For Immediate Release:
April 22, 2014

Contact: Craig Thiel (517-485.94444
or Eric Lupher (734-542-8001)

 

New CRC Report Calls for State Policy before Assuming School Debts 

LIVONIA, Michigan – A recent report addressing the future of public education in the City of Detroit recommends that the State of Michigan assume responsibility for certain debts of Detroit Public Schools as part of a larger plan to reform governance and finance for all public schools in the city. A new Citizens Research Council of Michigan (CRC) report, “State Assumption of School Debts,” examines the issues created by a state assumption of school debts by examining the consequences associated with previous instances where the state assumed responsibility for school debts. The CRC report urges policymakers to develop a statewide policy for dealing with school district debts, especially if the state is going to make additional resources available for such purposes.

The Coalition for the Future of Detroit Schoolchildren has recommended that the state assume $124 million annually of Detroit Public Schools’ (DPS) financial obligations. The obligations include debt service payments for long-term notes issued to finance current operations as well as required payments to the school employee retirement system for employee “legacy costs.” If the state takes on these debts, DPS would see an almost $2,500 per-pupil increase in the amount of money available for classroom instruction; however, this will come at the expense of $124 million fewer state dollars available to share across all other public schools in the state. When the state assumes a district’s debts, the benefits are retained locally but the costs are socialized.

“While DPS is currently the most recent financially and academically struggling district requesting direct state assistance with its debts, 55 other school districts across the state began the current fiscal year in a deficit situation,” said Craig Thiel. “A request from any one of these districts, some of which are under the control of state-appointed emergency managers, may not be too far off.”

State assumption of school debts is not unprecedented; the state has assumed the debts of four financially struggling school districts since 2012 – Muskegon Heights (2012), Highland Park (2012), Inkster (2013), and Buena Vista (2013); however, it did so without a specific policy in place. Instead, emergency managers in Muskegon Heights and Highland Park were able to gain access to additional state assistance to pay off school debts by “charterizing” the entire districts. The Michigan Legislature passed a state law to allow the dissolution of the Inkster and Buena Vista school districts and for the debts to be assumed by the state. Policymakers are still dealing with the consequences, both intended and otherwise, arising from the actions taken in these instances and from the lack of a statewide policy.

“Before dealing with the immediate situation involving DPS debts and in anticipation of future requests for state assistance, policymakers should give consideration to the lack of a long-term policy for state assumption of school debts,” said Craig Thiel. “In developing a policy, the state must be cognizant of criteria such as transparency, fairness, accountability, and consistency.”

The full report is available at no cost on the Citizens Research Council of Michigan website at www.crcmich.org.

Founded in 1916, the Citizens Research Council of Michigan works to improve government in Michigan. The organization provides factual, unbiased, independent information concerning significant issues of state and local government organization, policy, and finance. By delivery of this information to policymakers and citizens, CRC aims to ensure sound and rational public policy formation in Michigan. For more information, visit www.crcmich.org.

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