DALLAS — Michigan lawmakers return to work this week facing a new wrinkle in the proposed restructuring of the fiscally distressed Detroit Public Schools that stands to shape governance issues.
Lawmakers in Michigan's legislature reconvene this week following a two week break with the House expected to soon hear the six-bill restructuring package that passed the state Senate last month.
The hearings on the bills will begin amid the recent filing of indictments by the U.S. Department of Justice against 12 current or former DPS principals, an assistant superintendent and a vendor in an illegal bribery and kickback scheme.
Last Thursday, Michigan Gov. Rick Snyder who has championed the restructuring urged lawmakers not to let news of the indictments derail the DPS rescue.
"We want to root out those kinds of issues. They should not happen," the governor said during a speech before the Lansing Economic Club. "But to the degree they should not happen — and we all know that — should that take something away from helping 46,000 kids?"
At the center of the bribery scheme was Norman Shy, owner of Allstate Sales which is a DPS vendor of school supplies. The charges allege that each of the school officials conspired with Shy to knowingly certify and submit fraudulent invoices to DPS, causing DPS to pay Shy for goods that were never delivered.
In exchange, Shy allegedly paid the officials bribes and kickbacks, using a portion of the payments he received from DPS from the fraudulent invoices. The scheme began in 2002 and continued until January 2015.
DPS principals had the primary authority for selecting vendors from a list approved by DPS and for certifying that invoiced goods were received. The total amount of bribes and kickbacks that Shy paid to the 13 school officials was approximately $908,518. In exchange, Shy and his company received about $2.7 million dollars from DPS based on payments for fraudulent invoices.
"Detroit taxpayers deserve a better system of accountability in lieu of a state managed free-for-all," said Rep. Sherry Gay-Dagnogo, D-Detroit, in a prepared statement. "The timing of the indictments will certainly exacerbate the mistrust that many out-county legislators feel towards the city of Detroit, and make the passage of legislation to address the DPS crisis a much more difficult task without an audit."
"This is exactly why House Republicans were so adamant that strong fiscal oversight be a prerequisite to any additional state funding for Detroit's corrupt and broken school administration. And it is why we will continue to insist that strong financial and academic reforms be a part of any long-term solution to decades of DPS failures," House Speaker Kevin Cotter, R-Mt. Pleasant, said after news of the indictment.
Senate Bills 710, 711, 820 and 821, sponsored by state Sen. Goeff Hansen, R-Hart, and SB 819 and SB 820 sponsored by Sen. David Knezek, D-Dearborn Heights, split Detroit Public Schools into two entities. The House has its version of the DPS restructure.
The current school district -- Detroit Public Schools -- would be left intact only to levy taxes and repay the district's existing bond debts. A new school district, known as Detroit Community District, would own assets and operate the schools.
The bills propose $200 million in transition funds to form the new community district. An additional $515 million would be appropriated to fund the education needs and operation of the new community district.
The debt load for the DPS, including operating debt, capital debt, unpaid pension and retirement obligations, and proposed transitional operating costs, totals more than $2.25 billion.
Financial oversight new district would remain under state control and would initially be overseen will by the same Financial Review Commission that's currently overseeing City of Detroit finances. Two additional members would be added to the financial review commission to have input on the school district only.
Those two seats would be filled by the superintendent and school board president.
DPS, which has been under emergency management for the last seven years, has seen debt balloon under state management. 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.
On Friday April 7th, the Detroit Board of Education filed a class action lawsuit against Gov. Rick Snyder, three former emergency managers — Jack Martin, Roy S. Roberts and Darnell Earley — and individual Michigan legislators over poor financial, academic and building conditions.
Earley, DPS' last emergency manager, quit on Feb. 2 and was replaced with state appointed "transition manager" Steven Rhodes, the retired bankruptcy court judge who presided over the city of Detroit's bankruptcy. Rhodes will run the schools' operations and finances, and an interim superintendent to supervise the district's academics as lawmakers work on the long-term restructuring of the system.
Last month lawmakers approved $48.7 million in emergency funding to keep Detroit schools through the end of the current the school year.
