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The Detroit school district may take the state of Michigan to court to ensure revenue from an operating millage can be used to pay off all of the debt the district incurred over many years, much of it while the state was overseeing the city’s traditional public schools.
Superintendent Nikolai Vitti said during a school board meeting Tuesday that the Michigan Department of Treasury has ruled that state law only allows revenue from the 18-mill operating millage to be used to pay off operating debt, which is expected to be paid off by March of 2025.
But the district still has $348 million in debt to the state’s School Loan Revolving Fund and nearly $1.4 billion in capital debt, which was accrued during the state’s control of the district to improve infrastructure.
This all stems from a $617 million legislative deal in 2016 that addressed massive debt in Detroit Public Schools by creating a new district — the Detroit Public Schools Community District — to operate schools using revenue from the state school aid fund. Detroit Public Schools remained intact, but only to collect millage revenue and pay off debt.
DPSCD officials insist that state law requires the operating millage to pay off all of the debt.
“That would mean that DPSCD would be debt free by 2031 and dramatically reduce the amount of money that the average Detroit homeowner would have to pay, basically, in paying off interest from emergency management and DPS debt,” said Vitti during the meeting.
Vitti discussed the dispute during his report at Tuesday’s meeting. Earlier that day, the legislature’s House Education Committee gave initial approval to a bill that would clarify that the operating millage can pay off the School Loan Revolving Fund debt. The legislation doesn’t address the capital debt.
The bill comes as Democratic lawmakers rush to finish their legislative agenda before they lose complete control of the state legislature.
Rep. Regina Weiss, a Democrat from Oak Park who introduced the bill, said Tuesday that the state’s interpretation of the 2016 law has created an unforeseen obstacle for the district.
The bill would clarify the existing law’s definition of operating obligations — the debt incurred by a school districts’ operating costs — to include debts from the state’s revolving loan fund.
The change would mean DPS could use its millage revenue to pay off the nearly $348.5 million in revolving loan debt. The state would continue to fund the district’s local foundation allowance until the revolving loans are paid off.
Weiss said if the change is not made, DPSCD won’t be able to generate additional money to address dire building needs until around 2040.
“These crumbling facilities are often not only unconducive to learning, but are often unsafe,” Weiss said.
The lawmaker, a former district teacher, said she’s taught in buildings infested with rats, cockroaches, and mold, with crumblings roofs.
“The district has taken a lot of steps to improve the massive facility needs, but without this fix, we will slow down this imperative progress, and if we don’t fix it, unfortunately, it is the children of Detroit who will suffer,” she said.
The district dedicated $700 million in federal COVID relief funds to address facility needs. It was the first time the district was able to dedicate a substantial amount of money to improving infrastructure.
The Democratic members of the committee on Tuesday voted to move the bill forward for a vote in the full House. Four Republican committee members voted against moving the bill forward, though they did not say why they were against it during the hearing.
The legislation would need to pass a vote in the House and the Senate before it could be signed into law.
What options does the district have?
Vitti said while the legislation would bring resolution to the problem, it may be a challenge to get it signed into law by the end of the year.
The district will most likely seek a legal solution in the Michigan Court of Claims, he added.
There is some precedent in the way the state allowed other dissolved districts to pay off debt, said Vitti, citing the case of Inkster Public Schools.
The district may seek clarity through the court and could withdraw its filing if the bill passes in the legislature.
Vitti said at this point, it is unlikely the Treasury Department will voluntarily allow the debt millage to pay off the revolving loans.
Ron Lexi, Treasury spokesperson, said in an email Wednesday the department is “encouraged Detroit Public Schools is on track to pay off its emergency loan debt.”
“There are many legal and technical issues surrounding the implementation of Proposal S that were negotiated under the previous administration,” he said. “We are working with the school district to ensure a quality education is provided to the children of Detroit as the district continues its pathway back to financial normalcy.”
If the legislation does not pass and the district does not take legal action, there would have to be a special election in May to ask voters for another millage to support DPSCD in the 2025-26 school year.
There is also a possibility the special election could be pushed back to May 2026.
Vitti declined Wednesday to answer further questions about a potential lawsuit, saying in an email that “due to likely legal action by the District it’s best that we no longer comment publicly about this.”
Michigan law bars school districts from using state funding to sue the state.
“I can assure you that we are not using state funds for the filing but interest revenue from District investments,” Vitti said.
How is the district financed?
The 2016 creation of DPSCD was meant to give the new district a debt-free start in order to focus on educating the city’s public school students.
After 2016, DPSCD began receiving all of its per-pupil funding — or foundation allowance — from the state. Other districts use a combination of local property taxes and state funding.
DPSCD will go back to that system once the DPS debts are paid off. At that time, DPS will no longer exist.
The state was initially able to cover the district’s local contribution to the foundation cost using $617 million from a tobacco settlement fund. But starting in 2020-21, there wasn’t enough in that fund to cover the full local contribution and the state’s general fund covered the gap.
By next school year, there won’t be any money left from the settlement fund to go into the district’s foundation allowance. This leaves a question of where the local foundation allowance will come from in 2025-26.
In November, Detroiters approved Proposal S, which will allow DPS to levy the full 18 mills on non-homestead property. State law previously required the millage to be rolled back to 16.6 mills because of increased taxable value in Detroit.
The passage of Proposal S will likely let DPS pay off its longstanding debts faster.
The district will put the revenue toward teacher salaries, facility improvements, and other operating costs like transportation, Superintendent Nikolai Vitti told Chalkbeat in October. Federal and state grants come with more restrictions and can’t be used on those expenses, he said.
The current millage revenue is estimated to be around $111.2 million, or about $2,460 per student. It is projected to increase in coming years as taxable value increases.
Alex Klaus contributed to this report.
Hannah Dellinger covers K-12 education and state education policy for Chalkbeat Detroit. You can reach her at hdellinger@chalkbeat.org.
