Start-up cash key to DPS rescue

Chad Livengood, and Jonathan Oosting

Lansing — Gov. Rick Snyder’s request for $200 million to create a new debt-free Detroit school district has emerged as a major sticking point among lawmakers debating a rescue plan for Michigan’s largest school system.

The Michigan Senate approved Snyder’s request for $200 million for startup and transitional costs to help Detroit Public Schools operate after shedding $515 million in debt that would be paid off over 10 years.

But Republicans who control the state House rejected those sums and instead approved $467 million for debt relief and $33 million for transitional costs.

DPS Emergency Manager Steven Rhodes has proposed five areas where the district needs the money to keep afloat in the fiscal year that begins July 1 as well as improve school buildings and educational programs in a bid to reverse decades of declining enrollment.

The startup expenses outlined in Rhodes’ plan include:

■$75 million for capital improvements to school buildings, many of which are not up to code. Additional security infrastructure would be added to schools. The district expects other added costs associated with closing buildings and relocating programs.

■$50 million for academic and instructional support and transitional costs for legal services, human resources, accounting and information technology. It also would give the new school district cash on hand to deal with lag time in the receipt of federal grant funding.

■$25 million for “other pending contingencies and claims that may need to be funded” by the new school district, according to the plan.

■$25 million for improving academic programs that Rhodes said “have been neglected due to financial constraints and austerity measures.”

■$25 million for cash on hand at the inception of the new school district because all Michigan public schools don’t get a state aid payment in September, when the new school year begins and districts incur more monthly expenses.

“If you give them zero to start with, that means they’re immediately in debt,” Snyder spokesman Ari Adler said. “The idea was to help them with startup costs and tide them over until the state payments show up.”

House Speaker Kevin Cotter, R-Mount Pleasant, said Republicans were not given enough information about how the $200 million would be spent before a 4 a.m. Thursday vote and therefore could not justify the appropriation. Instead, they settled on $33 million for transitional costs.

“We spent a lot of time trying to get detailed information. So when you look at the $200 million, the most detail we could get was a breakdown into about five or six buckets: $50 million for that, $60 million for this,” Cotter said. “We just said, ‘No, we’re not going to play that game.’ ”

House Republicans contend their plan wipes out $52 million in debt payments the district owes in July and August and provides $33 million to cover an expected deficit through the end of September.

“We believe we have good numbers as to the debt, so let’s move forward on the debt and the portion of the startup costs we can justify, and that’s where we ultimately came down,” Cotter said.

Republican businessman John Rakolta Jr. has studied the school district’s finances in depth as a co-chair of the Coalition for the Future of Detroit Schoolchildren, which published a report last year calling for major reforms to DPS.

Rakolta said the startup costs for academic needs include filling 180 teaching positions in DPS that were left vacant this year because of budgetary constraints, causing class sizes to swell to 40 and even 50 students in some classes.

“There are schools that don’t have math and science teachers,” said Rakolta, CEO of the Walbridge Co.

Rhodes first laid out how the $200 million would be spent in an April 14 report to state Treasurer Nick Khouri.

The retired bankruptcy judge released the same list in a statement Thursday following the House’s passage of its version of a plan to overhaul the finances and management of Detroit schools.

Rhodes was working on Friday with the Governor’s Office and state Treasury Department to refine the estimated transitional costs and was unavailable for comment.

Rep. Sherry Gay-Dagnogo, D-Detroit, said Rhodes told her in a meeting last week with teachers union leaders that the district really needs more than $800 million to pay off debts and boost academic programs by hiring more teachers to lower class sizes.

Gay-Dagnogo opposes both the House and Senate plans if either “shortchanges” Detroit schools.

“It would be unconscionable that we would halfway plug a hole, knowing that the next Legislature would be stuck with this same problem all over again,” Gay-Dagnogo said.

House Republicans were confident last week that $33 million would get the new district through to Oct. 10, when it will receive a state aid payment — and one that is larger than past payments because it would not be offset by an existing millage.

The 18-mill non-homestead property tax assessed on businesses and second homes in Detroit would instead be devoted to paying down the old district’s debt.

“I think that will get them to October, where they start to get a larger per-pupil (payment),” said House Appropriations Chairman Al Pscholka, R-Stevensville.

But the American Federation of Teachers does not believe the $33 million would be enough to pay Detroit teachers on deferred payment plans after the end of the current school year on June 30, according to legislative liaison Julie Rowe.

Rowe said roughly two-thirds of teachers are on 26-period paycheck plans, with the rest on 22-period plans. The union estimates the district needs at least $45 million to cover payroll owed to teachers for time already worked.

“That doesn’t cover any other employees, that doesn’t cover any summer programs, that doesn’t cover any other vendors,” she said.

Sen. Goeff Hansen, R-Hart, sponsor of the Senate plan, said the House plan doesn’t contain enough money for “significant transitional costs.”

Twitter: @ChadLivengood