Rhodes: DPS bankruptcy ‘not a good option’

Chad Livengood
Detroit News Lansing Bureau

East Lansing — The former bankruptcy judge operating Detroit Public Schools said Friday that a bankruptcy restructuring of the state’s largest school district wouldn’t be “worth” the cost of litigating a case.

Interim Emergency Manager Steven Rhodes said the school district has just $50 million of unsecured debt that could be slashed in bankruptcy — a figure that pales in comparison with the $7.3 billion Rhodes allowed the city of Detroit to eliminate in its historic Chapter 9 case.

“It’s not a good option because the debt that DPS has is not the kind of debt that a bankruptcy case can deal with very well,” Rhodes said during a taping of WKAR-TV’s “Off The Record.” “Compared to the operating debt of $500 million or long-term debt of over $1 billion, it just wasn’t going to be worth it and still isn’t worth it to take DPS into bankruptcy.”

The Detroit district’s debt is either secured by state aid revenue or guaranteed by the state through bonds and a statewide school employee pension fund, creating exposure for all Michigan taxpayers.

Rhodes’ opposition to a bankruptcy of Detroit schools is one of the reasons he and Gov. Rick Snyder are urging lawmakers to approve a plan to rescue DPS from $500 million in debt and provide a new debt-free school district with $200 million in start-up funding.

Lawmakers in the Republican-controlled House and Senate have effectively agreed to pay off the district’s debts, but remain at odds over controlling the proliferation of independent charter schools in Detroit and the amount of transitional funding for the new district.

The Senate’s plan called for $200 million in transitional aid and the creation of a Detroit Education Commission that effectively would control the opening of new charter schools in the city. House Republicans did not include the commission in its plan and limited start-up financing to $33 million.

Rhodes said the traditional school district’s future hinges on limiting the number of competing charter schools that receive state funding.

“It will be more challenging for DPS to succeed without some kind of control over the opening of new charter schools or other kinds of educational opportunities,” he said.

Rhodes’ remarks confirm “what we’ve been saying for over a year — that the purpose of the DEC is to prop up the new traditional district at the expense of parental choice,” said Gary Naeyaert, executive director of the Great Lakes Education Project, a pro-charter school group opposed to the commission.

“We believe this admission by Judge Rhodes should put the nail in the coffin of the DEC,” Naeyaert said in a Friday statement.

In a show of political diplomacy, Rhodes said he’s confident the House and Senate will find a resolution before July 1, when the Detroit district projects a cash shortfall that could trigger payless paydays for employees and the interruption of summer programs.

“I’m convinced that the House and the Republicans in the House are committed to finding a solution that will give DPS its best chance at success here,” Rhodes said. “They recognize the need and I believe they will come through as this process winds itself forward.”

State Rep. Tim Kelly, R-Saginaw Township, said Friday the House’s $500 million bailout for DPS may be “the high water mark” for Republicans who are frustrated after months of not getting “solid numbers” from DPS, Snyder’s office and the Treasury Department.

“I would accuse all three of them of being disingenuous players in this whole thing for not coming up with solid numbers,” Kelly said. “I am sick and tired of playing with dishonest brokers in this whole thing.”

Rhodes is a retired bankruptcy judge who oversaw Detroit’s historic Chapter 9 restructuring case and retired from the federal bench in 2015. He did a stint last year consulting for the debt-ridden U.S. territory of Puerto Rico.

In March, Rhodes accepted Gov. Rick Snyder’s appointment to temporarily lead DPS, preferring to be called the school district’s “transition manager” instead of emergency manager.

On Thursday, Rhodes said the DPS administration would postpone contract negotiations with seven of the district’s eight unions until a resolution is reached in the Legislature about the district’s future financial picture.

“It will be more productive to begin the negotiations when all of the parties have a real understanding of the resources that will be available to make the kind of commitments required in the bargaining process,” he said in a statement.

Contracts for seven of the district’s eight unions expire on June 30, including one for the 2,600-member Detroit Federation of Teachers.

Earlier this week, Rhodes held a public meeting on his operational plans for revitalizing the city school system and faced a hostile crowd of parents and community activists.

On Friday, Rhodes acknowledged the public forum was far different from the kind of control he used to wield from the federal bench in Detroit.

“I didn’t like it. It was pretty brutal,” Rhodes told reporters after the TV show taping. “But you know what, that’s democracy. I brought as much democracy in my court process as I could when I opened up the courtroom to people who were similarly angry. I stood there and took and dealt with it the best I could.”

The transition manager said he doesn’t disagree with residents who are upset about the condition of Detroit’s schools after seven years of state control.

“I think we share a goal here to return DPS to local control,” Rhodes said. “Our disagreement is how quickly to do it. They want it done like today.”

The Senate plan calls for elections in November for a new Detroit school board. The House plan delays a school board election until August 2017, turning over management of the district to the existing Detroit Financial Review Commission in the interim period.

“My position is there has to be a transition back to local control under this legislation,” Rhodes said. “It’s not practical to just flip the switch and it’s also not politically feasible to do that.”

clivengood@detroitnews.com

(517) 371-3661

Twitter: @ChadLivengood