(Reuters) - Michigan Treasurer Nick Khouri urged state lawmakers on Tuesday to move quickly on legislation to restructure the financially ailing Detroit Public Schools (DPS) before the district runs out of money.
"Sometime this spring or early summer, unless legislation passes in some form, the district will not be able to make payroll, will not be able to pay vendors. Essentially they will be out of cash," Khouri told the Michigan Senate's Government Operations Committee.
The committee has been holding hearings this month on bills supported by Republican Governor Rick Snyder to create two entities - the Detroit Community District to run the schools, and the current Detroit Public Schools to retire debt.
Khouri said the legislation presents a better option for DPS and Michigan than a bankruptcy which would "not make sense" given much of the district's debt is owed to the state. He added that bankruptcy could also take a year at a cost of as much as $100 million.
Unlike the city of Detroit's bankruptcy, a DPS filing would put the state on the hook for $1.45 billion over 11 years to pay off bonds issued for DPS through Michigan's school bond loan fund, according to written testimony Khouri submitted to the committee.
Under the governor's plan, the new community school district would be provided with $715 million in additional state funding over 10 years to offset local property taxes, which would be tapped by the old district to pay off debt. Another $240 million in DPS pension debt could be shifted onto other school districts in the state-wide teachers' retirement system.
Detroit exited the biggest-ever municipal bankruptcy in December 2014, shedding about $7 billion of its $18 billion of debt.
The Senate committee, which will continue its hearing on the legislation next week, also heard from teachers' union officials and parents who contended Michigan should be responsible for paying off debt accumulated by DPS since it was placed under state oversight in 2009. They also called for an elected board to be in control of the schools. The legislation would create a financial oversight commission for the district.
(Reporting By Karen Pierog; Editing by Andrew Hay)