DALLAS – Michigan's state treasurer has sided with the state Senate over the state House after the two houses developed different legislation to restructure Detroit Public Schools.
The report from Treasurer Nick Khouri warned that the House's package of bills would leave the Detroit district with a deficit by late summer.
The report was provided to state lawmakers to provide them with additional information on the impact of the two different DPS restructuring packages.
The House and Senate must reconcile significant differences between their legislation, which is supposed to rescue from the district from insolvency.
The district would run a $22.2 million deficit in August and it would rise to $80 million by September under the House plan. The Senate plan would result in a balance of nearly $87 million in August.
"Under the Senate-passed proposal, DPS bridges the short-term transition cash flow needs this fall, and ends the 2017 school year with a cash surplus. Under the House-passed proposal, the district runs out of cash in August 2016," Khouri said in the report that was first obtained by Gongwer News Service.
Both the Senate and House plans would divide the district into two. The current school district would be left intact only to levy taxes and repay existing bonds. The new Detroit Community District would own assets and operate the schools.
The House plan appropriates only $33 million for start-up costs compared to $200 million in the Senate plan.
DPS transition manager Steven Rhodes has told lawmakers that $200 million "is the minimum amount" the district needs in order to have a reasonable opportunity to launch the new school system.
Senators have been critical of the House-passed Detroit Public Schools plan.
"The Senate spent 15 months, hundreds of hours, came together to support the students of Detroit -- both in public and charter schools -- and the work that we did over 15 months was dismantled in 15 hours by the Michigan House of Representative," said Sen. David Knezek , D-Dearborn, during a special presentation in the Senate Tuesday.
House Speaker Kevin Cotter, R-Mt. Pleasant, defended the Republican-led House package this week and said that there has always been consensus about paying off the debt.
"I continue to ask for more detailed information as far as the transition costs and that is the part that I haven't been able to get answered," he said.
"The taxpayers in the state are being asked to make an investment and I don't think it's unreasonable to ask for something that resembles a business plan to say how this money is going to be used," said Cotter. "We need detailed information."
If legislature can't reach a consensus in the next two months, DPS moves dangerously closer to a default or a Chapter 9 filing that would put all of the district bondholders at risk, officials have warned.
Moody's Investors Service said in a report earlier this week it expects the district's $1.4 billion of general obligation unlimited tax bonds would remain unimpaired because all of it is supported by the state's School Bond Qualification Program.
If the district lands in Chapter 9, the rating agency cautioned that "the state's commitment to the program has never been tested under a Chapter 9 scenario."
Holders of the district's $259 million in long-term state aid revenue debt from unrated series in 2011, 2012, 2014, and 2015 faces risky prospects "given the district's severely constrained reserves, despite a first claim on state aid," Moody's said. The district could tap fiscal 2017 aid but would struggle to meet both debt service and payroll.
