DPS makes state pension payment, vows to pay $100M debt
After a lapse of nearly a year, Detroit Public Schools has resumed paying $750,000 a month to the Michigan Public School Employees Retirement System and is pledging to work out a way to repay nearly $100 million it owes the pension plan.
The district and the state Office of Retirement Services said Wednesday that DPS paid $750,000 on Oct. 15, under an agreement reached in August between DPS Emergency Manager Darnell Earley and Phil Stoddard, who was director of OPS until Friday.
DPS’s resumption of pension payments after 11 months heads off the threat that the state could withhold the district’s per-pupil state aid.
“DPS has made and continues to make regular contributions to ORS related to employee withholdings and MPSERS UAAL (unfunded actuarial accrued liability) rate stabilization proceeds,” district spokeswoman Michelle Zdrodowski said in an email. “The last regular employer contribution was made in November 2014.”
Caleb Buhs, a spokesman for the state Department of Technology, Management and Budget, confirmed that DPS made the October payment.
“We expect DPS to make these monthly contributions in hopes that a broader legislative solution can be achieved to resolve its financial concerns,” Buhs said in an email Wednesday.
According to Buhs, the district owes $99.5 million.
In an Aug. 14 letter to Stoddard, Earley cited earlier communication from ORS warning that the MPSERS board could seek to have the district’s state aid payments withheld to pay off DPS’s pension debt.
“I recognize that ORS has been and will continue to work with DPS to resolve the outstanding balances, and that you are aware of the exigent circumstances of DPS’s financial condition, as well as the need for DPS to maintain positive cash flow in order to deliver educational services to its approximately 47,000 students,” Earley wrote.
He pledged to begin paying $750,000 a month in October and “reassess this amount on an ongoing basis in conjunction with the Legislature’s consideration of the restructuring of DPS.”
Earley also promised to develop “a sustainable plan” by Oct. 31, 2016, to cover the district’s retirement contribution obligation.
“In light of these commitments ... I am requesting your recommendation that the MPSERS Board refrain from initiating any action to withhold State School Aid payments to DPS,” Earley wrote.
In a response letter dated Aug. 17, Stoddard agreed and said he was recommending that the MPSERS board “not initiate the withholding” of the district’s per-pupil aid.
DPS is struggling with a projected $515 million in operating debt, accumulated mostly by a series of state-appointed emergency managers since 2009.
Last month, the district borrowed $121.2 million in state aid revenue notes through the Michigan Finance Authority.
Gov. Rick Snyder on Monday offered a revised plan to bail out DPS and overhaul Detroit’s education system by creating a debt-free district at a cost of $715 million over 10 years.
At the time, Snyder expressed concern that MPSERS and other unpaid vendors could seek court orders for repayment, triggering a “chaotic” financial free-fall.
Craig Thiel, senior research associate at the Citizens Research Council of Michigan, said the DPS payments should ease some of those fears among the district’s bondholders.
“The bottom line here is that DPS is showing to the state that it will begin paying its retirement bill,” Thiel said. “I think this was prompted by the capital markets when DPS had to issue cash flow notes. Bondholders were nervous that they might not get paid if ORS intercepts state aid.”
Zdrodowski said the agreement balances DPS’s obligation to MPSERS and the need to fund school operations.
“Despite cash flow challenges, making payroll and providing timely payments to our vendors/service providers is a top priority for the district and its emergency manager,” she said in an email.
“This week’s regularly scheduled employee payroll was met without issue, and we don’t foresee any issues in the near future.”
Staff Writer Chad Livengood contributed.