Panel to state: Take DPS 'debt off backs of children'

Chad Livengood
Detroit News Lansing Bureau
  • The $350 million in long-term debt costs the district $53 million in annual debt service payments.
  • DPS is about $53 million behind in pension contributions to the state retirement system.
  • DPS's budget calls for it to spend nearly one in every seven dollars toward the pension system.

Detroit — A coalition of business, civic, education and religious leaders wants the state of Michigan to assume at least $350 million in debt Detroit Public Schools has accumulated under state oversight and relieve the cash-strapped district of pension payments for retirees.

The Coalition for the Future of Detroit Schoolchildren's recommendation, sent to Gov. Rick Snyder on Monday, is likely to spark a fierce debate in the Legislature over whether the state should be on the hook for deficits piled up by emergency managers appointed by Snyder and former Gov. Jennifer Granholm since 2009.

The $350 million in long-term debt costs the 47,238-student school district $53 million in annual debt service payments, diverting $1,120 per student away from the classroom.

"Our recommendation is the state take that debt off the backs of children," said John Rakolta, CEO of the Walbridge construction firm and chairman of the coalition's finance committee. "... There's no way DPS can do it on their own."

DPS has an additional $54.9 million in unpaid vendor bills, according to the coalition's report.

State Sen. Phil Pavlov, chairman of the Senate Education Committee, said the coalition's plea for debt relief is an "enormous request for support."

"It sounds like a proposal to take over governance, it's all about debt, it's about control," Pavlov told The Detroit News. "I think what's missing in this is how they're going to delivery a quality education to kids in the district."

Sen. Bert Johnson, who served on the coalition, said he doesn't think state assumption of DPS debt will be dead on arrival in Lansing, noting the Republican-controlled Legislature pumped $195 million into city of Detroit pensions last year to help settle the city's bankruptcy.

"There was the assumption that the city of Detroit and her legacy and those issues were dead on arrival in Lansing," said Johnson, D-Highland Park. "And we proved that wrong."

The Detroit News first reported Thursday that DPS is about $53 million behind in pension contributions to the Michigan Public School Employees Retirement System, a deficit that has accumulated since October 2010 under four state-appointed emergency managers.

The Detroit district is fined $78,000 a month for the delinquency, on top of $7,600 in growing interest penalities. If the district doesn't resume regular payments soon, state officials say DPS could be $81 million behind in pension payments by July 1.

In an ambitious report recommending the return to local control of schools in Detroit, the coalition contended the state bears financial responsibility for the district's debts and long-term liabilities.

"We are not asking for a bailout," the coalition said in the 26-page report. "We are not asking for special treatment. We are asking for an investment. We are asking for a level playing field, a fair shot that gives our children the same opportunities as schoolchildren elsewhere in Michigan and in the United States."

The coalition's report argues DPS operates under an "unfair playing field" created by state policies, such as an explosion of independent charter schools that don't have to participate in the school employees' pension system and "the cost of paying for an expensive retirement system it did not design."

Rakolta said, "Every single school district in the state has this problem."

The report did not say how much it would cost state taxpayers annually to assume the pension liability of former Detroit school employees. The school district's budget calls for about $100 million in payments to MPSERS — nearly 1 in every 7 dollars the district spends annually.

"The state should exempt Detroit from paying the legacy cost of retired DPS employees to the Michigan Public School Employees Retirement System, as the state failed to sufficiently save to support the secure retirement of these teaches and staff, and today's student population is too small to carry the expense," the coalition report says.

The school district's debt burden is especially high, the coalition said.

In addition to the $53 million in annual payments for old operating deficits, the district spends another $3 million annually in interest for cash-flow borrowing from the state.

"While other Michigan districts use 2 to 3 percent of their operating funds to pay for interest on their debt, DPS spends 13 percent," the coalition report says.

Snyder, a Republican, has anticipated the Detroit school district's debt could be a major impediment to ending six years of emergency management.

In his 2016 fiscal year School Aid budget, Snyder included $75 million for a "distressed schools" fund, which currently has a $4 million appropriation. Snyder's office has indicated the money could be used to relieve DPS of debt burdens that keep the district's budget in the red.

But the funding request has not gone over well with Snyder's fellow Republicans in the Legislature, in part because the governor has been vague about what it would be spent on.

Last week, a House Appropriations subcommittee rejected the governor's request for a $71 million increase in the distressed schools fund, while a Senate panel included $8.9 million for the fiscal year that begins Oct. 1.

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