Detroit Public Schools borrows $121.2M as deficit grows

Shawn D. Lewis
The Detroit News

Detroit Public Schools’ deficit is growing by millions of dollars as it continues to borrow additional millions.

According to a quarterly report issued Wednesday by the Michigan Department of Education, the state’s largest district projected its deficit at $238.2 million as of June 30, up from $169.4 million a year earlier. The state report says DPS was among 14 districts whose deficits climbed in 2014-15.

Michelle Zdrodowski, a DPS spokeswoman, said factors behind the deficit spike included lower revenue from property taxes and asset sales, higher maintenance and utility costs and a charge for legal contingencies.

Friday, the district borrowed $121.2 million through the Michigan Finance Authority. State aid revenue notes to be issued by the finance authority carry a 5.75 percent interest rate and are due Aug. 22, 2016.

According to a state document detailing the financing, DPS has $337.8 million in outstanding loans.

“DPS recently took advantage of the opportunity to borrow on its 2015-16 state aid funding to assist with immediate cash flow needs,” said Zdrodowski. “This is commonly known as cash flow borrowing and is an option made available to all public school districts in the state of Michigan on an annual basis to provide funding during those months when school districts do not receive state aid payment. In fact, more than 200 school districts took advantage of the opportunity during the 2014-15 school year.”

Gary Naeyaert, who leads a school-choice advocacy group, the Great Lakes Education Project, criticized the move.

“Michigan’s taxpayers should be outraged by DPS’ continuing efforts to increase their operational debt by borrowing money they simply won’t pay back,” he said. “When you’re in a hole this deep, the first priority should be to stop digging.”

Naeyaert said the interest rate on the loan is a sign of the district’s financial problems.

“The standard interest rate on these School Aid Notes is 1 percent for creditworthy districts,” he said. “The fact that DPS is being charged 5.75 percent indicates what a terrible financial deal this is.”

The district, which has struggled for decades with falling enrollment, has run a deficit in nine of the past 11 fiscal years. Four state-appointed emergency managers have been named in the past six years, with Darnell Earley being appointed EM in January.

Other Metro Detroit districts with growing deficits, according to the state, include Garden City (up from $606,713 to $3.9 million), Hazel Park (up from $6.2 million to $11.6 million), New Haven (up from $167,869 to $295,962), South Lake (up from $229,386 to $1.1 million) and Warren Consolidated (up from $2.2 million to $5 million).

The news is better for some districts.

Twenty school districts and charter schools, including the state-run Education Achievement Authority, are projected to have successfully eliminated their deficits by the end of June 2015. Others in Metro Detroit include the East Detroit, Ecorse, Hamtramck and Taylor districts and three charter academies: Blanche Kelso Bruce, Madison-Carver and Southwest Detroit Lighthouse.

In addition, 20 other districts projected reduced deficits during 2014-15.

Altogether, 38 districts and charters had projected deficits as of June 30, down from 58 a year earlier.

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