CHICAGO – Detroit Public Schools' general fund deficit grew, according to the fiscally stressed district's latest financial results, but at a slower pace than expected.
The district ended fiscal 2015 June 30 with a general fund deficit of $216 million, up from $169.5 million the previous year. The figure, however, came in below the $238 million deficit originally projected.
Total revenues increased to $820 million in fiscal 2015 from $811 million in 2014 and total expenses decreased to $863 million from $888 million. The information was reported in the district's new audit, which has been submitted to state Department of Education.
"Although we must remain focused on the full implementation of the transformation we began earlier this year, the results of the audit show that DPS is making strides to address the serious financial challenges that have been plaguing it for decades," DPS emergency manager Darnell Earley said in a statement.
The district saw its negative net position of governmental activities skyrocket. The accounting figure provides a broader overview of a governmental entity's fiscal picture.
The figure grew to a negative $1.66 billion in fiscal 2015 from negative $764 million in fiscal 2014 due to its implementation of new Governmental Accounting Standards Board reporting requirements on pension liabilities. The district is now including its proportionate share of the Michigan Public Schools retirement fund's net pension liability in its own net position.
Gov. Rick Snyder is expected later this year to introduce legislation restructuring the district with the help of $715 million in state funding that he says would be more affordable for the state than an eventual default or potential legal action due to the district's burdensome debts.
The cornerstone of Snyder's proposal is to split the current district into two entities. The new Detroit Community School District would manage education and operations and the old district, similar to a shell company, would be left intact to repay the district's accumulated operating debt. Additional state help of $715 million over the next decade would make up for lost aid that would go to pay down existing debts and cover startup operating and capital costs of $200 million.
Snyder argues the massive school restructuring is needed to compliment the city's recovery following its exit from Chapter 9 bankruptcy and to allow a greater emphasis on academics. The district has operated under the state-mandated oversight of an emergency manager for six years.
Responsibility for the district's $1.5 billion of unfunded pension liabilities would lay with the new district.
Market participants are concerned over the long-term status of much of the district's $2.1 billion of bond debt. That includes $1.5 billion of capital bonds, which are structured as unlimited-tax general obligation bonds, and are paid for with a local millage approved by voters. Another $165 million is owed to the state's school loan revolving fund. The administration said the existing bonded debt would remain under the old entity with the existing millage repaying it.
The bulk of the ULTGOs are part of Michigan's Qualified School Bond and Loan Program. In May, the district borrowed $85 million in state-aid notes to cover the bulk of the $107 million note payment due in August, paying a rate of 4.85% on short term deal.
Standard & Poor's on Sept. 8 downgraded the district's 2011 and 2012 state-aid backed bonds one notch to A and A-minus respectively amid falling enrollment. Enrollment at DPS fell an average of 12.5% from fiscal 2007 to 2012, then dropped 23% in fiscal 2013, after the state created a new educational authority to take over failing schools. Enrollment fell 5.5% in fiscal 2014 and was down 2.8% in fiscal 2015.