On Oct. 19, 2015, Gov. Rick Snyder announced a plan to help save Detroit Public Schools (DPS) from the debt burden and deficit budget the system faces. His plan, simplified, is to take the current DPS and pay $515 million (thusly called “Old DPS”), and then setup a new DPS with $200 million (“New DPS”). All in, the plan will cost at least $715 million.

As of Sept. 16, 2015, roughly 36 districts within the state of Michigan are in deficit. The “roughly” is because not all districts projecting to be out of deficit have completed their audit, so that number is flexible. Nevertheless, assuming this is correct, that’s 20 fewer districts than the 56 that entered 2014 in deficit.

Another 20 of the 56 are anticipating a lower deficit at the end of June 2015 than they started the year with, while two districts are being added to the deficit school list (so it’s really 38). The total deficit of the 37 districts is $114,053,398, excluding DPS. Adding the DPS deficit of $238,239,008, the total deficit is $352,292,406.

It’s important to note that deficit is budgeted, not actual, and that deficit does not take into account other debt that a district may be carrying, which becomes more important later.

In fairness, $238,239,008 is the deficit, not the total debt. Michigan’s Department of Treasury reports that DPS owes $572 million to the state loan authority. This is where Gov. Snyder comes to the number of $715 million. These amounts don’t contemplate the $1,541,209,870 owed to long-term debt incurred for land, buildings and school infrastructure improvements. Those bonds, approved by voters in the DPS district, would remain with New DPS as a debt service obligation.

All of this comes to the current plan, and the concerns I have with the approach. The bailout (“restructuring” is probably Gov. Snyder’s preferred semantics) would come from the school aid fund, in the form of $70 million each year for the next 10 years. These are funds that would not go to other districts in Michigan, but be diverted to DPS. The cost is roughly $50 per student.

For Niles, that’s approximately $197,500. Gov. Snyder has said that the approach would not cost other districts any money, but that’s only partially true as districts would not see an increase in funding they may otherwise have experienced without the restructuring. It also assumes the legislature agrees.

In my view, this means that if a district is receiving $7,000 per student today, the district will not see a decrease, but also won’t see an increase even as the school aid fund balance would allow for increases (a far more complicated budget process than it should be, so forgive me for the simplification).

Further complicating the solution the governor proposes is that currently, to service the existing debt, DPS uses property tax revenue, which generates an estimated $69 million annually (business and rental properties). These payments terminate in 2022 without a vote by the residents to extend it. If rejected, the repayment plan proposed by the governor would run out of money four years before it was scheduled to be retired. This compounds the problem, because if voters fail to renew the school operating millage, then that will create an additional $69 million annual hole in the plan ($276 million over four years).

This would certainly increase the debt service obligation, and probably extend the commitment from the school aid fund for an additional five years (to make up the interest that accrues on the debt along with the four years of unpaid balance).

The difficulty in accepting this approach is that there is no reward for good behavior, for difficult decisions, and for painful cuts among districts that aren’t in deficit.

Niles is not far removed from a dire financial position that forced cuts, pay reductions and hurt feelings. While not fun for anyone, we came through without entering deficit, yet sit on the verge of funding unease consistently with unfunded mandates discussed in Lansing monthly (third-grade reading proficiency).

The long-term danger is a precedent of bailing out irresponsible behavior.

Benton Harbor, Pontiac and Flint all sit on significant deficits in excess of or quickly approaching $20 million each. What happens for them? What is the accountability of DPS following a bailout? What is the motivation for change? What is the responsibility of the state? How are we sure the students intended to benefit actually benefit? Will protections against school of choice be built into the plan somehow, as DPS loses roughly 2 percent of students each year? What precedent will that bring? Does the “special” funding level for DPS continue, even after all the debt has been paid off?

There are a thousand questions, and no clear answers. The students of DPS shouldn’t be burdened and suffer because adults failed to exercise diligence and a full range of intellectual gymnastics. On the same basis, should our kids have to pay for their mistakes? This seems to be the solution, but as a member of a school board, it is difficult to accept. As a parent of children, it’s almost impossible.

Putting myself in the shoes of the parents in Detroit, I would be crossing my fingers and hoping for the best, because I’d want the best for my own kids, and the problem isn’t going away.

 

Jon Martin is a member of the Niles Community Schools Board of Education since August 2011. The views expressed here are his own. He can be reached at jon.martin@nilesschools.org.