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August 5, 2020

Detroit Schools Clears One of Many Hurdles with Tax Vote

Detroit voters have taken a major step toward returning the city’s main school district to what it once was. By renewing the school operating tax, the district continues to retire debt on a pace set in 2016 as part of the state-imposed reforms.

With Tuesday’s vote behind them, state and local leaders must now turn their attention to other elements necessary for the district’s success: such as finding a long-term strategy to improve buildings and facilities; making strides in early childhood literacy; and developing an equitable funding system that addresses the disparate educational, social-emotional, and developmental needs of many Detroit school children.

On Tuesday, August 4, voters in the Detroit Public Schools (DPS) district approved a renewal of a school operating tax that is being used to pay off the district’s legacy debts. The approval maintains the financial framework created in 2016 as part of the $617 million state-supported plan to liquidate the district’s operating debts and shift educational responsibilities to the newly-created Detroit Public Schools Community District (DPSCD).

Four years ago, after decades of failed educational, governance and financial reforms, DPS stood on the precipice of bankruptcy with only the State of Michigan positioned to step in and right the course. At the end of the 2015-16 school year, the district had over $3.5 billion in combined operating and capital debts. The amount of operating debt on its books at the time ($1.8 billion) represented a near-existential threat to the 48,000-student district’s ability to continue to educate Detroit children. 

In early summer 2016, the state enacted a suite of bills to restructure DPS. Most notably, the package included ending years of state control and emergency management by returning the district to local control, creating an accountability system for all Detroit schools (traditional public and charter), placing the district under oversight of the Detroit Financial Review Commission, and splitting the district into two separate entities – one to educate students (DPSCD) and another to continue collecting  taxes (both operating and capital) that would be used to pay off debt (DPS).  

A key piece of the financial reforms involved the state’s commitment of $617 million and a plan to re-purpose the existing school operating property tax. The proceeds from the 18-mill non homestead tax (levied only on industrial, commercial, rental, and vacation properties) were redirected to debt repayment instead of using the funds to finance the district’s per-pupil foundation allowance. The tax currently generates approximately $65 million annually and the estimates at the time were that the district’s operating debts would be paid off in approximately 10 years. 

To avoid impacting the funding flow to current school operations, the state replaced, dollar for dollar, the repurposed operating tax proceeds. This means that during the period of debt repayment, DPSCD’s foundation allowance will be financed 100 percent by the state School Aid Fund. After DPS legacy debts are fully repaid, the proceeds from the tax will revert to supporting DPSCD’s foundation allowance and the additional SAF support will be eliminated. 

This is the same fiscal arrangement the state used to allow two other districts to pay off their operating debts with state dollars – Inkster and Buena Vista. After a law was passed to give state officials the authority to dissolve specific districts for financial reasons, Inkster and Buena Vista were dissolved in the spring of 2013 because of chronic financial stress. After their dissolution, the entities remained in name only; their sole function was to collect taxes and repay debts. They were no longer responsible for educating students living within their boundaries. Instead, the new law shifted this responsibility to neighboring districts.

The 18-mill non-homestead property tax levy requires voter approval because it is a local tax and that approval is only granted for a limited number of years. The current DPS millage was set to expire at the end of 2022 – before the legacy debts were repaid. Thus, the state’s plan to pay of the debts, premised on local voters re-authorizing the school operating tax before that expiration, was complicated by the requirement to obtain voter approval for a tax that does not directly fund classrooms. 

On Tuesday, voters did just that by approving the tax levy through 2033 or until DPS’s debts are repaid, whichever is sooner. 

The vote clear’s one hurdle facing the district. It permits the 2016 state-imposed financial plan for Detroit schools to continue on pace and uninterrupted. It is one step in a much larger effort to return the city’s main public school district to earlier periods of success. 

Detroit Schools Clears One of Many Hurdles with Tax Vote

Detroit voters have taken a major step toward returning the city’s main school district to what it once was. By renewing the school operating tax, the district continues to retire debt on a pace set in 2016 as part of the state-imposed reforms.

With Tuesday’s vote behind them, state and local leaders must now turn their attention to other elements necessary for the district’s success: such as finding a long-term strategy to improve buildings and facilities; making strides in early childhood literacy; and developing an equitable funding system that addresses the disparate educational, social-emotional, and developmental needs of many Detroit school children.

On Tuesday, August 4, voters in the Detroit Public Schools (DPS) district approved a renewal of a school operating tax that is being used to pay off the district’s legacy debts. The approval maintains the financial framework created in 2016 as part of the $617 million state-supported plan to liquidate the district’s operating debts and shift educational responsibilities to the newly-created Detroit Public Schools Community District (DPSCD).

Four years ago, after decades of failed educational, governance and financial reforms, DPS stood on the precipice of bankruptcy with only the State of Michigan positioned to step in and right the course. At the end of the 2015-16 school year, the district had over $3.5 billion in combined operating and capital debts. The amount of operating debt on its books at the time ($1.8 billion) represented a near-existential threat to the 48,000-student district’s ability to continue to educate Detroit children. 

In early summer 2016, the state enacted a suite of bills to restructure DPS. Most notably, the package included ending years of state control and emergency management by returning the district to local control, creating an accountability system for all Detroit schools (traditional public and charter), placing the district under oversight of the Detroit Financial Review Commission, and splitting the district into two separate entities – one to educate students (DPSCD) and another to continue collecting  taxes (both operating and capital) that would be used to pay off debt (DPS).  

A key piece of the financial reforms involved the state’s commitment of $617 million and a plan to re-purpose the existing school operating property tax. The proceeds from the 18-mill non homestead tax (levied only on industrial, commercial, rental, and vacation properties) were redirected to debt repayment instead of using the funds to finance the district’s per-pupil foundation allowance. The tax currently generates approximately $65 million annually and the estimates at the time were that the district’s operating debts would be paid off in approximately 10 years. 

To avoid impacting the funding flow to current school operations, the state replaced, dollar for dollar, the repurposed operating tax proceeds. This means that during the period of debt repayment, DPSCD’s foundation allowance will be financed 100 percent by the state School Aid Fund. After DPS legacy debts are fully repaid, the proceeds from the tax will revert to supporting DPSCD’s foundation allowance and the additional SAF support will be eliminated. 

This is the same fiscal arrangement the state used to allow two other districts to pay off their operating debts with state dollars – Inkster and Buena Vista. After a law was passed to give state officials the authority to dissolve specific districts for financial reasons, Inkster and Buena Vista were dissolved in the spring of 2013 because of chronic financial stress. After their dissolution, the entities remained in name only; their sole function was to collect taxes and repay debts. They were no longer responsible for educating students living within their boundaries. Instead, the new law shifted this responsibility to neighboring districts.

The 18-mill non-homestead property tax levy requires voter approval because it is a local tax and that approval is only granted for a limited number of years. The current DPS millage was set to expire at the end of 2022 – before the legacy debts were repaid. Thus, the state’s plan to pay of the debts, premised on local voters re-authorizing the school operating tax before that expiration, was complicated by the requirement to obtain voter approval for a tax that does not directly fund classrooms. 

On Tuesday, voters did just that by approving the tax levy through 2033 or until DPS’s debts are repaid, whichever is sooner. 

The vote clear’s one hurdle facing the district. It permits the 2016 state-imposed financial plan for Detroit schools to continue on pace and uninterrupted. It is one step in a much larger effort to return the city’s main public school district to earlier periods of success. 

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