Our editorial: DPS debt disaster can’t be ignored
Michigan lawmakers have remained aloof toward the financially imploding Detroit Public Schools. That’s in spite of pleas from a wide range of concerned state leaders and Detroit groups, including Gov. Rick Snyder and the Coalition for the Future of Detroit Schoolchildren, for lawmakers to intervene before it is too late.
Now DPS has reached a crisis point and the Legislature must do something. If it doesn’t, the alternative will be more drastic: bankruptcy. It’s a strong possibility, unless a preferable legislative fix is ironed out within the next several weeks.
Recent reports paint a very gloomy picture for the school district, which has struggled for years with declining student enrollment and burgeoning debt. The Detroit News reported this week that DPS debt payments are set to jump in February to 97 percent of payroll as the district works to pay down money it owes the state. That’s an unsustainable ratio, and district officials predict DPS will be broke by April.
The governor first made his proposal for restructuring DPS to lawmakers last April, but they are resistant to getting involved. Snyder wants to split DPS into two districts, separating the debt into an old district and starting a new district that can focus on educating its 46,000 remaining students. His proposal would cost the state more than $700 million over 10 years. Here’s what lawmakers should consider: Regardless of the fix for the district, the state is on the hook one way or another for a big chunk of the district’s debt. The longer they wait, the worse it will get.
A Citizens Research Council of Michigan report out this week examined DPS’ finances, and it concludes the state must get involved.
“The district isn’t going to get out of this problem on its own,” says Craig Thiel, a senior research associate and the author of the CRC study. “It’s a matter of how the state gets involved.”
Thiel says the district’s emergency managers have all followed a similar playbook by deferring short-term liabilities into long-term obligations. Since the financial outlook hasn’t improved, as some managers had hoped, that debt has continued to grow.
DPS is facing $3.5 billion in outstanding debts, according to the report. “Nearly half of the current amount, $1.7 billion, is capital liabilities payable with a dedicated millage,” the report states. “The balance of DPS’ liabilities are related to legacy costs and repaying short-term borrowings converted to long-term debt by state-appointed emergency managers.”
Thiel found that as the district is forced to pay a higher rate of debt service on its past operating debt, it’s eating into the current amount that goes to students. The report indicates that 40 percent of the district’s per-pupil funding will go toward that debt payment this year. No other district is saddled with that kind of debt.
Regardless of who is to blame for getting the district into this position, the students are not at fault and shouldn’t pay the price. It may be politically difficult to orchestrate another Detroit bailout in an election year, but lawmakers have no choice but to tackle the DPS debt.