DPS board rejects $150M state loan

Evan Carter, Shawn D. Lewis, Chad Livengood, and Jonathan Oosting

Detroit’s outgoing school board voted Monday to reject a state-backed loan and refinancing plan designed to help the district pay off operating debt and start afresh — balking at the bailout the same day it won praise from a Wall Street credit rating agency.

Disputed Detroit school board President LaMar Lemmons said all eight members at a morning meeting voted against proposed actions by Emergency Manager Steven Rhodes to begin implementing the $617 million rescue plan signed into law last week by Gov. Rick Snyder.

“We believe we can present a better alternative which will save money and direct more of it to the classrooms where it is needed,” he told The Detroit News, saying he was concerned about potential interest rate charges on the financing.

The board will convene Wednesday to propose an alternative. The state’s Local Emergency Financial Assistance Loan Board would ultimately decide whether to approve Rhodes’ original request or any alternative.

“Fortunately, the people who understand how the loan works are going to approve it,” said Gideon D’Assandro, spokesman for state House Republicans.

Rhodes is seeking authorization to issue up to $235 million in school financing stability bonds and a $150 million loan from the state to start up a new debt-free district, along with asset transfer from the old district to the new entity.

The school board rejection came as the Detroit Financial Review Commission, expanded to oversee the school district, on Monday approved Rhodes’ proposed budget for the 2017 fiscal year.

Lemmons suggested Detroit Public Schools would be required to pay an 18 percent interest rate on the state’s loan and called it “usury” or an unreasonably high interest rate, a characterization state officials disputed.

The $150 million emergency loans are based on 10-year municipal bond rates, which state officials estimate to be between 1.5 percent and 2.5 percent, said Jeremy Sampson, spokesman for the Michigan Department of Treasury.

The $617 million rescue package would eliminate $487 million in remaining debt for Michigan’s largest school district.

Snyder said Monday he had not looked at details of issues raised by the school board but signaled he won’t be deterred in his effort to pay off the city’s school system’s operating debts.

“The school board has presented various challenges at times, but what I’d say is we’re going to move forward with the legislation,” Snyder said after signing a $16.14 billion School Aid bill at a middle school in Commerce Township. “They have opportunities to use the court system like anyone else, but I’m moving forward with implementing the legislation.”

The nonpartisan House and Senate fiscal agencies estimated the DPS rescue plan will ultimately cost $705 million over 10 years because of bonding and interest costs.

The $617 million bailout for DPS is being paid out of the state’s settlement fund with tobacco companies. Any additional financing costs will be shouldered by state taxpayers — not Detroit schools — through the state’s general funding, according to the House Fiscal Agency.

The current Detroit School Board, which has operated with little power in recent years, will be dissolved and city voters will choose new members elected in November.

Moody’s Investors Service issued a report Monday labeling the DPS rescue plan “credit positive” for bondholders of the district’s debt “given that the district was teetering on bankruptcy and was reportedly unable to make payroll absent an immediate infusion of revenue, which is part of the restructuring package.”

But Lemmons criticized the financing implementation plan Rhodes submitted to the board, speaking out at a Monday press conference that also featured community activists from the National Action Network and Keep The Vote/No Takeover Coalition.

“It would be irresponsible to borrow at any rate other than the proposed state rate,” Lemmons said. “Unfortunately we don’t have the resources to figure out the state’s preferred rate — it’s most certainly not 18 percent. It’s most certainly not 15 percent.”

Because the state took over the school district, Detroit Public Schools should be able to get loans at the state’s preferred rate, Lemmons said.

Treasury officials were confused Monday how Detroit school board members came up with an 18 percent interest rate on the loans.

“Your guess is as good as mine,” Sampson said. “I honestly don’t know.”

D’Assandro said the 18 percent figure “makes zero sense and is completely out of left field.”

“At the same time, it doesn’t matter to the district, because the state is paying” the loan and any related financing costs, he said.

Under the state’s emergency manager law, local boards can vote on major initiatives like the loan.

If the school board rejects the loan, Rhodes can appeal to the State Emergency Loan Board that is comprised of three Snyder appointees. When the Detroit City Council three years ago rejected city Emergency Manager Kevin Orr’s proposal to transfer management of Belle Isle to the state government and make it a state park, Snyder’s appointees on the state board overturned the council’s decision and rejected its alternative plan.

The state’s rescue plan, which includes creating a new debt-free community school system apart from the old, indebted DPS, is a “cover-up” to distract from the state’s mismanagement, Lemmons said.

Elena Herrada, Detroit school board member, also said she believes that the race and class of the students in Detroit Public Schools is a factor in the state’s treatment of the majority African-American district.

“People in Holland, well-financed by people like (Dick) DeVos and other people who were given large, large sums of money from lobbies, are now making decisions on our children. This is an experiment, it is a Jim Crow project,” Herrada. “No district would destroy their schools the way we have been accused of doing.”

Community activist Helen Moore agreed.

“We are at war,” she said. “It is no (better) than Selma, Alabama, John Lewis and all the people that fought for our civil rights.”

Lemmons said the board plans to file a complaint about the state’s proposed loan rate with the U.S. Securities and Exchange Commission, file a court injunction against state action as well as appeal to Detroit U.S. Attorney Barbara McQuade, an appointee of President Barack Obama.


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