Uneducated about Municipal Bankruptcy?

February 29, 2016. Share on Twitter

Uneducated about Municipal Bankruptcy? Gov. Rick Snyder will end weeks of speculation today by bringing retired U.S. Bankruptcy Judge Steven Rhodes out of retirement to run the Detroit Public Schools on behalf of the state. Even though he will not be called an emergency manager — the new title is transition manager — a spokesman for the governor said he will handle most, if not all, of the duties previously assigned to Darnell Earley, the emergency manager whose resignation becomes effective today, with the Governor’s spokesperson stating: “The transition manager would fulfill the role of emergency manager under the laws, but Judge Rhodes is anticipating his tenure ending on July 1 under the current legislation.” Under Gov. Snyder’s proposed schedule, he expects an appointed school board to take over DPS and keep the schools running until a board elected in November can take over next Jan. 1; however, that is a scenario which relies upon the Michigan legislature adopting his proposed education restructuring package, which would provide $720 million over 10 years to erase the district’s long-term debt, by this summer and turning the district back to an elected school board. Lawmakers, though, are hung up on the creation of a Detroit Education Commission that would oversee the opening and closing of traditional public and charter schools. Gov. Snyder had initially wanted to appoint the members jointly with Detroit Mayor Mike Duggan, but the mayor and local education advocates want Mayor Duggan to make the appointees.

That election could happen as early as August—even as DPS is likely to be insolvent by spring. According to Gov. Snyder, Judge Rhodes will oversee DPS’ finances and operations, and is working to name an interim superintendent to oversee the improvement of academics. Under the proposed plan, according to Judge Rhodes, that amount would free $1,000 per student currently being spent on debt service to use in the classroom, noting: “We want to make sure the district’s resources are best spent in the classroom helping students and teachers.”

Gov. Snyder and Judge Rhodes, however, have yet to designate an interim DPS superintendent to foster academic improvement for the city’s 46,000 students. Tonya Allen, the Skillman Foundation President and CEO (a foundation which has donated millions towards the DPS district) who had been rumored to be in line for the job, on Friday said she had declined the job—adding that, as an adviser to help tailor the job, she believed any new DPS leadership should not come from outside the district: “We’re constantly looking for a heroic leader, and the district does not need a heroic leader: What the district needs is a revolt from inside.”

The appointment comes in the wake of time Judge Rhodes has already spent with Michigan lawmakers at the Governor’s request to help them better understand the precarious nature of DPS’ finances and the potential negative consequences of the school district filing for municipal bankruptcy. In addition, Judge Rhodes has met with teachers. And it comes in the wake of the early (no pun) departure of Darnell Earley as the DPS emergency manager—pressured to depart before his scheduled July 1 date based upon the significant fiscal and physical deterioration of DPS since his start—and given his apparent inability to perform well as the previous emergency manager in Flint, where he was also asked to step down. In each instance, not only did he preside over rapidly deteriorating fiscal situations, but also over health and safety issues risking the lives of young children.

While Judge Rhodes’ appointment is more than likely to impress upon state lawmakers the urgency of avoiding still another municipal bankruptcy in Detroit, the conflict between his previous federal judicial bankruptcy service and his newly appointed position would bar him from acting as an emergency manager and taking—as Kevin Orr did in Detroit, DPS into chapter 9 bankruptcy. For his part, Judge Rhodes said that even though the superintendent would report to him, he was looking for someone to “partner with me in running the Detroit schools…We’re vetting a number of candidates, some on the inside and some not…I guess it would be an advantage to get someone on the inside. I’m not sure that’s necessary, but it would be helpful.”

The naming of Judge Rhodes is also intended/hoped to break the abysmal record of emergency manager failures in DPS—with Mr. Earley, the fourth to depart early because, according to him, he “had completed his goals ahead of schedule.” Such a statement would lead a reasonable person to question just what his goals were. Robert Bobb had been the first DPS emergency manager: he had been appointed by the Governor in 2009, a year in which DPS served 172 schools, 85,000 students, and had a $219-million deficit. Today, DPS is comprised of only 97 schools serving 46,000 students, and it has a mathematically challenging $515-million deficit; DPS employment has declined over that time from 11,000 employees to 6,000—this in an academic year which has witnessed teachers stage sick-outs to bring attention to dilapidated, rat-infested, and unsafe buildings; and it comes in stark contrast to Mayor Mike Duggan’s efforts to rebuild post-bankrupt Detroit into a 21st-Century city.

As we have noted many times, perceptions and the reality of the quality of a city or county’s public schools are one of the most basic building blocks for that municipality’s long-term future. The quality of schools is inextricably interwoven into assessed property values: if a family does not perceive a positive outcome from their child’s attendance in such a public school system, they will choose to leave; they will choose not to move to such a jurisdiction. Thus, in Detroit, its leaders, and, now, Judge Rhodes, just over a year after Detroit exited the largest municipal bankruptcy in American history, confront what could be an even steeper set of challenges—the success, or failure, of which will be inextricably linked to Detroit’s future solvency.

Among the most difficult:

Governance: Who is responsible for a city or county’s schools, ultimately? Is it the state? Is it the city? Is it an elected school board? And who makes those decisions? People far away in the state capitol? It could be that the greatest gift Judge Rhodes might be able to bestow would be ownership of responsibility—and accountability for DPS. One Detroit publication described this challenge—with regard to our traditional concepts of electing school boards—this way: “While some board members have been insightful, smart and knowledgeable about education, others included a school board president who was functionally illiterate and fondled himself while meeting with the superintendent in his office and others who approved contracts that sent some people to prison.”

Leadership. The challenge for Judge Rhodes is to seek an absolute fiscal reversal from near-insolvency to a debt-free, repaired school district. Or, as Michigan State Education Superintendent Brian Whiston put it: “We have to fix the short-term problem of the debt, but the long-term problem of the students, or we’re going to be right back where we are five or 10 years from now.” The current education, physical, and fiscal insolvency will require leaders who will engage in long-term strategic planning and in non-traditional thinking about how to address issues such as systemic poverty and issues of poverty and dysfunctional literacy within the family and the community structure.


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