he believes that emergency management should be terminated and local control returned to the district.
The coalition also wants the state to provide the district with three-year funding projections based on the demographic trends and offer "step-down funding" to districts with shrinking enrollment.
Several of the coalition members warned that Michigan must deal with several districts that are struggling with similar problems as Detroit's. The report calls the Motor City the "canary in a coal mine," saying the recommendations should be used in other failing districts.
The coalition also wants to shift the funding formula so that it's based on need rather than a straight per-pupil figure. DPS educates more special-needs students than other schools, the coalition said.
"Detroit has a real problem but that problem does not generate from Detroit," Tonya Allen, president and CEO of the Skillman Foundation, which oversaw the coalition, said. "The problem generates from multiple issues," she said, pointing to statewide education policy, the city's population decline and the number of charter and state-run Educational Achievement Authority schools that compete with DPS.
In a statement issued after the press conference, Snyder thanked the group for its work.
"We will thoroughly review the coalition's recommendations as the state continues its work on a comprehensive approach to reform to present to our partners in the Legislature, looking for areas of alignment and common ground in the weeks ahead," Snyder said. "I look forward to continuing our work in this area that is vitally important to our largest city and our state as a whole."
The coalition has 36 members and was formed in December. It studied the district for 100 days before making its recommendations. Snyder said he will consider the recommendations as he crafts his own legislative package to overhaul the troubled district.
