Michigan Gov. Proposes Bailout of Struggling Detroit Schools

Published December 23, 2015

Two years after the City of Detroit went through a highly publicized bankruptcy, Michigan’s governor is proposing a $715 million bailout of the troubled Detroit Public Schools (DPS).

Gov. Rick Snyder’s (R) plan would have Michigan taxpayers pay $515 million to erase the district’s short-term debt and use $200 million to create a new school district for the city. The plan would require approval by the state’s legislature. No lawmaker had submitted a bill as of early December 2015.

Gary Naeyaert, executive director of the Great Lakes Education Project, a group working for education reform in Michigan, opposes a bailout of DPS. He says it would rescue those who created the bad budgets.

“It’s throwing good money after bad to even consider taking $715 million that should be used to educate children all over the state and use it to pay off old debt from the state’s worst-performing district,” Naeyaert said. “It’s simple. We should stick a fork in DPS, because they’re done.”

John Rakolta, a Michigan businessman, is co-chair of a coalition that is proposing its own bailout of DPS. The Coalition for the Future of Detroit Schoolchildren plan would require the state to absolve the district of $153 million per year in debt and pension payments through legislation yet to be filed. Rakolta says DPS’ debt increases by $1 million every school day. Snyder’s plan would also require legislative action.

If DPS declares bankruptcy, Michigan taxpayers could be on the hook for an estimated $3.4 billion of the school district’s liabilities. According to the Michigan Treasury Department, if Detroit Public Schools files for bankruptcy, the state would be directly responsible for $1.3 billion in pension liability and another $196 million in loans backed by the state. A bankruptcy ruling could leave the state responsible for another $1.5 billion in long-term qualified bonds.

DPS officials have been overspending on daily operating expenses since 2007—08, according to the Michigan Department of Education. The district’s annual deficit for its general fund budget was at $238.2 million as of September 2015.

Tom Gantert ([email protected]) is senior capitol correspondent for Michigan Capitol Confidential, a daily news site of the Mackinac Center for Public Policy.

Image by woodleywonderworks.