Report: Forgiving Detroit school debt hits all schools

Chad Livengood
Detroit News Lansing Bureau

Lansing — Michigan's schools could be deprived of $50 for every child they educate if Gov. Rick Snyder and the Legislature follow a previous plan of action to relieve Detroit Public Schools of its past debts, according to a report to be released Wednesday.

The Citizens Research Council of Michigan said it would cost the School Aid Fund $72 million if Detroit's 18-mill non-homestead property taxes are dedicated to paying off past operating debts and long-term liabilities such as pensions instead of going toward the school district's base operations.

The Snyder administration has signaled a desire to use the 18 mills in a similar debt-relief approach it took in 2012 to aid the financially distressed Highland Park and Muskegon Heights districts, which the council report said are "dwarfed by the scale of the current problem facing DPS."

If Detroit Public Schools is split into two districts — one to teach children and another to collect taxes and pay down debt — all schools in Michigan would face an increased "burden" to make up for the loss of $72 million in Detroit-generated property taxes, according to the report.

"So while the use of the 18-mill tax appears to be a 'local' solution to school district debt relief, it is undeniably a state-financed solution," the CRC report said. "... This increase comes at the expense of fewer state dollars being made available for other students across the state, either through general foundation allowance or in categorical grants aimed at specific student groups."

In 2012, Snyder's emergency managers turned the Highland Park and Muskegon Heights districts into charter schools, essentially creating new districts and having the old district collect taxes and service past debts of about $12 million each. Three years later, Muskegon Heights has $1.09 million in remaining operating debt and Highland Park's negative fund balance stands at $7.6 million, according to the Michigan Treasury Department.

Snyder has proposed a $75 million fund for distressed districts, an amount that mirrors the $72 million that Detroit's commercial, industrial and second home property owners pay annually toward financing the city's schools.

The Republican governor said Tuesday he would announce his proposals for overhauling Detroit's fractured public education system "later this week."

"The key premise I started with, with respect to Detroit schools and the whole issue, is how do we raise the standards? How do we raise the bar?" Snyder told reporters at a conference of automotive industry engineers in Detroit. "Our students deserve a better education in Detroit."

But Snyder's early plan for a special fund for distressed school districts has run into resistance in the GOP-controlled Legislature. A Senate subcommittee budgeted $8.9 million of Snyder's $75 million request, while the House's K-12 appropriations panel included $5 million in its spending plan.

"We in the House would not just support sending money," House Speaker Kevin Cotter said in a Friday interview with The Detroit News Editorial Board. "I would not be willing to rush something."

The CRC report comes on the heels of recommendations last month by a 36-member coalition of civic, business, education and religious leaders in Detroit that wants a return of local control of the city's 47,238-student school system.

The Coalition for the Future of Detroit Schoolchildren urged Snyder and lawmakers to assume $53 million in annual debt payments that are a contributing factor to the Detroit district's $172 million operating deficit last year. Coalition leaders also urged state leaders to relieve DPS of paying its legacy costs for pensions of retirees.

CRC researchers say the cost of the coalition's request for debt service and pensions would total $124 million annually, relieving the district of nearly $2,500 per student.

Coalition members met with Snyder on Tuesday in Detroit.

"We had a frank and open discussion with Gov. Snyder about the coalition's report, and got an update on where he is with developing his plans," said co-chair Rev. Wendell Anthony of Fellowship Chapel in Detroit and president of the Detroit branch of the NAACP. "We all agreed that premature reports about plans for schoolchildren will not discourage us about the work we all know needs to get done."

Co-chair Angela Reyes, executive director of Detroit Hispanic Development Corp., said: "We reiterated to Gov. Snyder and his team that our recommendations about Detroit can also help struggling districts across Michigan as they wrestle with declining enrollment, financial instability, and other barriers to quality education."

DPS had $299 million in outstanding long-term operating debt as of June 30, 2014, according to the CRC report.

In 2011, then-Emergency Manager Roy Roberts issued 10-year bonds of $231 million to pay off short-term cash-flow borrowing. In 2012, he refinanced $141 million the district borrowed under school board control in 2005, rolling up both debts into a $53 million annual payment that amounts to $1,100 per student, according to the CRC report.

Cotter, R-Mount Pleasant, said lawmakers are still studying how the state guaranteed the operating debt bonds issued under Roberts, the first of three emergency managers Snyder has installed in DPS since taking office in 2011.

"We're trying to understand the severity of the problem, and I'm trying to understand the idea of the state being on the hook for the debt," Cotter told The News.

But Cotter said he was "highly disappointed" by the Detroit schools coalition's recommendations weighing heavily on the state ending emergency management of DPS and returning 15 schools run by the Education Achievement Authority to the school district.

"If I had to take their 130-page report and boil it down to a sentence, my reading of it was: 'Give us back control and just send a check,'" Cotter said.

Staff Writer Michael Wayland contributed.