The Detroit school district is teetering on the brink of payless pay days and financial disaster, but declaring bankruptcy is not a viable option, State Treasurer Nick Khouri told lawmakers Wednesday.
The Legislature must act on a legislative rescue package, Khouri said.
“When the district runs out of cash, which is coming up quick without legislative action, there will be payless pay days,” he told the Michigan House Appropriations Committee in Lansing.
The debt owed by Detroit Public Schools is an obligation of the state that lawmakers cannot ignore, Khouri said.
“Bankruptcy is a terrible option,” Khouri said. “The debt in the district is different from that of a city, and makes bankruptcy such a difficult option.”
He continued, “If bankruptcy were declared, that could be six to 12 months of pure chaos and nearly $100 million going to bankers and lawyers.”
He was among experts presenting over two hours of initial testimony. The committee canceled a Wednesday afternoon session because of the weather.
At stake is what might happen to the financially strapped district if, as expected, it runs out of money in April and legislators don’t act. Also discussed during testimony was the district’s teacher shortage, academic failings, teacher salary and declining enrollment.
Committee members asked if bankruptcy or dissolving the district are options.
Not really, Khouri said.
“There’s been action to try to balance the budget, but they haven’t been able to keep up with the declining enrollment,” he said. “There’s been a decade-long buildup of unsustainable debts.”
Gov. Rick Snyder renewed his call for the GOP-controlled Legislature to relieve the Detroit school district of $515 million in debt and create a new debt-free school district.
Rep. John Bizon, R-Battle Creek, asked about dissolving DPS and fanning out students to other nearby districts — something the state did with the Inkster and Buena Vista school districts in 2013.
“I don’t see dissolving the district among your list of options,” he said during the question-and-answer period following Khouri’s testimony.
“It’s not the district but the students that matter,” Bizon said.
But Khouri said merging the state’s largest school district, which has 46,000 students, with other districts isn’t feasible.
“It’s just too big,” the treasurer said. “There may be other options from people working on the governance side.”
Bizon asked, “Who can we check with about other options?”
Khouri replied, “The governor.”
The hearing focuses on six House bills:
■HB 5382: Provides for an earmark of income tax collections to a community district education trust fund.
■HB 5383: Creates a community district education trust fund.
■HB 5384: Creates a new education district for Detroit.
■HB 5385: Expands a Michigan financial review commission to include education districts.
■HB 5386: Bans newly hired employees of the reconstituted Detroit school district in the state-run school pension system.
■HB 5387: Limits certain subjects of collective bargaining for public school employers organized as community districts.