Michigan House approves $48.7 million to keep Detroit schools open

Reuters News
Posted: Mar 17, 2016 5:24 PM

(Reuters) - The Michigan House on Thursday approved $48.7 million for the Detroit Public Schools (DPS) to prevent the district from shutting down next month.

The Republican-controlled chamber voted 104-5, sending the measure to the Senate, which is under the gun to pass the appropriation before the legislature takes off for its March 25-April 11 spring break.

Steven Rhodes, a former federal bankruptcy judge appointed by Governor Rick Snyder to run the district, warned last week that DPS will not have money after April 8 to pay teachers and staff, which would force him to close schools.

"We have a constitutional responsibility to provide education for all children, and this is House Republican leadership following through on that responsibility to make sure they can finish the school year," said a statement from Republican State Representative Al Pscholka, who chaired House Appropriations Committee hearings on the legislation.

Michigan's largest public school system, which operates 97 schools for about 47,000 students, is sinking under $3.4 billion of debt and other obligations. Those include $1.5 billion of general obligation bonds issued through the state's school bond loan fund and a $1.3 billion unfunded pension liability to the Michigan Public Employee Retirement System.

Despite being under state oversight since 2009, the school district has a $515 million operating deficit.

The Michigan House tied the appropriation to another bill it passed Thursday in a 66-43 vote that would subject DPS to a financial review commission similar to one in place for the city of Detroit, which exited the biggest-ever U.S. municipal bankruptcy in December 2014.

Snyder is backing legislation to create two entities - a Detroit Community District to run the schools and the current DPS to retire debt. He is also seeking $72 million annually over 10 years to fund the plan, using money from Michigan's share of a nationwide settlement with U.S. tobacco companies.

Credit rating agencies last week issued warnings about the school district's cash crunch.

Standard & Poor's said it will likely cut the ratings on $469 million of DPS notes and bonds backed by an intercept of the district's state aid revenue if the cash-flow crisis leads to a shut down of operations before the school year ends. Moody's Investors Service said the district's underlying rating of Caa1 could fall deeper into "junk" if legislative reforms fail to pass leading to a recommendation to file for bankruptcy.

(Reporting by Karen Pierog in Chicago; Editing by Matthew Lewis, Bernard Orr)