Missed pension payments sink DPS deeper in debt

Chad Livengood and Shawn D. Lewis

Detroit Public Schools is $53 million behind in pension payments, costing the cash-strapped district $7,600 a day in interest penalties — or the equivalent of one child's annual state funding grant.

Based on its minimal payments, the Detroit school district would be $81 million behind in mandatory pension contributions by July 1, state records show. The cost is exacerbated by $78,000 in fees for each month DPS remains delinquent — depriving the city schools of the equivalent of one teacher's annual salary and benefits.

The sporadic pension payments, which date to October 2010, are the latest sign of worsening finances for Michigan's largest school system as it continues to rack up debts and hemorrhage students and cash. Forgoing required contributions for pension payments mirrors a cash-hoarding tactic the city of Detroit pursued in November 2012 — nine months before declaring bankruptcy.

By most measures, Detroit's school system remains in a financial free-fall, with a projected deficit of $166 million this year. Enrollment has sunk to 47,238 students this year, down from 150,000 a decade ago, despite state oversight for 12 of the past 15 years and the recent arrival of its fourth emergency manager.

The Detroit district has run a deficit in nine of the last 11 fiscal years, sometimes papering over its debts with borrowing against its future school aid revenues. It has resulted in a net accumulated deficit of $1.28 billion during that period.

"We have not seen this level of decline anywhere" in the country, said Tonya Allen, CEO of the Detroit-based Skillman Foundation. "And this is my opinion: We cannot keep kicking the can of debt down the road and make the children responsible."

The district's sobering financial realities have come under scrutiny by a coalition of community and business leaders, masterminded by Allen, that is preparing to make recommendations Monday to Gov. Rick Snyder for sweeping changes to the delivery of education in Detroit.

Detroit Public Schools is largely hamstrung by high administrative and special education costs and debts. Nearly $1,200 in district money for every student goes toward paying off past operating deficits the district won't escape until 2022, at the earliest.

The debt service payment is a burden almost no other Michigan school district has to shoulder, state officials say. The debt penalties and fees are owed to the Michigan Public School Employees Retirement System.

Mike Flanagan, Michigan's superintendent of public instruction, said the Detroit school district needs debt relief from the Legislature. "Personally, I don't think they can do this by themselves," Flanagan said about the financial problems.

Of the $14,444 DPS spent per child last year — $1,513 over budget — just 27 percent went toward basic classroom instruction. It is far less than the 40 percent average for all other Wayne County schools and the 48 percent statewide average, a Detroit News analysis of 2013-14 spending data shows.

"The most needy students in the state are getting the least amount of support in the classroom," said Sandy Baruah, the Detroit Regional Chamber CEO who is on a coalition committee examining the district's finances.

The money woes and lack of direction have frustrated Angel Davis, who has a 14-year-old son attending a Detroit public school and a daughter attending a state-run Education Achievement Authority school.

She is disillusioned with the EAA school and is preparing to remove her daughter as she juggles the challenges at son Winsley Walker IV's John R. King Academic & Performing Arts Academy.

"My son is very smart," Davis said. "But he's bored in school because he's not really being taught anything. It's so frustrating, but I don't want to keep taking him out of one school and placing him in another."

First-grade teacher Alma Plancarte helps Academy of the Americas student Vanessa Garcia write about a trip to an Ann Arbor museum.

High costs burden district

The Detroit school system has among the highest per-pupil costs for administration ($1,963 per student) in the state, among districts with more than 1,000 students. Even with cost-cutting state emergency managers, the district's 204 central office employees last year are more than the 200 it had a decade ago when there were 100,000 more students and 5,000 more teachers, according to the district's 2014 financial report.

"You could fire everybody in central administration and it wouldn't put a dent in the deficit," said Jack Martin, who did an 18-month stint as emergency manager that ended in January.

Only Pontiac, Flint and the EAA — 15 low-performing former Detroit schools — spend more per child on administration, and they also are wrestling with financial troubles.

"All that arrogance that (emergency managers) could do better than the people of Detroit — and clearly they've done worse," said Steve Conn, president of the Detroit Federation of Teachers union. "It was filled with arrogance, lies and betrayal."

Some of the bureaucracy results from government mandates that drive up the cost of education. DPS administers some form of testing 132 days of its 180-day school year, said John Rakolta, CEO of the Walbridge construction firm and chairman of the coalition's finance committee.

"That is absolutely shocking to me," Rakolta said.

Detroit also has a large population of students with added needs — close to one in five students gets some form of special education services — consuming 20 percent of the district's spending and contributing $40.8 million to its $170 million annual deficit. Special-needs students have been a rising share of Detroit's enrollment since 2003.

And a geographically large footprint and the district's competition with charter schools and suburban districts for students compound its transportation costs. Its average cost to bus a student — $651 — is twice the cost elsewhere in Wayne County, state data shows.

"We have to pay for higher legacy costs than perhaps other districts have," DPS Emergency Manager Darnell Earley said. "These are all things that have grown into the disproportionate and structural imbalance between revenues and expenses in the district."

Martin said he put a plan in place to reduce administrative positions, but was more focused on stabilizing enrollment and creating a "superior academic product" to compete for students. He had a short window in which to work under the state's emergency manager law without interference from the elected Detroit Board of Education.

"You can't solve a problem that's been decades in the making in 18 months in the best of circumstances," Earley said.

Coalition scrutinizes reform

The 36-member Coalition for the Future of Detroit Schoolchildren intends to make proposals to improve the situation. The report expected Monday could lead to a larger debate in Michigan about how public education is funded, who operates schools and the scores of mandates educators face every day teaching 1.5 million school-aged children.

"We need to focus on the children," said Skillman's Allen. "We don't have a system adequately educating any of the students. We need to create the kind of playing field where all schools can thrive."

Coalition members say Detroit Public Schools' financial path is unsustainable. Snyder gave emergency managers expanded powers to rewrite or cancel contracts, but acknowledges that the approach is not working in Detroit schools.

Earley, who became emergency manager in January, expects revenue to continue to decline next year, even with $191 more per student under Snyder's proposed budget, a nearly $9 million increase. Enrollment is expected to continue to drop, which is partially caused by a lower birth rate in the city, he said.

After lowering annual deficits in the 2012 and 2013 school years to $83.4 million and $95.8 million, the deficit soared to $172.3 million in 2014 under Martin.

An amended budget Earley authorized March 16 projects the district will run a $166.4 million deficit this year, $40.6 million more than Martin originally projected.

Flanagan said DPS has submitted deficit-elimination plans to the state in recent years that are self-inflicted wounds. "I wasn't happy when Detroit submitted another (plan) cutting salaries for teachers, because sooner or later you end up without teachers," Flanagan said.

Last August, Martin abandoned a plan to slash teacher salaries by 10 percent and increase class sizes.

Earley acknowledged some past cost-cutting measures have actually worsened the district's finances, as teachers leave for stable jobs elsewhere and more parents take their children to suburban districts or charter schools.

"It does us no good to close a building in the name of cutting costs and lose revenue as a result of losing students," Earley said.

The road ahead

Coalition members have been tight-lipped about what exactly they will recommend to turn around the district. But some group leaders have expressed an interest in creating a new entity with central governing power over DPS, the EAA and charter schools in Detroit.

Detroit teachers have a union contract that expires in the summer of 2016, but Conn has made his demands public. The former Cass Tech math teacher wants pay raises for teachers, more books and supplies, and the elimination of 40- to 50-student classes split among multiple grade levels.

"How do you provide a 21st-century education when you're running a modern-day 'Little House on the Prairie'?" Conn said of split classes.

Earley is supposed to have his first meeting with Conn this week and hopes the new teachers union president and other stakeholders will help him reverse the district's slide and become its last emergency manager.

"I would hope anybody who wants to see Detroit Public Schools survive and be part of the solution in helping it survive will come to the table and discuss constructively ways in which to do that," Earley said.

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Detroit Public Schools

Michigan's largest school district by the numbers for 2013-14 school year:

■Enrollment: 47,238

■Teachers: 3,100

■Total employees: 6,028

■School buildings: 97

■Budget: $707 million

■Deficit: -$172.3 million

Note: Enrollment is for fall 2014.

Source: Detroit Public Schools' financial report