It’s getting more expensive for Michigan school districts to borrow money and difficult for some to avoid bankruptcy after voters rejected a ballot proposal that would have retained the state’s emergency manager law. The law allowed the governor to appoint fiscal managers to oversee municipalities and school districts that have defaulted on loans.
Now emergency managers will function under an older, more limited law.
“Taxpayers should not be forced to bail out these irresponsible school boards,” said Kyle Olson, CEO of the Education Action Group Foundation, a Michigan nonprofit.
Gov. Rick Snyder (R) had appointed Roy Roberts emergency manager of the Detroit Public Schools, which has been near bankruptcy for several years. Before the election, Roberts said an overturn would likely make him resign, but afterward Roberts said he would stay at least until Proposal 1 was certified Dec. 6.
Saved $82 Million a Year
At the polls, 52 percent voted against Proposal 1. The vote overturned Public Act 4, which was enacted in May 2011. Public Act 4 proponents fear repeal will mean financially struggling districts cannot quickly address their biggest costs: employee salaries, staff bloat, and health insurance.
“The emergency managers are there because school boards repeatedly failed to fix the fiscal fallout of declining enrollment and overspending,” said Michael Van Beek, education director of the Michigan-based Mackinac Center for Public Policy.
Roberts’ position allowed him to save DPS approximately $82 million annually, he wrote the state treasurer in July.
Bankruptcy Increase Expected
After the election, Snyder asked state legislators to finish drafting a bill that would grant emergency managers more leeway.
“Taxpayers throughout Michigan are required to bail out cities and school systems that default on loans, and that is why these unions prefer bankruptcy to financial managers,” said Leon Drolet, chairman of the Michigan Taxpayers Alliance. “Bankruptcy equals bailouts that cost citizens across Michigan and may help government unions preserve the lavish benefits they feel entitled to.”
Bankruptcy lawyer Doug Bernstein told the Detroit News repeal means as many as 40 municipalities and school districts may face bankruptcy soon.
“Two things are certain: emergency mangers will be less able to erase these districts’ deficits, and legal battles will ensue over who gets to control instruction for children—the appointed manager or the fiscally inept school board,” Van Beek said.
Image by Thomas Hawk.