A new report lays out the stark reality of how the Detroit Public Schools is rapidly sinking under its debt burden.
The report from the Citizens Research Council of Michigan also details how the district accumulated its $3.5 billion debt load by mid-2015.
Almost $1.9 billion of that is “operational” debt – meaning it’s paid off by money that could otherwise be used in the classroom and for other day-to-day district expenses.
The remainder is capital debt, such as bonds, largely paid for by local millages and other dedicated local taxes.
Craig Thiel, a CRC senior researcher and one of the report’s authors, says much of the operational debt stems from pension and other retiree costs, which come due over many years.
Of more concern are the debts coming due much sooner, including more than $430 million in “short-term” borrowing from the Michigan Finance Authority, about $260 million of which the state allowed the district to refinance on several occasions.
These are “cash advances that the district received in previous years, that they weren’t able to repay within the year that the funds were borrowed,” said Thiel.
“That then becomes a long-term liability on the district’s books.”
Then there’s the $81 million in missed payments to the Michigan Public School Employee Retirement System (MPSERS) that DPS didn’t make during the last school year to conserve cash.
While the state and district have reached an agreement for DPS to pay back some of that money, Thiel says it doesn’t cover the total delinquency, which now amounts to at least $115 million.
In many ways, the report presents a more detailed picture of what’s already well-known: that without some kind of state rescue package, DPS will tip into insolvency sometime before the end of this school year.
Gov. Rick Snyder has said figuring out a way to avoid that is one of his top priorities. But so far, few state lawmakers have bought into his plan for a bankruptcy-style restructuring that would involve splitting the district into “old” and “new” DPS entities – which could siphon money from other school districts to cover the difference.
Thiel says it’s unclear whether municipal bankruptcy is actually a viable option for DPS, but the report also highlights how one way or another, Michigan taxpayers are on the hook for much of DPS’ debt.
And Thiel says the “main takeaway” is that the district’s “emergency manager regime has not worked.”
A series of four state-appointed emergency managers have run DPS since 2009. The district has been under some form of state oversight for all but three years since 2000.
Thiel says it’s clear the state will now have to step in somehow because “that model will continue not to work.”
“Each emergency manager has basically borrowed the playbook from the previous emergency manager, which is to bypass paying current bills, and put them off into the future,” said Thiel. “Which only solves the problem for the current year, and in fact makes the problem much larger in future years.”