How Snyder got the DPS deal done

Jonathan Oosting, and Chad Livengood

Lansing — Michigan Gov. Rick Snyder didn’t get everything he wanted in the $617 million Detroit schools rescue plan sent to his desk late Wednesday night, but the embattled Republican helped get the deal done.

Snyder met with Senate Republicans behind closed doors Wednesday evening, laying out in detail how much money a potential bankruptcy for Detroit Public Schools could cost the state — perhaps several billions of dollars, according to the administration — and telling reluctant lawmakers a filing could affect schools in their district too.

“I made it clear that if this isn’t going to happen, and there’s not a legislative solution, then you’re looking at a bankruptcy scenario,” Snyder told The Detroit News on Thursday. “And that would be devastating not just to the kids of Detroit, but it could have a huge negative impact on all the kids in this state because of the impact on all the school districts.”

The dire warning was not new, but it was specific and timely. With the legislative outcome unclear, Snyder's office began making preparations this week for a potential Chapter 9 bankruptcy because the Detroit school district only had enough money to make payroll through June 17.

“It was very serious,” Snyder strategy director John Walsh told The Detroit News. “In the absence of action, we were going to move to take action.”

Snyder called former Detroit Emergency Manager Kevyn Orr for advice on how to put together a quick bankruptcy filing in the event of a meltdown in the Legislature, Walsh said.

He said governor’s office wanted to have a bankruptcy filing in hand to avert a race to the courthouse by vendors and employees seeking payments — a similar strategy Snyder and Orr executed in Detroit's July 2013 bankruptcy filing to stop lawsuits by unions and the city's pension funds.

“You have to have alternative plans ready to go,” Snyder said.

Senate Majority Leader Arlan Meekhof, R-West Olive, told reporters earlier Wednesday he didn’t yet have enough support to put the plan up for a vote, coining the term “snail-mate” to describe talks that were only “inching along.”

But an hour and a half after the governor’s caucus visit, 19 Senate Republicans voted for the main bill in the package that Snyder, Meekhof and House Speaker Kevin Cotter, R-Mount Pleasant, negotiated last week — the bare minimum required for passage. The plan was uniformly opposed by Democrats, who argued it would set up Detroit schools for continued failure.

How one vote flipped

Sen. Darwin Booher, R-Evart, said he was planning to vote against the bailout but changed his mind after Snyder and legislative aides presented him numbers showing how the state’s liability for a Detroit schools bankruptcy could affect funding available for schools in his district, pegging the potential cost at $41 million.

“I absolutely believe the governor had the numbers down, and what he had to do was immediate,” Booher said. “So let it go and face all the unknown costs on top of the known? Our schools couldn’t stand it. No way.”

While legislators make it a point not to discuss details of private caucus meetings, Meekhof said Snyder “was very sincere” during his talk with Senate Republicans.

“People understood the gravity of the situation and figured out a way to get to yes,” the Senate leader said.

“There were some realities,” said Sen. Goeff Hansen, R-Hart, who declined to discuss details of the governor’s pitch. “It’s pretty tough.”

Hansen ended up voting against the compromise plan after sponsoring an earlier $715 million version that won bipartisan support in the Senate but was never put up for a vote in the House. He agreed bankruptcy was not a good answer.

Detroit Democrats, who preferred Hansen’s plan, accused the governor of caving in to House Republicans, who added controversial provisions to crack down on teacher “sickouts,” implement a merit pay system and allow the local school board to approve non-certified teachers in Detroit schools.

Snyder also originally supported the Senate package, including a proposed commission to regulate the location of traditional and charter schools, a concept backed by Detroit Mayor Mike Duggan and other local leaders but vehemently opposed by the charter school lobby and House Republicans.

“(Snyder) should tuck his tail and get out of office,” Rep. Sherry Gay-Dagnogo, D-Detroit, said in an fiery exchange with reporters after the House gave final approval to the package around midnight.

“… He should resign for everything he’s done to Flint and what he’s done to Detroit (schools) just to avoid bankruptcy. The people should demand his resignation now.”

14-month debate

Snyder first outlined a Detroit schools rescue plan in April 2015, proposing to split the district in two, creating a new entity to educate children and leaving the old one to pay off debt.

The final plan would do the same, helping the district pay off $467 million in accumulated operating debt while providing another $150 million to start up the new debt-free district, including up to $25 million for deferred building maintenance.

The governor fine-tuned his plans in August, laying out a legislative wish list that included the Detroit Education Commission, which would have hired a CEO to craft an accountability plan for all schools in the city, a facilities location plan and a voluntary common enrollment system.

The Senate approved a version of the commission that would have focused on regulating school opening locations. The proposal proved a non-starter in the House, where Cotter said he feared it would be used to limit charter schools and parental choice in the city.

The final deal is not the rescue package Snyder originally envisioned, but he heralded its passage as “an unprecedented investment” for Detroit school children — a plan he wishes Detroit legislators would have supported.

“It would have been a nice thing to happen, but if you step back and look at the big picture, the historic debt got paid off, there’s a big investment and a locally elected school board,” he said. “Those were all goals I heard for the last number of years as top priorities.”

A bankruptcy would have been wrought with uncertainties, not the least of which was the possibility of a judge dissolving the district and pushing a $1.5 billion unfounded pension liability on the backs of all other schools in Michigan, Walsh said.

DPS Emergency Manager Steven Rhodes, a retired bankruptcy judge who presided over the city’s Chapter 9 filing, has said the district has just $50 million in unsecured debt from unpaid vendor bills that could be slashed in a bankruptcy restructuring.

The governor's office was concerned that a costly bankruptcy filing “would have no positive impact in the classroom and it would likely cause a large loss in enrollment, creating even greater financial distress for the district,” said Walsh, a Republican former three-term state representative from Livonia.

Snyder made his case to Senate Republicans late Wednesday.

“He was as stern and forceful as I've ever seen,” Walsh said.

Detroit school deal

What’s in the six-bill, $617 million Detroit Public Schools rescue package:

■The plan would retire $467 million in debt for the old existing district and create a separate debt-free community district to continue providing education. It also would finance $150 million in start-up costs for the new district. The money would come from the state’s tobacco settlement revenue. The School Aid Fund, which finances public schools across the state, would be “held harmless” for any long-term liability the state would have on interest payments associated with the plan -- an estimated additional cost of $88 million.

■The new district gets $150 million to help with cash-flow issues for the new school year starting in September, including up to $25 million for deferred maintenance of school buildings. The district plans to invest in academic programs, such as a Montessori school, an Arabic classroom at another school and a building focused on the sciences, technology, engineering and math.

■Detroit voters would elect a new school board in November. Members would take office in January, and a state-appointed transition manager would run the district until that time. The board would hire a new superintendent, but the city’s post-bankruptcy Financial Advisory Commission would provide oversight on district finances and have final say on some employment decisions.

■An advisory council would be created to produce reports highlighting where schools are needed and study a potential citywide transportation system to serve all students. The six-member council would include district officials and charter representatives.

■Poor-performing traditional public or charter schools could be closed. The state’s School Reform Office is required to develop an A-F letter grade system to evaluate schools. Three years with failing grades would prompt closure unless the shutdown would would create an “unreasonable hardship” for students.

■Detroit teachers would be moved to a merit pay system.

■The school board could allow the hiring of non-certified teachers. If such teachers worked in the district for three years with positive classroom reviews, they could earn a provisional teaching certificate without completing a student-teaching training assignment.

■The state superintendent or Detroit parents could request strike hearings that could lead to penalties if there are teacher or other employee “sick-outs.” State law already prohibits teacher strikes.