DPS deficit projected to be $335 million by next June

Detroit — The financial outlook for Detroit Public Schools continues to worsen as its accumulated deficit is projected to grow to more than $335 million over the next year.

The 47,000-student district's accumulated deficit swelled to $238 million in the fiscal year that ended Tuesday — $67 million higher than DPS officials told the Michigan Department of Education the year-end deficit would be just five weeks ago.

"The department is aware of the change in deficit, and a meeting is scheduled early next week to discuss the situation," said David Head, spokesman for the Department of Education.

DPS officials project the cash-strapped district will rack up another $97 million in deficit spending in 2016 fiscal year, according to a proposed operating budget.

The Detroit school district has run a deficit in nine of the past 11 fiscal years. Four state-appointed emergency managers have been named in the past six years, with Darnell Earley being appointed EM in January.

The fiscal year 2016 general fund budget is based upon historical and projected DPS student enrollment, which is expected to be 46,331, down from about 47,000 in 2014-15.

The deficit does no surprise to Detroit Federation of Teachers president Steve Conn.

"Its just a continuation of stealing money from the people of Detroit," he said. "It's only going to get worse until we get rid of the emergency manager, which the DFT is 100 percent committed to doing."

Retired DFT president and current member Keith Johnson attributed the deficit to what he described as structural problems.

"Unless the structural component is addressed, DPS will always have a deficit, mainly because of costs associated with special education," he said.

"All the revenue for special education totals about $17,000 per child, but the actual cost to provide services for that child, depending on the severity of the disability, ranges between $26,000 and $31,000 per child."

He said administrative costs are another component, as is debt service.

"Forty-eight percent of the budget goes toward the classroom, which includes teacher salaries," he said.

No schools are expected to close in fiscal year 2016. Only the comprehensive high school program is being closed, said Michelle Zdrodowski, due to the need to make room for the expansion of the career tech program at A. Philip Randolph Career and Technical Center. The career tech program will remain open. The school serves about 50 ninth-graders during fiscal year 2015. Those students will be reassigned to Davis Aerospace High School for fiscal year 2016.

Zdrodowski said class sizes will not increase this fiscal year and the amount for instructional spending will also stay the same.

She said the primary reasons for the 2014-15 year-end accumulated deficit climbing to $238 million include decreased enrollment, property tax collections and federal grants and increased maintenance and personnel costs.

Zdrodowski added the assumptions in estimating a $97 million deficit for fiscal year 2016 include a projected 3 percent decline in enrollment, increased personnel costs, less money from selling buildings and other assets and a decrease in federal grants.

"We are looking at (fiscal year 2016) as a transition year as DPS is in the midst of implementing the district's first major restructuring in years," Zdrodowski said.

The district has lost more than 100,000 students in the past decade to population decline in Detroit, a lower birth rate and competition with charter schools and suburban districts.

"It is also important to note that while we believe that we have cut as much as we can, we will continue to review the budget" for other reductions, she said. "However, the fact remains that our expenditures outweigh our revenues."

The School Aid budget Gov. Rick Snyder signed last month provides DPS with a net $191 per pupil increase in state funding for basic operations and the district's high rate of students living in poverty.

Steps the district will take to try to close the deficit, Zdrodowski said, are selling more assets, looking for state aid through the Distressed District Fund, deciding how many of the 880 support staff vacancies can go unfilled and restructuring health care benefits.

DPS began its new fiscal year Wednesday with $81 million in unpaid pension bills to the Michigan Public School Employees Retirement System, according to the state's Office of Retirement Services.

The Detroit News first reported in March the district was $53 million behind in payments to MPSERS and the unpaid legacy costs were expected to continue ballooning.

Since March, DPS has made $15.5 million in payments to the state's pension and retiree health care fund, said Kurt Weiss, spokesman for the Office of Retirement Services.

In March, the state pension fund was assessing DPS $78,000 in monthly fees and $7,600 in daily interest penalties for the unpaid pension bills.

Because the unpaid bill has increased by $28 million, the late fees now top $126,637 a month, and the daily interest penalty is $12,245, Weiss said.

DPS, which is set to receive $7,434 per student in basic state aid next school year, has been making sporadic payments to MPSERS since October 2010 as it has continued to hemorrhage students and cash.

Forgoing required contributions for pension payments mirrors a cash-hoarding tactic the city of Detroit pursued in November 2012 — nine months before declaring bankruptcy.

"The district's arrearages and plans to address them are subject to ongoing discussions with all of its creditors," Zdrodowski said.