Detroit Seeks $500M For Its Ailing Schools

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CHICAGO — Detroit city and school officials are promoting a controversial $500 million bond proposal for the cash-strapped Detroit Public Schools as a key to helping rebuild the struggling city.

Mayor Dave Bing joined DPS emergency financial manager Robert Bobb yesterday at a press conference touting the bond referendum, which will appear on the Nov. 3 ballot.

“I think this is the best thing that could happen for the city of Detroit,” said Bing, who faces re-election Nov. 3. “We face many of the same challenges in city government as [Bobb] faces in Detroit Public Schools. I’m 100% behind it.”

Bobb, a veteran school administrator who Michigan Gov. Jennifer Granholm appointed to take over DPS earlier this year, said the capital plan would represent the city’s largest public works project.

Officials estimated the plan — including the construction of eight new schools and renovation of 10 others, among other projects — would create 11,000 new construction jobs. Detroit suffers from a 28.9% unemployment rate.

In addition to the bond proposal, the November ballot will ask voters to decide whether Detroit’s mayor should run the district rather than the school board. Voters in the same election will also select a mayor, for the fourth time this year.

Like Detroit itself, DPS suffers from declining population and an eroding property tax base. For Bobb, the borrowing plan is a centerpiece of his ambitious improvement plan, which includes closing dozens of schools, eliminating hundreds of positions, and cutting chronic overspending and a $276 million structural deficit.

The $500.5 million DPS bond issue would consist of $246 million of tax-credit qualified school construction loan bonds and $256 million of direct-subsidy Build America Bonds. Advocates are touting the bonds’ zero or low interest rates as a main selling point.

The $22 billion QSCB program allocated 40% of the bonds to the 100 largest school districts in the country. Detroit’s share — $246 million — is the sixth largest in the country, officials said. 

This summer the district hired a marketing firm to help promote the bond issue and last month Bobb began attending a series of public meetings and launched a Web site — www.detroitk12.org/proposals — touting the proposal. He also promised to set up an oversight body, the DPS Bond Advisory and Fiscal Responsibility Committee, to review the capital plan and spending of the bond proceeds.

The bonds would likely be issued in several series and maturities would not exceed 30 years, according to the referendum.

Critics of the plan — including the Detroit Board of Education, which is in a power struggle with Bobb and recently voted against the bond plan — say the debt would mean higher taxes for struggling citizens.

The bond proposal would be repaid by extending a current bond repayment levy by six years, to 2039.

Lingering allegations of money misspent from the district’s last capital improvement plan, a $1.5 billion bond issue that voters approved in 1994, have also soured some on the current proposal. An editorial published this week in the Detroit Free Press said voters should not support the $500 million borrowing unless Bobb agrees officially to extend his contract for another year to help prevent mismanagement of bond proceeds.

While DPS hasn’t entered the market with general obligation bonds since 2005 and is faced with aging facilities, taking on a significant amount of debt could pressure its already-strained balance sheet, credit analysts have warned.

The district currently has a relatively high debt burden of 11.4% and a slow amortization of 42% in 10 years, according to Moody’s Investors Service, which recently downgraded its underlying rating on the district to B1 from Ba2.

DPS has $1.47 billion of outstanding debt. Of that, $1.3 billion is in GO school bonds issued as part of the last capital improvement plan, according to Almon Turner, the district’s director of cash management.

The district also has roughly $181 million of special purpose bonds, which are backed by state aid, Turner said. In 2005, it refinanced $210 million of short-term debt into 15-year bonds as a way to cover the current-year deficit.

Michigan took control of DPS’ finances from the school board earlier this year after a fiscal review found the district to be in a state of emergency. Among other problems, its enrollment fell below 100,000 this year.

The decline triggered a state law that allows community colleges to establish new charter schools within the district’s boundaries, which could mean fresh threats to DPS’ ability to attract new students and increase badly needed state aid tied to enrollment levels.

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