Rating agency: ‘Time is running out’ for DPS rescue

Chad Livengood
Detroit News Lansing Bureau

A leading Wall Street bond-rating agency warned Monday “time is running out” for the Michigan Legislature to rescue debt-ridden Detroit Public Schools “or possibly force a bankruptcy filing.”

Moody’s Investors Service said in a note to municipal bond investors that the Michigan House’s $500 million plan passed last week is “credit positive,” but observed the stark contrast with the Senate’s $715 million overhaul of the state’s largest school system.

“We anticipate that lawmakers will begin to reconcile the bills soon because the district is quickly running out of resources to operate,” Moody’s analyst Andrew Van Dyck Dobos wrote in the rating agency’s weekly credit outlook report. “The Legislature now has less than two months to compromise on a reform package or the district’s financial position will possibly force a bankruptcy filing.”

Last Thursday, House proposed paying off $467 million in DPS debt and giving the district $33 million to cover transitional expenses — a sum critics say it is too low to ensure school employees and operating bills are paid on time this summer and fall.

In March, Senate passed a $715 million plan that pays off $515 million in debt and $200 million for costs associated with transitioning to a new school district.

The costs include bringing dilapidated school buildings up to code, increasing building security infrastructure, restoring academic programs that have been cut, hiring new teachers to lower class sizes, and giving the district cash on hand to guard against declining enrollment and the lack of state aid payments in September.

The Legislature has already sent $48.7 million to help the 45,786-student district keep its doors open through June 30, the end of the 2016 fiscal year. The House plan accounted for the $48.7 million in emergency aid by lowering the amount of debt relief for the district.

Moody’s did not take a position on the competing proposals for creating a new debt-free school district in Detroit.

“Supporters of the reform measures, including Gov. Rick Snyder, refuse to publicly comment on contingency strategics if an adequate rescue package of bills is not passed,” Van Dyck Dobos wrote.

But the bond rating agency said investors in the school district’s short-term operating debt are put “at risk” if DPS becomes insolvent.

“Without an infusion of a significant amount of additional cash beyond the district’s existing short-term borrowing authority in fiscal year 2017, it would be highly unlikely that the district would have resources to make payroll and debt service throughout the year,” Van Dyck Dobos wrote.

clivengood@detroitnews.com

(517) 371-3661

Twitter: @ChadLivengood