Treasury: DPS runs out of cash in Aug. under House plan

Chad Livengood, and Jonathan Oosting

Lansing — The Michigan Treasury Department projects a new debt-free Detroit school district would run out of money by its second month in existence under a House-passed $500 million debt-elimination plan, a finding the speaker quickly questioned Tuesday.

A Treasury Department analysis of the House plan concludes the new Detroit Community School District would have a $22 million deficit by the end of August and would continue to run deficits each month next school year with $33 million in startup cash.

By comparison, the Senate’s plan to pay off DPS operating debts and provide the new school district with $200 million in transitional funding would leave the new district with a low balance of $86.9 million in September, according the Treasury analysis obtained by The Detroit News.

“The package of bills passed by the Senate provides enough money to transition to the (new district),” state Treasurer Nick Khouri wrote in a memo attached to the analysis. “The House passed package leads to a projected cash flow deficit of $22 million in August, rising to $80 million in September.”

House Speaker Kevin Cotter, R-Mount Pleasant, questioned the timing of the Treasury Department report, saying he was “discouraged” to see the analysis come out five days after the lower chamber vote.

“We’ll take a look at the numbers, but it makes you wonder why we couldn’t get the information earlier when we were requesting it,” Cotter said.

The Treasury document, which is dated Monday, contains revisions of DPS Emergency Manager Steven Rhodes’ earlier request for about $200 million for transitional costs.

The total sum remains the same, but the new school system would need $125 million “at inception” to pay vendors and employees, and open school buildings in September, the one month school districts don’t get a payment from the state, according to the Treasury document.

Gov. Rick Snyder’s administration also says the new Detroit school district needs $65 million for deferred maintenance, school security equipment and building-closing costs.

The final $10 million in transition costs would pay for “investment in key academic programs that have been deferred due to financial constraints and austerity measures,” the Treasury document said.

Rhodes originally asked for $75 million for maintenance and building improvements and $25 million for improving academic programs in the 45,786-student district.

Rhodes faces hostile crowd at DPS hearing

Speaker’s questions

Cotter said last week House Republicans could not support the Senate’s proposal for $200 million in startup costs because members were not given enough details about how the funding would be used, a position he reiterated Tuesday.

“The taxpayers of the state are being asked to make an investment, and I don’t think it’s unreasonable to ask for at least something that resembles a business plan, to say how this money is going to be used,” the speaker told reporters.

Cotter spokesman Gideon D’Assandro disputed Treasury’s conclusion that the House plan would let the new school district quickly run out of cash.

“It would be they’re short what they’d want to spend,” D’Assandro said. “They don’t have enough to cover everything that they want to spend by August. The question is, and this is what we’ve not gotten yet, is what is your wish list?”

As required by the emergency manager law, Rhodes held a public informational meeting on his Fiscal and Operating Plan in Detroit on Tuesday.

Rhodes said his goal was “to set DPS on a path to long-term success” and added some of the $200 million would be used “to substantially upgrade our buildings and facilities to make them more efficient.”

“We also need transitional and working capital,” he said. “We have certain minimum cash requirements in order to pay our bills until the first state-aid payment arrives in late October. We want to enhance our academic programs and to retain the ones we have ...

“We absolutely need that minimum amount from our Legislature in order to set DPS on a course for success,” he told the audience at Martin Luther King Jr. Senior High School.

Rep. Brian Banks, D-Harper Woods, said the district needs an infusion of cash to fix leaky roofs and broken windows in classrooms plagued by mold and poor heating systems that force children to wear winter coats in class.

“I don’t understand why anyone would say there’s no need for building maintenance when the buildings aren’t up to par and up to code,” Banks told The News. “It’s not an environment that’s conducive for learning.”

Senate Majority Leader Arlan Meekhof, R-West Olive, told reporters Tuesday that startup funding remains one of the main sticking points between the competing legislative plans. He called the funding “critical,” but did not rule out negotiation.

The Senate plan now costs $670 million in total, subtracting the $48.7 million in stopgap funding the Legislature approved a month ago for the Detroit district.

The chambers are also at odds over a proposed Detroit Education Commission, which was included in the Senate package but is opposed by charter school advocates. The commission would regulate school openings across the city.

Bill options kept alive

Meekhof opted Tuesday to keep the House bills on the Senate floor rather than refer them to committee, saying it gave him “options” for future action, which is unlikely to occur this week. The bills may ultimately end up in a conference committee, where members would craft a final version for an up or down vote.

“This is a very complex issue,” Meekhof said. “You’ve got politics involved, you’ve got employee relations involved, you’ve got a lot of money involved. It’s going to take a lot to find a landing spot.”

Between 50 and 100 Detroit Public Schools supporters rallied outside the state Capitol on Tuesday, offering support for the Senate plan while criticizing the House version.

“We’re not pleased with the fact they want to give us teachers that are not certified,” said Bernice Jones of Detroit, citing a provision of the House plan that would allow uncertified teachers on a temporary basis. “We don’t want just anyone teaching our kids, because they get taught enough negative things outside of schools. We need positive things in the city of Detroit.”

Senate Minority Leader Jim Ananich, D-Flint, called the House plan “irresponsible” and accused Cotter of working to “hijack” the Detroit schools package that won bipartisan support in the upper chamber. He suggested Snyder convene a “quadrant” meeting with legislative leaders from both parties.

“Our plan is actually a serious plan,” Ananich said. “It puts DPS on solid financial footing, and I think gives them a chance to succeed.”

The News obtained the Treasury Department document from a legislative source Tuesday after Treasury declined to release the document.

“Treasury has provided additional information on the DPS packages to the Legislature. The House asked for additional information and we provided that to them. That information was private and confidential for those members,” Treasury spokesman Jeremy Sampson said Tuesday in an email.

Staff Writer Mark Hicks contributed.

Detroit school costs outlined

State Treasurer Nick Khouri detailed the $200.2 million in transition costs Detroit Public Schools needs to create a new debt-free school district as part of a larger $670 million rescue plan.

Operation cash: $125 million

■ $58 million for cash flow based on timing of bills and lack of September state aid payment.

■ $55 million for accrued payroll costs, other pending contingencies and claims.

■ $10 million for professional transition costs in the information technology, human resources, financial and legal departments.

■ $2 million for academic and instructional support.

Building improvements: $65.2 million

■ $19 million for heating, ventilation and air conditioning.

■ $16 million for roof repairs.

■ $15 million for windows.

■ $10 million for upgrading school security equipment.

■ $3 million for lighting.

■ $2 million for school building closing and reorganizing.

■ $250,000 for fencing and paving.

Academic improvements: $10 million

■ $5 million for “educational enhancements” in art, music and gym

■ $3 million for literacy programs and libraries

■ $2 million “investment in innovation” for science, technology, engineering, arts and mathematics programs

Source: Michigan Treasury Department