Detroit schools transition manager: District will run out of cash April 8

Steven Rhodes tells Michigan lawmakers bailout plan needs to pass

DETROIT – We now know when Detroit Public Schools will run out of cash: April 8.

Transitional manager Judge Steven Rhodes, speaking to a House appropriations committee in Lansing on Wednesday, said that date is the last pay period the district will be able to cover.

Rhodes, a retired U.S. bankruptcy who oversaw Detroit's bankruptcy case, hopes lawmakers approve short-term aid before their two-week spring break later this month. He also said the district urgently needs Gov. Rick Snyder’s $750 million 10-year bailout plan to pass. 

The plan calls for leaving the old district behind with its debts, which are to be repaid by an estimated $70 million per year from the state.

A new district will be created without the debt burden -- and will be overseen by an appointed board. It would theoretically have more money for students and instruction. The source of funds is yet to be worked out.

Rhodes told lawmakers that he is confident the district has the financial foundation to move forward if the plan is approved.

“The money that goes into the classroom in Detroit is substantially impaired by debt service. Here’s a truth about DPS financials that I’ve discovered: as of now, but for debt service, in this school year at DPS, DPS would have a $13 million surplus,” Rhodes said. “What does that mean? That means that if this legislation passes, and our budget is relieved of this debt service on a going forward basis, we’ll have enough money to educate the kids.”

The Detroit Federation of Teachers released the following statement: “If Detroit Public Schools runs out of money on April 8, the stark reality is that Detroit’s students won’t have schools to attend, many students won’t receive breakfast or lunch, and educators and school staff won’t get paid. These are the real consequences of Lansing inaction. We now have a date and a real urgency to get serious about making sure our schools are adequately funded. Our members won’t work for free, and our students deserve to have a public school system that works for them—not for Lansing politicians.”

Laura Lyn Taylor and Asenath Jones are teachers in the Detroit Public School District. News of the possibility of schools "going dark" after April 8, unless lawmakers agree to a financial rescue, is concerning to them but they remain optimistic.

"I'm just prayerful that the state of Michigan does what they're supposed to do: Pay the debt that they created um, stop the penalization of teachers because we've done nothing wrong, but try to make the environment for our students better," Jones said.

"The state has told us that we are not allowed to strike, so they've taken that right away from us and so they put us in a position of work stoppage, which they've told us is against the law, so I think that they're going to have to fix it," Taylor said.

Local 4 News met with Mayor Mike Duggan Wednesday night at a community meeting, where he discussed a number of city related topics, including the situation at DPS.

"The state of Michigan has run the Detroit schools for 7 years. The state of Michigan has caused this deficit and the state of Michigan is responsible for solving it, and we're going to keep working," Duggan said.

Kathy Montgomery has two grandchildren who attend Detroit Public Schools. The idea of them not having a school to attend if the district runs out of money is in her words, "horrifying."

"They would not be able to finish the school year. They wouldn't get credit for this whole year of school," Montgomery said. "It's just unimaginable."

Bankruptcy not 'viable' option

“Bankruptcy is not a viable option for the Detroit Public Schools. I have come to that conclusion after examining the nature of the debt DPS has," Rhodes said. 

The district's total debt is a little more than $500 million. 

"All but about $50 million of it is not the kind of debt that a bankruptcy case can deal with very well. I say that because this 90 percent of the debt is either guaranteed by the state or secured debt in one way or another," Rhodes said. "If there’s a third party who is guaranteed a debt, it’s very hard for the bankruptcy to discharge that guarantee.”

Rhodes working with firm to reorganize district's money plan

Rhodes said a  “major” financial advisory firm in the Detroit area has agreed to help him  organize the district’s finances for free.

“I am already in the process of recruiting very substantial professional and business help for DPS. I am doing so, I want to say really exclusively, on a pro bono basis. I do not want to take a single dollar out of the classroom, because there’s already not enough money to educate the kids," he said. “People in Detroit want to help DPS, they do. We just need to find them and ask them."

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About the Authors:

You can watch Kimberly Gill weekdays anchoring Local 4 News at 5 p.m., 6 p.m. and 11 p.m. and streaming live at 10 p.m. on Local 4+. She's an award-winning journalist who finally called Detroit home in 2014. Kim has won Regional Emmy Awards, and was part of the team that won the National Edward R. Murrow Award for Best Newscast in 2022.