CHICAGO — Michigan Gov. Rick Snyder’s choice for emergency manager of Detroit Public Schools will enjoy broader powers than his predecessor, but faces a structural deficit that has increased more than 60% in two years.
Roy Roberts, a retired General Motors Corp. executive and until recently a director at a private-equity investment firm, will start at the district Saturday. Outgoing emergency manager Robert Bobb is expected to stay on through June 30 as a consultant.
Roberts takes over a troubled district that continues to suffer from falling enrollment and growing deficits despite being under state-mandated emergency financial management since January 2009.
“There is no assignment in the state of Michigan that is more meaningful to me,” Roberts said in a statement after Snyder announced his decision.
The appointment comes just two weeks before DPS is required to submit a budget proposal for fiscal 2012 to the state.
Meanwhile, a so-called bond security bill pushed by Bobb that would protect a chunk of the district’s debt from a bankruptcy filing has yet to be introduced to the Michigan Legislature.
The measure will likely wait until Roberts has settled into his position, an attorney working on the legislation said.
Roberts, who is expected to name new top finance and academic chiefs over the next few weeks, will have more power in his role as emergency manager, thanks to the state’s new emergency management law.
Most notably, Roberts will exercise control over both finances and academics, giving him power over the school board. Bobb’s tenure was marked by political wrangling with the school board, which some said influenced lawmakers’ decision to give school district managers power over both spheres.
Under the new law, however, Roberts will no longer have the power to declare bankruptcy without the governor’s approval. The previous law gave the EFM sole power to enter into Chapter 9. In the beginning of his tenure, Bobb had publicly discussed the possibility of bankruptcy, but later pledged not to file, in part to make the district’s debt more attractive to wary bondholders.
Roberts inherits a $327 million deficit — nearly 65% of DPS’ $552 million general fund. The district’s deficit has grown to $327 million from $200 million since early 2009. Its enrollment has fallen to less than 74,000 from 118,400 in 2007.
With cash-flow note proceeds, DPS expects revenues to total $1.6 billion by the end of June 2011, but $500 million of that will go to payments on long-term and short-term debt.
Debt service coverage is expected to total 1.17 times maximum annual debt service for the year, according to the district’s March financial note.
Under Bobb, the district’s long-term debt obligations grew by more than 25%, to a total of $1.9 billion. DPS has issued $501 million of long-term bonds since the fall of 2009.
The borrowings, which were all federal stimulus debt such as Build America Bonds, were part of a $500 million authorization voters approved in November 2009. The district currently has no authorization to borrow long-term bonds without new voter approval.
However, the district is expected to sell short-term notes in August as part of its twice-annual borrowing to cover cash-flow shortages.
In February, the district sold $231 million of notes. The note sale only came after long negotiations with Assured Guaranty Ltd., which insures roughly $170 million of DPS bonds originally issued in 2004.
Assured had blocked any new borrowing by warning that it would require DPS to pay back the insured debt if the cash-strapped district borrowed more money without waiting for the Michigan Legislature to pass the bond security bill, which would in essence protect Assured’s bonds in the event of bankruptcy.
Assured agreed to waive its restriction under a new agreement that gives state lawmakers until Dec. 31 to pass the measure. If the state fails to pass the legislation, DPS would be required to pay back Assured for the bonds starting in 2012 and pay them off by 2015.
The bill is unlikely to be introduced until lawmakers finish crafting a final fiscal 2012 budget.