Detroit School Aid Advancing

DALLAS — Detroit Public Schools got some positive news on Wednesday by way of nearly $50 million of emergency funding that cleared a state House committee Wednesday.

If approved, it would help keep the district's doors open until June. Michigan's House Appropriations Committee endorsed the funding Wednesday and a vote in the full House could come as soon as Thursday.

Michigan Gov. Rick Snyder asked for $50 million in state aid, and the committee approved $48.7 million from Michigan's tobacco settlement fund. The funding will provide resources for the daily operational costs of running Detroit's schools.

Retired U.S. Bankruptcy Judge Steven Rhodes, who was recently named DPS' transition manager by Snyder, testified on March 9th during a house committee hearing that the district would run out of money by April 8th unless lawmakers act. Rhodes said the district had no alternative plan and would have to shutter schools if the state aid did not come through.

Lawmakers are expected to vote on House Bill 5296 before they adjourn on March 24 for a two-week spring break.

DPS' operating deficits ballooned over the last four years to an projected $335 million at the end of 2016 from $83 million in 2012 an enrollment plummeted, according to the Citizens Research Council of Michigan, a nonpartisan public affairs research organization.

The threat that schools could be shuttered, which in turn would cut its share of state aid payments, prompted Standard & Poor's last week to put its ratings on about $469 million of bonds and notes from issues in 2011, 2012, and 2015 on Credit Watch with negative implications.

Under state law, a district that does not comply with the required minimum hours of pupil instruction forfeits its state aid on a prorated basis. If DPS does not continue operating through the end of the school year, that state aid could cease.

S&P said that with the state emergency, the ongoing pressure the district faces to remain a viable entity could still impact ratings.

The district began the current school year with legacy debts totaling almost $440 million. Adding to the district's more recent fiscal deficit challenges is its heavy reliance on short-term notes to help with cash flow throughout the fiscal year.

The appropriations committee also voted in favor of House Bill 5385. That bill expands the scope of Detroit's Financial Review Commission to include the fiscal management of the Detroit school district. The financial review commission has overseen the city of Detroit since it exited bankruptcy in 2014.

S&P rates 2011 first lien bonds A and 2012 second lien bonds A-minus. Junior subordinated notes are rated SP-2 and fourth lien notes are rated SP-3. The action impacts $265 million of bonds and $204 million of notes.

Moody's Investors Service last Thursday affirmed its deep-junk-bond-level Caa1 implied GO issuer rating and negative outlook. Most of the district's debt carries state support.

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