Treasurer warns of DPS payless paydays if bills fail

State Treasurer Nick Khouri told lawmakers today that Detroit Public Schools employees could see payless paydays as early as April if legislation to address the district's debt isn't passed soon.

Khouri also repeated now-familiar warnings against a bankruptcy filing for the district during his testimony before the House Appropriations Committee on education reform bills that were introduced last week.

"DPS is financially on the brink," he said.

The package of six bills would split the 46,000-student DPS into two entities, creating a new debt-free school district. Two bills already pending in the Senate contain a similar plan, but the House bills have been more controversial because they add collective-bargaining restrictions to teachers and don't restore a fully elected school board to the city for eight years.

Four more Senate bills were introduced today. They primarily relate to the funding of the $715-million proposal to pay off the district's $515-million operating deficit and provide $200 million in transitional costs for the creation of the new district. One would enable the new district to receive state school aid payments, two focus on the transitional costs, and the final one allows the new superintendent and CEO of the school district to serve on a financial review commission

The bills do not specifically identify a source of the funding for the district, but Sen. Goeff Hansen, R-Hart, the sponsor of all the DPS bills, said he agrees with Gov. Rick Snyder's suggestion to use $72 million a year from the annual $193 million tobacco settlement revenues coming into the state.

"By using tobacco settlement dollars, we can do it for a period of years so the Legislature doesn’t have to appropriate it every year," he said.

House GOP plan for DPS: Wait 8 years to elect board

In his testimony before the House committee, Khouri said that on an annual basis, DPS has $70 million more in expenditures than revenues. The legislation there would reduce about $50 million of that, which the district pays now toward debt service. DPS has also cut about 100 central office jobs, which will save $5 million to $10 million annually, he said.

“When they run out of cash, sometime in the spring or early summer, without legislative interaction, they will have payless paydays," he warned.

Khouri said DPS filing for bankruptcy would mean six to 12 months of "chaos" and cost the state $1.8 billion. Most of the district's debts are directly or indirectly state obligations.

Bethany Wicksall, associate director of the House Fiscal Agency, provided a snapshot of the district's financial history. General fund revenues decreased by 54% and general fund expenditures dropped by 53.9% over the last 10 years. The practice of refinancing operating debt into long-term debt resulted in steep deficits.

At the same time, per-pupil operating expenditures increased by $3,620 over 10 years, she said, while the state per-pupil allowance rose by only  $116. The district's contribution to its debt service and the state employee retirement fund increased by $2,800 per pupil.

While DPS has spent more on instruction and instructional support than other districts on average, it also spent 58% more on administration and 73% more on operations and maintenance compared with the statewide average for other school districts.

Under both the House and Senate plan, DPS would be split into  "old" and "new" districts. The old district would use income from an existing 18-mill tax to pay off DPS's debt, while the new district would collect state aid to educate children.

Unlike the Senate legislation, the House bills would prohibit collective-bargaining rights on things such as the school calendar, work schedules and contracting with third-party vendors; prohibit the district from using more than 6.3% of its operating expenditures for administrative expenses; establish an A to F school grading system for the new district; and allow the district to employ full-time or part-time non-certified teachers.

Expected DPS transition manager to meet with teachers

The hearing was scheduled to continue this afternoon with testimony from Detroit Mayor Mike Duggan, but it was cancelled because of the snowy weather.

Both the House and Senate committees looking at DPS are expected to meet next week and the Senate Government Operations committee could vote on the two main bills in its version of a DPS fix.

Contact Ann Zaniewski: 313-222-6594 or azaniewski@freepress.com. Follow her on Twitter @AnnZaniewski