Legislative support for Mich. Gov. Rick Snyder's sweeping restructuring of the financially stressed Detroit Public Schools will require that state fiscal help doesn't come at the expense of other districts, a key lawmaker said.
The comment came on Thursday as Michigan Lawmakers began the first round of hearings on the overhaul of Detroit's public school district, further detailing how debt will be restructured and paid under Gov. Rick Snyder's proposal.
Senate Bills 710 and 711 sponsored by state Sen. Goeff Hansen, R-Hart, would split Detroit Public Schools into two entities. Under the plan, the current school district -- Detroit Public Schools -- would be left intact only to levy taxes and repay all of the district's existing bond debts. A new school district, known as Detroit Community Schools, would own assets and operate the schools.
Sen. Hansen said during Thursday's hearing that one prerequisite for bipartisan support of the bills would be to ensure that other Michigan state school districts are shielded from efforts to financially assist DPS.
"I will look forward to working with Sen. [Hoon-Yung] Hopgood [D-Taylor] on this particular issue, as he is proposing legislation that the school aid fund is held harmless," said Hansen. Hopgood is expected to introduce legislation that proposes the use of the state's Tobacco tax as one source of revenue to fund DPS' existing debt payments.
DPS's debt includes $1.5 billion of unlimited-tax general obligation bonds, $199 million in borrowing from the state's School Loan Revolving Fund, and $259 million in limited-tax GO debt paid by district operating revenues, rather than a dedicated debt service levy. Unpaid pension and retirement obligation as well as proposed transitional operating costs, not to exceed 3% of the taxable value of district, would also go to the old district, according to Sen. Hansen. He said that totals about $200 million.
The debt financing proposal is only partially covered by Senate Bill 710. The bills earmark $250 million from the general fund for the plan.
Snyder's plan relies on $715 million of state help: $515 million to eliminate DPS' structural operating deficit and help with overdue pension payments and unpaid bills, and another $200 million of start-up funding for the new operating entity.
Hansen said that two subsequent Senate bills are expected to follow Senate Bills 710 and 711 that will authorize state emergency loans for the refinancing of the district's existing debt.
Another bill would amend the state school aid act to allow the state to provide 100% funding of the "new" district foundation allowance. DPS' per pupil allowance is currently funded by the local 18-mill school operating tax that generates around $71 million per year. That money, under SB 710, would be diverted for debt payments.
Gov. Snyder will supply additional details on the funding structure when he unveils his fiscal 2017 budget recommendation on Feb. 10, according to budget office spokesman Kurt Weiss.
Dividing the district in two would provide a fresh start for Detroit schools because it returns the district's balance sheet to zero from day one.
The new school district would initially be governed by a nine-member board appointed by Gov. Snyder and Mayor Duggan and would eventually return to an elected board. Elections would take place in Nov. 2016, said Sen. Hansen.
Sen. Morris Hood III, D-Detroit, a member of the Senate committee hearing the bills, expressed concerns over the new district having to give control to a state appointed board, even if just temporarily. "The debt of DPS was incurred by state appointed emergency managers," he said.
DPS has been under emergency management since 2009, during which operating deficits for the district ballooned, the district suffered four credit rating downgrades and enrollment dropped by over 50%. The city is set to get its fifth emergency manager appointed, following the resignation of the current emergency manager, Darnell Earley.
"State control of local schools doesn't work," said City of Detroit Mayor Mike Duggan during Thursday's hearing.
Mayor Duggan said that the current month cash flow for DPS shows payroll and benefits costs nearly at par with monthly debt payments, $28.1 million versus $26.1 million, respectively. "Those debts aren't long term debts, those are bond issues from 2011 through 2015 run up under state management," he said. The district's debt payments are set to rise this month and officials have warned the district could run out of cash in the spring.
A second round of Senate committee hearings on the bill will be scheduled for next week.
