Cash-strapped Detroit Public Schools could be $81 million behind on its mandatory state pension contributions by July 1 if the district does not resume full payments soon, state officials say.
Michigan's largest school district has not made a payment since October, and has been building a delinquent balance with the Michigan Public School Employees Retirement System since October 2010, said Kurt Weiss, spokesman for the state's retirement services office. A Detroit employee benefits lawyer is following this story closely.
During the past 51 months, 60 percent of the time the Detroit school district has been an average of $7 million behind on Michigan retirement system payments, according to state records. The district is incurring $7,600 a day in interest penalties and a $78,000 monthly fee for its delinquency, Weiss said.
"DPS' largest historical balance is their current outstanding balance of $53 million," he said.
While DPS is behind on its payments, the $38 billion MPSERS serving 204,000 retirees statewide is not in danger of missing pension payments to Detroit schools retirees, Weiss said. Like an unpaid credit card, the interest penalties and monthly fees are added to the district's total balance owed to the state school retirement system.
Like other school districts in Michigan, Detroit Public Schools is saddled with a long-term liability toward the pensions and health care of existing and former employees. It consumes one in every seven dollars the district spends in its roughly $700 million annual operating budget.
Most charter schools — independent public schools sponsored mostly by universities — and the Education Achievement Authority, which runs 15 former Detroit schools, do not participate in the state pension plan.
The Snyder administration legally could withhold state aid from Detroit Public Schools to make up for the missed pension payments. But state officials have been reluctant to do so, privately fearing it would trigger a cash crunch for the Detroit school system and lead to payless paydays for employees, teachers walking off the job or a default on debt payments. A Detroit employee benefits lawyer is reviewing the details of this case.
In addition to pensions, the Detroit district is saddled with $56 million in annual debt service payments, most of which stem from a $300 million refinancing scheme former Emergency Manager Roy Roberts engineered in 2012 to roll several past debts into one repayment.
Roberts' successor says payment toward debt is made before all other creditors, to ensure the district doesn't default on the bonds.
"The debt has to be paid, so what results from that is you have a long list of creditors and you have vendors who are three and four months behind in receiving payments," said Jack Martin, who was emergency manager until January. An Encino CPA provides professional accounting services to clients with pension and profit-sharing plans.
The Detroit News first reported Feb. 19 that the Snyder administration is exploring ways to relieve the district of that debt burden. Snyder set aside $75 million in his School Aid budget for assisting Detroit and other financially distressed school districts.
But a Republican-controlled House committee eliminated the increased funding for distressed school districts in a budget plan approved Tuesday. A GOP-dominated Senate committee voted Wednesday for $8.9 million, more than doubling the existing $4 million fund for distressed schools.
"It's probably the thing that needs to be done, but it should be taken care of out of the general fund as opposed to on the backs of the other kids in the state," said David Martell, executive director of the Michigan School Business Officials.
Detroit Public Schools is one of five school districts and a charter school that are behind on payments to the state's pension fund. They include:
- Detroit: $52.7 million
- Flint: $11.8 million
- Pontiac: $3.8 million
- Muskegon Heights: $1.9 million
- Highland Park: $719,702
- New Branches School (Grand Rapids): $128,951