Economy

Detroit Public Schools Face Bankruptcy: ‘We’re Running Out Of Money In April’

CREDIT: AP Photo/Carlos Osorio

Principal Milton Andrew walks with a kindergarten student to comfort the child during the first day of class at Wilkins Elementary School in Detroit

A little over a year after the city emerged from the largest municipal bankruptcy in American history, Detroit’s public schools are still so mired in debt that they are redirecting nearly half of the money they get for students toward paying back creditors.

And unless something changes soon, even that radical redistribution of cash won’t be enough to save the Motor City’s schools from going broke by the time the class of 2016 graduates.

In February, the school system must begin paying $26 million per month to service over $260 million in loans taken out to keep schools open over the the past few years. That’s a giant jump from the roughly $15 million in monthly debt payments the district faced last year, according to the Detroit News. It also only covers a sliver of the system’s total debts: $1.5 billion or more that would become Michigan’s responsibility if the school district goes bankrupt.

Bankruptcy is a real possibility, district officials warn. “We’re running out of money in April,” deputy superintendent Marios Demetriou told the News.

The crisis is so acute that the district has had to make massive sacrifices in its actual ability to provide educational services to Detroit children just to be able to extend that drop-dead date to April.

Detroit Public Schools gets state funding on a per-student basis. This year, that state contribution amounts to $7,296 per kid. But the ballooning debt payments will chew up $3,019 per student, roughly 41 cents out of every state dollar allotted for kids.

And even that wasn’t enough. The district recently laid off 100 administrative employees from its central office out of financial necessity.

The laws surrounding borrowing force the district to prioritize repayment of loans over its other debts, like paying its vendors and making scheduled contributions to its pension fund. So, while the schools furiously tread water on loan payments from now until April, those other debts will balloon further — despite the fact that they have a much more direct connection to the quality of life for students and teachers alike.

A similar spiral caused Detroit’s financial downfall as a whole in 2014. Payments on loans — several of them stemming from a Wall Street swindle entered into by corrupt former Mayor Kwame Kilpatrick — choked the city’s ability to fund public services. Gov. Rick Snyder (R) appointed an emergency manager to make decisions about how the city would handle the crisis. If Detroit Public Schools closely follows the city’s playbook, it will end up making substantial cuts to the retirement security of its public servants even though those pension debts are not the source of the balance-sheet cancer.