DALLAS - Debate began Tuesday in the Michigan House on a $715 million restructuring of Detroit Public Schools amid mounting growing pressure to act after the district's teachers closed most of its schools with a "sickout."
DPS teachers closed most schools Monday and Tuesday by calling in sick through an organized response to the district's weekend disclosure that it would run out of funding to pay employees by June 30. The district faces a fresh $50 million funding gap.
That means teachers on a 26-week pay cycle, which a Michigan Treasury representative said represents a vast majority of DPS teachers, would not receive five pay checks. Teachers on a 22-week pay cycle face not receiving one pay check.
The teachers turned to the organized "sick-outs" because state law bars strikes.
DPS transition manager Steven Rhodes warned Monday of the impact of the sickouts – which result in the loss of $2 million in state aid daily -- and voiced confidence that the legislature would act quickly.
"I understand the frustration being felt by our educators, and I am on record as saying that I cannot in good conscience ask anyone to work without pay," he said, adding that the loss of funding "equates to the cost of hiring roughly 20 teachers."
"The loss of these funds also does nothing to help the district address the serious issues that we have all been working to address, including teacher/student ratios and smaller class sizes, as well as improving the quality of the learning environment in our schools," he said.
In March, shortly after the retired bankruptcy judge took over as transition manager, DPS received $48.7 million in emergency funding, which was supposed to keep the district solvent through June 30. Rhodes confirmed that aid would keep the district solvent until the end of the current school year, but without the more comprehensive $715 million reform package there will be no funds available to pay DPS employees that receive pay in the months of July and August.
"I can make no guarantees, but it is clear that the Michigan Legislature understands the urgency of this situation and will act in a timely manner to ensure that operations of the school district continue uninterrupted," he said.
The House Appropriation Committee began hearings on the DPS reform package today. If passed, House Bills 5382 to 5387 would move on to the full House.
Also awaiting hearing by the House are Senate Bills 710, 711, 820 and 821, sponsored by state Sen. Goeff Hansen, R-Hart, and SB 819 and SB 820 sponsored by Sen. David Knezek, D–Dearborn Heights. They've cleared the Senate and are supported by Gov. Rick Snyder who last year unveiled the restructuring.
The bills propose $200 million in transition funds to form a new community district known as Detroit Community District which would own assets and operate the schools.
An additional $515 million would be appropriated to fund the education needs and operation of the new community district.
The current school district would be left intact only to levy taxes and repay the district's existing bond debts.
Lawmakers reacted harshly to Monday's sickouts which some worry jeopardize legislative action.
"These egotistical teachers have lashed out at the children who rely on them and accomplished nothing but disrupting their students' education. Their selfish and misguided plea for attention only makes it harder for us to enact a rescue plan and makes it harder for Detroit's youngest residents to get ahead and build a future for themselves," House Speaker Kevin Cotter, R-Mt. Pleasant, said is a press release.
Senate Majority Leader Arlan Meekhof, R-West Olive called the sickout "irresponsible and counterproductive to finding a solution for Detroit's parents and students."
Michigan Rep. Sherry Gay-Dagnogo, D-Detroit, is among lawmakers calling for an audit of schools.
"There are too many problems that need fixing and questions that need answers which an audit will help to determine the best path forward when it comes to funding as well as ensure there are no gaps in pay or instruction," said Gay-Dagnogo.
DPS, which has been under emergency management since 2009, has seen its debt balloon to under state management. The district's legacy debt that also includes pensions is at $3.9 billion, including $1.5 billion of unlimited-tax general obligation bonds, $199 million in borrowing from the state's School Loan Revolving Fund, and $259 million in limited-tax GO debt paid by district operating revenues, rather than a dedicated debt service levy.
The threat that schools could be shuttered, which in turn could pare down its share of state aid payments, prompted Standard & Poor's to put its ratings on about $469 million of bonds and notes from issues in 2011, 2012, and 2015 on Credit Watch with negative implications in March.
S&P rates 2011 first lien bonds A and 2012 second lien bonds A-minus. The investment-grade ratings reflect state backing of the bonds, not the district's underlying financials.
Junior subordinated notes are rated SP-2 and fourth lien notes are rated SP-3. S&P rates $265 million of bonds and $204 million of notes.
Moody's rates the school system's debt Caa1 with a negative outlook.
