CHICAGO — Michigan Gov. Rick Snyder says the state needs to step in and help pay for Detroit Public Schools' debt if the struggling district — and the city itself — is going to recover.
To that end, the governor wants to divide the Detroit school district into two entities, leaving a chunk of its bond and pension debt with an 'old company' and shifting educational duties to a new district.
Snyder announced his high-profile overhaul plan for one of the nation's most troubled school districts at a press conference Thursday. Just months out of its own bankruptcy, the city itself cannot improve without a better school district, Snyder said.
"If we really want a successful and great Detroit, we have to remember the neighborhoods," Snyder said. "It's important we have a strong educational system. That sets the framework for long-term success."
Snyder has targeted the district's debt and its poor academic performance as the two keys to turnaround.
The plan, which the state has already implemented in two smaller struggling school districts, would leave the old district with $483 million of DPS bond and pension debt. The bonds would continue to be paid from an existing millage that generates roughly $72 million a year. The current school board would remain with the old district to oversee debt payments.
DPS, despite being under state control since 2009, faces mounting deficits. At a recent board meeting, the emergency manager said he needs to roll over $85 million of short-term debt because the district is no longer able to make the payments.
Snyder wants Michigan to take over the district's state-aid backed bonds.
"These are bonds backed by state credit," Snyder said. "If you have a collapse or we continue on this path and have a huge issue, much of that is going to come back and be an issue for the state anyway," he said. "Let's be proactive."
Snyder said he plans to send the legislative package to lawmakers within two weeks.
In what will likely be one of the most controversial aspects of the plan, the state would have to replace the $72 million in state aid, giving it to the new district for classroom needs.
"This is a very large commitment of financial resources that implicitly affects other schools around the state and we need to be cognizant of that, so kids in every corner of Michigan get a good education," Snyder said.
The new district may need even more state aid depending on the size of its deficit as it starts up, Snyder said. "That's one of the issues we're still working out in the next few weeks," he said of the new district's estimated deficit and debt needs.
The new district would be governed by a seven-member school board that would be appointed in the beginning and gradually replaced with elected members. A Detroit Educational Manager would oversee all the city's schools: charters, traditional public schools, and those operating under a state educational authority, the governor said.
A financial review commission similar to the one in place in Detroit now would oversee both the old and new districts to ensure debt is being paid.
"I am very disappointed in this plan," Detroit Mayor Mike Duggan told the Detroit News. "In particular, that it basically creates long-term state control of local schools ... The state's been in control the last four years. It's been four years of deficits and poor performance."
Addressing a separate question earlier at his press conference, Snyder said it was unrealistic to not have state oversight if the state is "making an investment of hundreds of millions of dollars." He also acknowledged that the traditional emergency management tool has not worked at DPS.
The old district would take over $483 million of debt that includes roughly $300 million of state-aid backed bonds the district has floated over the last 10 years to pay for operating costs and deficits. Those are paid for with the 18-mill non-homestead local school operating tax, which makes up the local contribution to the state's school fund.
The junk-rated district has a total of $2.1 billion of bond debt. The capital bonds, which total $1.5 billion, 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.
Snyder expects lawmakers to take up the package next fall. If approved, the new district would take effect in January 2016 and the two new districts would be fully operational by the start of the 2016-2017 school year.
Meanwhile, the district's current emergency manager, Darnell Earley, wants to roll over $85 million of one-year notes issued last August into longer term debt, saying the district can't afford to repay the loan by this summer.
