CHICAGO — Michigan is reportedly looking for ways to provide debt relief for the cash-strapped Detroit Public Schools as part of a larger turnaround plan, according to local reports.
The Detroit News reported Thursday that Gov. Rick Snyder is weighing various proposals to help relieve DPS of its estimated $55 million annual debt service tab.
Among the ideas: using a proposed $75 million distressed schools fund to help DPS cover debt payments, or crafting legislation that would shift DPS into a new district, with the remaining bonds being serviced with an outstanding levy, according to the article.
"We're not talking about bankruptcy — the governor has been very clear about that," Snyder's strategy director, John Walsh, told the Detroit News. "We have to find a method that will recognize that they can't bear the weight [of their debt]."
The governor's office downplayed the Detroit News story, calling any restructuring "way premature."
"This was simply a follow up to the governor's year-end interview, state of the state, and budget messages (as well as appointment of another EM for DPS) that have all addressed the need for Michigan to truly tackle the issue of struggling school districts — both on financial and academic fronts and to work on true preventative measures to help ensure that we can help stop districts getting into that predicament in the first place," Snyder spokesman Sara Wurfel said in an email.
"DPS certainly falls into that 'struggling' category," she said, saying financial relief proposals would extend beyond just the Detroit schools.
Snyder's advisors are working with a city-based group called the Coalition for the Future of Detroit Schoolchildren to come up with recommendations by March 31 to help turn around the district.
The district, in which enrollment has spiraled downward for years, is now in its sixth year of state emergency management.
Snyder proposed a $75 million distressed schools fund as part of his 2016 executive budget.
The governor told lawmakers in his budget presentation that it's part of a plan to help financially struggling school districts across the state.
"We are still evolving in terms of the best way to implement the entire program, but there are districts that need substantial readjustments in terms of their finances," Snyder said.
"I'd like to start establishing a reserve fund for financial resources to do the restructurings," the governor said. "I don't view this is a bailout but only where we're truly solving problems in the long term."
DPS carries roughly $2.1 billion of debt.
Of that, $1.6 billion is unlimited-tax general obligation bonds secured by the state's School Bond Qualification and Loan Program.
Another $325 million is long-term state aid revenue bonds, secured by an intercept feature on state aid; and $108 million is in the form of loans from the Michigan School Loan Revolving Fund, according to Moody's Investors Service.
In 2013, fixed costs, including debt service and retirement costs, made up 35% of operating revenue and were expected to grow at least 3% or more in fiscal 2015, according to Moody's, which maintains junk ratings and a negative outlook on the district.
The district faces a $170 million deficit in fiscal 2015.
That's down from $327 million in 2010, but the improvement is largely due to the issuance of deficit bonds in 2011, according to the rating agency.