Moody's: Detroit school district needs another state bailout

Without state support to address its growing capital needs, Detroit's public school system poses a potential threat to Detroit's economic revitalization, Moody’s Investors Service said Tuesday.

The rating agency said for fiscal 2019, the Detroit Public Schools Community District has budgeted $9 million in capital expenses, out of a budget of roughly $760 million. Detroit's school buildings have $500 million in capital needs and deferred maintenance.

The Moody's report projected the figure could top $1.5 billion by 2023 if unaddressed.

“The district cannot finance capital improvements on its own and the City of Detroit has its own challenges, placing the burden on the State of Michigan to potentially step in again,” said Andrew Van Dyck Dobos, an analyst at Moody’s. “Absent state support, or sizable philanthropic donations, the deteriorating school facilities will obstruct the City of Detroit's post-bankruptcy economic revitalization.”

In 2016, state lawmakers approved a $617 million bailout for the district that split the district into two organizations. The old Detroit Public Schools pays off the district's old debt, and the new community district provides education for Detroit’s children.

"The bailout strengthened DPSCD’s operations, but the state did not provide sufficient resources to address large and growing capital needs. Mounting capital needs now threaten DPSCD’s long-term stability," Moody's spokesman David Jacobson said. "A third-party assessment of the district's facilities, along with the recent discovery of elevated lead in the district's drinking water, has increased the urgency to find workable solutions."

Detroit Superintendent Nikolai Vitti shut off drinking water at all schools in August after several schools had excessive levels of lead and copper.

Moody’s officials said local funding solutions are limited for the Detroit district, pointing to the need for another state bailout.

Vitti said the district's focus — under a newly elected board in 2016 and his installation as superintendent in 2017 — has remained on creating stronger policies, systems and processes to improve its financial condition to support students.

Looking to the future, Vitti said the district must receive appropriate facility funding to reinvest in infrastructure that has been neglected under emergency management. 

"Beyond and more important than a financial rating, our students deserve the same quality of buildings students in wealthier school districts offer their children. Our children are no different or less deserving than their children," he said. 

Any additional state money to the district should not be called a bailout, Vitti said.

"(Bailout) refers to improper spending, accounting, or a deficit. The state ran the district without investing in its infrastructure," he said.

The state should either approve a specific earmark for Detroit school district infrastructure or allow secured borrowing beyond a 13-mills cap the state imposed, Vitti said.

Gov. Rick Snyder's office indicated he wouldn't be requesting any more money for the Detroit district before he leaves office at year's end.

The state has already invested a significant amount of money to help lay a solid foundation for fiscal and educational success in Detroit, said Snyder spokeman Ari Adler. It has helped put the school district in a much more stable situation to serve the families of Detroit, he said.

"As the district looks to make improvements in the future, it would need to work with the leaders in the Governor’s Office and the state Legislature at that time to determine the best course of action at all levels to achieve additional success for Detroit’s schools," Adler said.

But the Republican-led Legislature is unlikely to create and pass another bailout package in the lame-duck session, likely leaving the issue for the incoming administration of Democratic Gov.-elect Gretchen Whitmer.

Detroit Board of Education member LaMar Lemmons said Tuesday he was thrilled someone other than himself was advocating for the state to provide money to the district, which the state controlled for nearly a decade under state-imposed emergency management.

"The state caused these conditions of the schools, and they operated the schools...with much neglect and abuse and exploitation and without oversight," Lemmons said.

jchambers@detnews.com