December 9, 2008 at 1:00 am

State to take over finances of DPS

School board vows to fight, has 10 days to request hearing to contest emergency intervention.

Calloway )

Three years after it stopped managing Detroit Public Schools, the state announced Monday it plans to return, this time to take control of the district's financial operations.

The district's financial operation is in such disarray that Michigan Department of Education intends to install an emergency financial manager with the power to negotiate contracts, hire and fire staff and close schools.

"The schoolchildren of Detroit are being deeply affected academically by the chronic inability of the district to manage its finances," said State Superintendent of Public Instruction Mike Flanagan. "We cannot let this continue any longer.

Flanagan declared the "financial emergency" just a week after saying Detroit Public Schools had one final chance to get its finances in order and meet the terms of an agreement crafted by a state review team. But the district submitted documents past their due dates and did not file a proper deficit elimination plan as mandated by the state, spurring the state action.

Still, DPS board members pledged to fight the intervention.

The decision follows months of controversy over the district's finances, with administrators going from declaring a fund surplus to saying the school system faces a $408 million deficit, forcing the board to approve hundreds of layoffs and other cuts. Vendors also came forward to say they weren't being paid, and the district had to rely on the state to advance funds so the school system could meet its payroll.

State law allows the board 10 days to request a hearing before Flanagan to contest the determination of a financial emergency, while Flanagan has 30 days to suggest possible appointees. In the meantime, the district's current operational structure remains.

If Flanagan, after the hearing, determines a financial manager still is needed, the board can appeal the action in court. Detroit school board member Annie Carter said the board should appeal, because district administrators -- not board members -- were at fault in sending late and incomplete documents to the state. She blasted Superintendent Connie Calloway and Chief Financial Officer Joan McCray, who came to DPS last school year from a small Missouri school district.

"They have never been in a district this large and cannot do the work," she said.

While Flanagan stressed that appointing a financial manager would not be a full state takeover, school board members and parents still see it as a move that could anger residents, who fought bitterly for the right to elect a board after the 1999 state takeover that resulted in an appointed board.

And some say that takeover left the district in worse shape.

A Detroit News report showed that key reading and math test scores declined compared with those in other urban schools statewide following state control. And then-CEO Kenneth Burnley left the district with a $200 million deficit. Critics blamed mismanagement, but he attributed the financial mess to student losses, higher benefit costs and less state aid.

Kimberly Bishop, a parent of a 10th-grader at Henry Ford High, said she welcomes the financial takeover.

"There has been so much money misspent," Bishop said. "It's time they start prosecuting people."

Bishop doesn't blame Calloway, but attributes the mess to past superintendents and the school board.

While the action creates uncertainty for Calloway, she had little to say Monday. Board of Education President Carla Scott and Calloway said in a release that the concerns raised by Flanagan will be fully investigated to determine the best course of action.

The district's deficit remains at $124 million, according to Scott, after all their cuts.Detroiter Pam Criss, who worked on the Keep the Vote-No Takeover Coalition that sued to overturn the 1999 takeover, said she's troubled by recent squabbling and inaction by the school board.

"I'm very disappointed after all the work of Keep the Vote-No Takeover, and now we've come up with a board that doesn't believe in teamwork," she said. However, Bishop believes the district should've been given a chance to enact the consent agreement.

The emergency manager appointment would be in effect up to a year but can be renewed. Flanagan can decide a fiscal manager is no longer necessary when conditions no longer merit that position.

The only other time an emergency financial manager was appointed was in Inkster schools in 2002. Howard Morris, the emergency financial manager appointed then, likened himself to a "one-person school board." Morris said he fired the superintendent within a week and conducted contract negotiations with the district's unions.

State law does not allow the financial manager to void current collective bargaining contracts but does allow the person to negotiate contracts.

The current Detroit Federation of Teachers contract expires June 30.

Keith Johnson, a Finney High School teacher running for union president, said he would negotiate with a fiscal manager, if one is appointed. But Johnson said the union also would be "ready to fight" if concessions are demanded.

Still some Detroiters and advocates say they just want the system fixed.

Skillman President and CEO Carol Goss said Monday that Flanagan's announcement is a positive step, allowing the board to focus on education.

And some teachers just want conditions improved in classrooms.

"Ask the average teacher what they have spent on their students between August and December, you will get answers in the hundreds of dollars," said Linda Keteyian, a teacher at Priest School. "We just want to see a positive result, a balanced set of books, a transparent method of spending."

Sen. Tupac Hunter, D-Detroit, applauded the state's decision.

"Flanagan should consider a CPA with a spine of steel," Hunter said. "This person will have to withstand pressure and scrutiny from those in the district and the city who are not so welcoming."

Detroit News Staff Writers Christine MacDonald, Mark Hornbeck and Doug Guthrie contributed. You can reach Jennifer Mrozowski at (313) 222-2269 or">