Detroit school district released from state oversight after 11 years

A Michigan commission has agreed to release Detroit's public school district for independent governance after about 11 years of state oversight.

The Detroit Financial Review Commission unanimously voted Monday to grant waivers from oversight for the Detroit Public Schools Community District and Detroit Public Schools, a separate entity meant to collect taxes and repay legacy operating and capital debt.

The waivers remain in place through Dec. 31, 2021. 

"We’re seeing the finish line here of a lot of work by both the district and the commission," state Treasurer Rachael Eubanks said Monday.

There was nothing about Monday's decision that was "inevitable," said Detroit school  Superintendent Nikolai Vitti. The exit from state oversight was due to strategic, thoughtful work, he said.

“Now the average parent cannot only vote for school board members…, but now they have a direct say in the budget that can’t be trumped" by the Financial Review Commission," Vitti said. 

The waiver removes the commission's oversight over the two districts' budgets, contracts and collective bargaining agreements, according to the state treasury. But the commission will continue to meet each month to ensure compliance with the waiver.

The two districts became eligible for the waiver after adopting "deficit-free budgets" for three years in a row, following general accounting practices and earning the ability to sell and guarantee municipal securities," the Treasury Department said. 

"I think the community thought this was going to be an impossible task," said Iris Taylor, president of the Detroit Public Schools Community District board. "But we know in reform work, it always seems impossible until it's done.”

Detroit's old school district — which was run by state-installed emergency managers from 2009-16 — struggled with declining student enrollment, budget deficits, school closures, low state assessment scores and teacher shortages.

In 2016, Republican then-Gov. Rick Snyder signed into law a $617 million bailout for the district to help pay off $467 million in operating debt and provide $150 million in start-up funding for Detroit Public Schools Community District, the new, debt-free district. The bailout was approved by the GOP-run Legislature.

Detroit Public Schools largely has two long-term debts it is paying off: An 18-mill debt worth about $350 million that must be paid off by 2025 and $1.5 billion in bonds, largely for construction, that must by paid off by 2050.

"We're hoping to pay that debt off faster" if property values increase in future years, Vitti said.

Detroit Public School Community District has grown its general fund balance from $79 million in 2017 to $139.4 million in fiscal year 2019, according to a presentation by Jeremy Vidito, chief financial officer for the Detroit Public Schools Community District.

The general fund for Detroit Public Schools has declined from about $43 million in fiscal year 2018 to $27.5 million in fiscal year 2020 as it makes debt payments, Vidito's presentation said.

Audits in recent years have seen a decrease in questioned costs — from $2 million in 2017 to zero dollars in 2019, Vidito said. Material weaknesses — which accountants define as internal controls over financial reporting that are found to be ineffective — have decreased from 15 in 2016 to two in 2019. There were no findings this year.

The district adopted a balanced for fiscal year 2020, 2021, 2022 and 2023, with a reliance on CARES Act funding in 2021 and 2022. 

Tax revenue this year for the districts so far has come in above projections. 

The review commission was first created in November 2014 to provide oversight of the city as it exited municipal bankruptcy Dec. 10, 2014. The commission reviews and approves budgets and establishes fiscal management requirements.

In June 2016, the review commission began its oversight of the schools, following the creation of the new Community District. 

The review commission on Monday also approved letters of agreement with all unions regarding face-to-face learning, remote learning and hazard pay for some workers. The total cost of the contracts was about $14.9 million. 

eleblanc@detroitnews.com