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Detroit’s Schools: A Canary in the Coal Mine for Urban Schools Across the Country

November 22, 2018

Crain’s Detroit Business News reported on an alarming– but wholly unsurprising— finding from Moody’s Investor’s Service: the Detroit Public Schools need a multi-million dollar influx of state funding to upgrade their facilities.

Without sufficient state support, the growing capital needs of Detroit’s public schools pose a potential threat to the city’s economic revitalization, Moody’s Investors Service said Tuesday.

“Two years after from a state bailout that staved off insolvency, the Detroit Public Schools Community District (DPSCD) is again at a crossroads,” the Moody’s report said. “The bailout strengthened the district’s operations, but the state did not provide sufficient resources to address large and growing capital needs.”

A recent evaluation of the district’s facilities, along with the discovery of high lead levels in the district’s drinking water, has increased the urgency, Moody’s said.

The district cannot finance capital improvements on its own and the City of Detroit (Ba3 stable) has its own challenges, placing the burden on the State of Michigan (Aa1 stable) to potentially step in again,” Moody’s wrote in the report. “Absent state support, or sizable philanthropic donations, the deteriorating school facilities will hinder the City of Detroit’s post-bankruptcy economic revitalization.

From my perspective Detroit Public Schools are a canary in the coal mine. Shortchanged by a State intent on tax cuts for the wealthy, located in a city unable to provide services due to a declining population and loss of businesses, and full of aging facilities with crumbling infrastructure, the Detroit Public Schools cannot survive unless the state changes its thinking or some philanthropist steps in. But here’s what is especially sad about Detroit’s schools: they were under the control of the State who turned them over to the kind of privatized operators that philanthropists love to fund… and the privatization and state control went so badly that they have now restored the traditional model of governance. And the traditional model IS working. The operating budget management is under control but the newly elected board has inherited school facilities that require a huge investment, as outlined in Moody’s report:

 

  • The 2016 state bailout solved only part of the district’s problems. The state responded with a cash infusion and restructuring plan that contributed to surplus operations. However, the district’s financial health is at risk over the next decade due to the projected deterioration of its school facilities.

  • Facility needs are substantial with costs likely to rise. A recent facility assessment commissioned by the district depicts large-scale capital needs, which are poised to grow over the next decade. Needs vary across the district as buildings outside greater downtown more likely to be categorized as poor or unsatisfactory. In August, the district had to shut off drinking water due to unsafe lead levels.

  • Local funding solutions are limited, pointing to the need for another state bailout. The district lacks the resources to afford capital upgrades. Additionally, the district’s ability to access the capital markets at affordable rates is also limited. While the city of Detroit’s fiscal fortunes have improved, it is unlikely to offer meaningful assistance to the school district.

  • The state of Michigan is the most viable source of support for the district’s sizable capital needs, though political appetite so soon after the bailout is uncertain.

  • The district’s unmet capital needs are a potential threat to the city’s economic recovery. High levels of investment have revitalized the city’s downtown, although marked improvement in outer neighborhoods has lagged. Poor facility conditions have the potential to slow revitalization and further limit the prospect of reversing the city’s core credit challenges, rooted in low property values, poor socioeconomic characteristics and persistent out-migration.

The cost of the original bailout was $617,000,000… which reflected the impact of the diminished spending over a period of time due to underfunding by the state. But THAT underfunding was to the operating budget…. and the deferred maintenance and operations costs are even higher:

Moody’s cited a facility assessment commissioned by the districted and conducted in July by a third-party consulting firm, OHM Advisors. The assessment reported that the district’s 100-plus school buildings in operation have approximately $530 million in capital needs and deferred maintenance. The report projected that the figure could top $1.5 billion by 2023 if not addressed, the ratings agency said.

“Many of the district’s buildings are well past their useful lives,” Moody’s wrote, although it points out that most of the district’s students attend schools in buildings classified as “good” or “fair”. This could change if more capital investments are not made in the coming years, it said.

The GOP State legislators have deferred spending for years assuming that tax cuts to corporations would attract businesses and increase the tax base. That hasn’t happened in Michigan— and hasn’t happened anywhere… and the result in Detroit is likely to play out in urban areas across the nation in the years ahead.

 

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