Michigan wrangles with school debts

Chad Livengood
Detroit News Lansing Bureau

Lansing — A request last week for a massive state rescue of Detroit Public Schools from budget-busting debt is putting the financial troubles of Michigan's most distressed urban school districts in the lap of state lawmakers.

But the Coalition for the Future of Detroit Schoolchildren has requested the state assume at least $350 million in DPS debt and relieve Detroit schools of other legacy costs. It is one of several vexing issues involving money-losing public schools that loom large this spring in Lansing.

Legislators also are facing requests for $725,000 to cover unpaid debts of the former Buena Vista school district they dissolved two years ago, a $1 million study of education funding adequacy and a doubling of a $50 million emergency loan fund for cash-strapped school districts that is nearly tapped out.

"Something definitely has to be done," said state Sen. Ken Horn, R-Frankenmuth. "We have a lot of different problems to solve."

Fifty-five other school districts and charter schools across Michigan began this school year in deficit, though 14 school districts and five charters are projecting they will be back in the black by July 1.

Rep. Al Pscholka, the GOP chairman of the House Appropriations Committee, said the Detroit Public Schools debt relief request makes the state's $195 million contribution last year to Detroit's grand bargain bankruptcy settlement "look like a used car note."

"These are some pretty big numbers that are being thrown around," Pscholka told The Detroit News.

Detroit Rep. Harvey Santana, the Democratic vice chairman of the appropriations panel, said his colleagues can't avoid the looming financial crisis in the state's largest school district much longer.

"What happens when they've got no money and they can't open their doors?" said Santana, a graduate of the former Chadsey High School.

"Are you going to send them to Canton, Livonia, Grosse Pointe or Royal Oak? Take your pick. That's going to wake everybody up. … You don't have enough charter schools in Detroit to take all of these students."

The 36-member Detroit coalition, whose ranks include influential business leaders like General Motors executive Mark Reuss and Cornerstone Schools co-founder Clark Durant, plans to put on a full-course press to get the Legislature to consider its sweeping recommendations for repairing Detroit's fractured system of public schools.

In addition to assuming state-backed Detroit district debt, the group wants Gov. Rick Snyder to remove the district's emergency manager and return power to the elected Detroit school board, shutter the state-created Education Achievement Authority and return its 15 city schools and 6,500 students to DPS.

The coalition and Mayor Mike Duggan also want the Legislature to create a Detroit Education Commission with the power to open and close failing schools operated by DPS and independent charter schools as well as manage shared transportation, data-gathering and enrollment systems.

Coalition members have hired the Lansing lobbying firm Government Consultant Services Inc. to help develop its ideas into legislation, said state Rep. Sherry Gay-Dagnogo, a coalition member and Detroit Democrat.

"We're not just saying write a blank check," said Gay-Dagnogo, a former DPS science teacher. "This is not a bailout. This is where we must support the academic future of our children and our state."

Snyder asked the Detroit coalition to formulate recommendations that he could take to lawmakers this spring and pursue before the Legislature's summer recess in June.

Action plan awaited

But the Republican governor said last week he's open to having the state assume the $53 million in annual debt payments DPS makes on money borrowed by past state emergency managers to keep the 47,238-student school system afloat.

"With respect to debt, that's something where we would have to carefully consider, and really not look at bailouts per se, but to say if it's helpful for long-term sustainability, we need to be open-minded," Snyder said Tuesday.

Snyder's proposed 2016 budget plan includes a $75 million fund for distressed schools. But House and Senate committees have reduced the amount to $4 million and $8.9 million, respectively, until they hear a plan of action from the governor.

Sen. Dave Hildenbrand, chairman of the Senate Appropriations Committee, said he has "serious reservations" about carving out a special account in the $12.5 billion School Aid Fund to cover Detroit school debt.

"It goes beyond Detroit. We've got issues all across the state," said Hildenbrand, R-Lowell. "I'm uneasy about pouring more money into a failing system. ... I don't think we can just say we can accept that responsibility."

Even with DPS falling behind on pension payments and running up a projected $166 million deficit this fiscal year, the governor is discouraging "speculation" about whether DPS should follow the city of Detroit through a Chapter 9 bankruptcy reorganization.

"I don't look at bankruptcy as really an option for the Detroit Public Schools," Snyder said.

Financial troubles

Detroit is not the only school district in financial straits.

Schools in Benton Harbor, Buena Vista Township, Highland Park, Inkster, Muskegon Heights and Pontiac have borrowed nearly $48.5 million from a $50 million emergency loan fund during the past three years to fund their deficit-ridden operations.

A House bill requested by the Treasury Department would double the loan fund to $100 million. The bill passed through a committee last month and awaits action on the House floor when the Legislature returns April 14 after a two-week spring break.

"We're hopeful that there will be some movement shortly," Treasury spokesman Terry Stanton said.

Last month, the Senate passed a Horn-sponsored bill that would pay off $725,000 in operating debt for the former Buena Vista school district from a fund the Legislature previously created to pay for demolishing buildings in the tiny Saginaw County school district.

The money is needed after voters in Buena Vista Township rejected a renewal of the defunct school district's 18-mill non-homestead property tax in November, Horn said.

Default concerns

Without state assistance, the old school system could default on its unpaid debts and a judge could impose a property tax increase on all property owners in the township to pay it off, according to the nonpartisan Senate Fiscal Agency.

"This is just such a unique circumstance," Horn said.

Craig Thiel, an analyst at the Citizens Research Council of Michigan, said the bill is a "convoluted laundering" of tax money to get around the unintended consequences of the Legislature's hasty decision to dissolve the Buena Vista and Inkster school districts in June 2013.

If the Legislature pays off one school district's debt, Thiel said, there soon could be others in line.

"It's the problem that won't go away for the state," he said.


Detroit News Staff Writers Karen Bouffard and Gary Heinlein contributed.