NOTE: A copy of this post appeared in the Detroit Free Press on November 5, 2015.
Early last week, Governor Snyder re-introduced his plan to address the longstanding financial and academic crises in the Detroit Public Schools (DPS). The plan involves a number of structural changes to the district’s current governance, management, and educational systems. The Governor now turns his attention to selling lawmakers and the public on his plan. Although the plan appears designed to avoid the need for a state appropriation for what some may consider a bailout, such an appropriation may still be necessary for the completion of the plan if Detroit voters do not approve a local tax renewal before 2022.
Central to the Governor’s plan is a call to split the current district into two separate entities: an “old district” responsible for paying off the district’s debts and a debt-free “new district” to educate kids. The plan to liquidate the accumulated deficit of the “old district” relies on repurposing a voter-approved local school operating tax, currently used for everything from paying teachers to purchasing text books. Instead the tax would be used to pay down the district’s debt over a number of years. School districts, like all local governments, may only levy this tax with voter approval and for a limited duration before the voters must be asked to renew the millage. The district’s existing operating millage expires in 2022, at least two years before the debts are projected to be fully repaid.
The Governor estimates that DPS will have an accumulated general fund deficit of over $500 million by the end of the 2015-16 school year. DPS has spent more than it takes in for years and has issued long-term debt to cover operational expenses. The district continues to struggle to cut costs to meet declining revenue caused by plummeting enrollment. If this projection holds, the district’s deficit will have more than doubled since the 2013-14 school year when the deficit was $169.5 million; this despite being under the control of a state-appointed manager.
On its face, this appears to be a “local” solution to address DPS’s debts because of the local tax involved. However, it is undeniably a state-financed solution. This is because the per-pupil funding for DPS students will not be reduced with the redirection of the local tax, but instead the local funds will be replaced by additional state School Aid Fund dollars under the Governor’s plan. And each additional School Aid Fund dollar used to make up for the loss of these local tax dollars means one less dollar is available for other districts serving students across the state.
This is not a new approach to school district debt relief; it has been used previously in four other financially failing districts (Muskegon Heights, Highland Park, Inkster, and Buena Vista). However, the total combined deficits in those four districts represent a fraction of the debt amassed by DPS. Similarly, the total amount of the local taxes in the four districts currently being redirected for debt relief ($5.4 million annually) is a small percentage of the DPS annual operating millage ($72 million).
Even if Governor Snyder gains legislative support to pay off DPS’s debts this way, voters in Detroit may end up with the final say because the local operating tax is set to expire in 2022. Without voter reauthorization, the funds will not be there to completely liquidate the debts. This was the same problem the state ran into when it employed this mechanism to settle the debts of the dissolved Buena Vista School District. Authorization to levy the tax expired in 2014. Twice since dissolution of their school district, Buena Vista voters have rejected renewal of the local operating tax to pay down debt. As a result, Buena Vista’s debts remain unpaid and the state continues to look for a solution.