A bigger city focus on public schools is the next front in Detroit's post-bankruptcy turnaround now that the city is on course to exit state oversight, Mayor Mike Duggan said.

Duggan unveiled a plan to partner with the Detroit Public Schools Community District in his fifth State of the City speech Tuesday. The condition of the school district is vital to encourage young families to move back into the city, he said.

Duggan proposed forming an education commission that would include him as well as other stakeholders to take on coordinating some city-wide educational initiatives.

Detroit Mayor Mike Duggan at the Detroit Economic Club in September 2015.
Detroit Mayor Mike Duggan targeted schools and neighborhood improvements in his State of the City speech. Bloomberg

Duggan said that could include things like putting out a universal report card on school quality, something that would require state support. He also proposed the coordination of bus routes and extracurricular programs that would serve children by neighborhood, regardless of what schools they attend. As Detroit mayor, Duggan has no direct power over city schools, and says he doesn’t want that. But he does want to play a role in rebuilding the city’s schools because it's important to rebuilding the city, he said.

In 2016, Michigan enacted a $617 million bailout of the Detroit Public Schools. That action created the new district to manage schools, while the DPS remained only to service the district's debts, which were straining its operations and threatened its ability to pay bills and keep schools open.

The city remains on course to exit direct state oversight as soon as this spring. Duggan unveiled a $2 billion balanced budget at the end of February and said once it passes, the city would have the opportunity to get out from active state oversight.

“I expect in April or May we’re going to see the financial review commission vote to end oversight and return self-determination to the City of Detroit,” he said. As part of Detroit’s approved plan of debt adjustment to exit Chapter 9 bankruptcy, Michigan mandated the appointment of a financial review commission to oversee the Motor City’s finances, including budgets, contracts, and collective bargaining agreements with municipal employees.

Duggan said even though passage of the budget could mark the end of active oversight, the financial commission won't cease to exist. "As everybody here knows, the financial review commission doesn't entirely go away," he said. "They go into a dormancy period. If we in the future run a deficit, they come back."

Duggan’s proposed budget relies on the use of $100 million of an unassigned fund balance to help increase spending on capital projects. It also increases efforts on blight remediation. He said he hopes to double the rate of commercial demolition and get rid of every vacant, “unsalvageable” commercial property on major streets by the end of 2019.

Last October Duggan unveiled a plan to spend $125 million of bond funds in revitalizing Detroit neighborhood commercial corridors. The plan is part of a $317 million plan to improve 300 miles of roads and thousands of damaged sidewalks.

The city’s general fund — budgeted at $1 billion — continues to do well because income tax revenues are increasing, Duggan said. They are projected to rise 2.7% for the coming fiscal year and add another $6million to $7 million to the city’s coffers.

John Hill, the city’s chief financial officer, said that the budget maintains more than a 5% reserve that is projected to stand at $62.3 million.

The city also continues to put aside money to deal with higher-than-expected pension payments starting in 2024. Starting in 2024, Detroit officials project they will face annual payments of at least $143 million after the city's bankruptcy debt-cutting plan required just nominal payments of $20 million from 2016 to 2019 and no payments from 2020 through the 2023 fiscal year.

Hill said in the budget presentation that the retiree protection fund has performed well. “What we believe is that we will not have to make major changes to the fund in order for us to have the money that we need in 2024 to begin payments,” Hill said. “In 2016 those returns weren’t so good and have since improved in 2017 and 2018 will be higher than the 6.75% return that we expected.”

The city is also looking at ways to retool its debt structure.

Hill said that with unlimited tax general obligation bonds maturing in the next decade, Detroit could be in a position to get back into the market and fund its capital projects through debt by 2026.

The budget would also give the Detroit Police Department an $8 million boost, allowing the police department to make an additional 141 new hires. The city council must vote on the budget by the end of this week.

Detroit’s bond ratings, though still deep in junk territory, were upgraded last year. On Dec. 21, S&P Global Ratings upgraded the city’s issuer credit rating to B-plus. The outlook is stable. Moody’s Investors Service upgraded Detroit to B1 from B2 in October.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.