Getting Schooled on Municipal Bankruptcy

March 23, 2016. Share on Twitter

Getting Schooled in Bankruptcy. The Michigan Senate yesterday passed sweeping state legislation to split the Detroit Public School (DPS) system into a new district which would educate students and be funded by state appropriations, and to retain an old district responsible for the collection of local property taxes to pay off existing debt—a key step to avoid DPS going into chapter 9 municipal bankruptcy. The bill would create a controversial new education commission to determine which Detroit schools would remain open—and which would not—all as part of a proposed $720-million plan to restructure the debt-ridden district—legislation which now will face a severe test in the state House. Key Senate sponsor Sen. Goeff Hansen (R-Hart) said: “Today, we have the opportunity to change the lives of 47,000 children.” The Senate-passed version, which has the support of Detroit Mayor Mike Duggan and Governor Rick Snyder, would create the Detroit Education Commission, a body which would regulate the openings and closings of traditional public schools and charter schools throughout Detroit: Mayor Duggan would appoint the commission’s seven members: Three would have ties to charter schools and three to public schools, with one selected member from each group a parent, and the final member an expert in public school accountability systems. Key contested issues involved, unsurprisingly, governance: who should pick the superintendent. Under the Senate final version, a nine-member school board for the new district will be elected in August, and that newly elected board will hire the superintendent. Retired U.S. bankruptcy judge Steven Rhodes, the transition manager for DPS, yesterday said the Senate’s action signaled the start of a new future for the district, as he thanked legislators and district employees, noting: “As I have said previously, Detroit cannot complete its recovery without a fully functioning, viable school system. While there is still major work to be done, I believe this legislation moves both the city and the district in the right direction.” Most pieces of the six-bill package passed by a vote of 21-16, including the main bill that would create the new district, which evenly divided Senate Republicans. The vote came nearly a year after Gov. Rick Snyder publicly announced plans to reform DPS, which has been under state-appointed emergency managers for about seven years and could become insolvent as early as next month. The new district’s finances would be under the oversight of Detroit’s Financial Review Commission, the same commission which is overseeing post-bankruptcy Detroit. The commission will also have the authority to appoint and terminate the school district’s chief financial officer. In addition, the proposed legislation would create its own grading system (A—F) for schools, provide authority to make decisions about school openings, closings and location in the city: All seven members would be appointed by the Mayor: Three members would have ties to charter schools and three to public schools, with one person from each group a parent. The final member would be an expert in public school accountability systems. The commission would be in place for an initial period of five years, but could be extended for another five. The plan provides for the transitioning of DPS back to local control, with a nine-member school board elected this August 2016: most board members would be elected by city council districts. The board would appoint a new superintendent.

In addition, the plan would create a local public accountability plan to assign schools grades of A, B, C, D, E, or F. Schools with an A or B grade could replicate without the approval of the education commission, while other schools could only replicate or open with approval from the commission. The bill creates oversight of the new DPS to the same Financial Review Commission which currently oversees the city of Detroit’s finances, except that the commission would include the superintendent and school board president instead of the mayor and the City Council president.

Supporters claim the legislation would finally bring some order to Detroit’s physically unsafe and scholastically challenged system, even as it addressed DPS’ accumulated $515 million in operating debt. There is virtually no current coordination with regard to where schools can be located, leading to system-wide instability. Or, as key sponsor Sen. Hansen noted: “We have a plan that gives Detroit schools a chance to push the reset button, to begin anew…This plan will put $1,100 per student in back classroom instead of paying down debt.” The legislation passed yesterday does not include any state appropriations for the new district — that will come in a separate vote. Gov. Snyder has proposed spending $72 million annually in per-pupil funding over a decade, with the money coming from tobacco settlement revenue, to fund the new district. Yesterday’s vote does allow the new district to receive loans from the state of up to $300 million: Sen. Hansen said that figure includes $200-million in start-up costs for the new district which would come from tobacco settlement money, and not the state School Aid Fund.

After the Senate vote, House Speaker Kevin Cotter, R-Mt. Pleasant, issued a statement saying the Senate should immediately vote on the supplemental funding. “The future of Detroit’s schoolchildren, and their access to a quality education, is absolutely critical. That is why we must pass a funding plan that keeps the doors open through the end of the school year. Any funding for Detroit Public Schools must include legislation expanding the Financial Review Commission to oversee DPS finances. “Funding without oversight accomplishes nothing, and the House Republicans will not consider that a real solution. Without increased accountability, the district will simply end up in the same situation a few months down the line, and young students will once again be left with uncertain futures. We will not allow that to happen.”

Notwithstanding the urgency, the Michigan House does not expect to take up the Senate-passed bill until after its recess, in part due to a rule that each chamber must have most bills in possession before passing them, according to House Speaker Kevin Cotter, albeit the state Senate could still take action ahead of the Spring recess on a $48.7 million short-term funding measure to keep Detroit Public Schools operating through the end of the current school year. Moreover, unlike school assignments, the post-House spring vacation route does not promise early resolution: Michigan Representative Tim Kelly (R-Saginaw Township) yesterday noted the Senate-passed version had “very little chance” of passing the House—which has its own potential plan. Rep. Kelly, in his critical position as Chair of the House Appropriations Subcommittee of School Aid, noting the alternative House version, said he believed there was no need to split the Detroit school district, nor approve $200 million for start-up costs for the new district. Instead, Rep. Kelly said the state should just appropriate funding to cover DPS’s debt. The pending House DPS rescue plan provides sharp contrasts from the Senate-passed version, including adding restrictions on collective bargaining and putting off a fully elected school board for eight years.

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