Pursuant to the requirements of Section 6(8) of Public Act 181 of 2014, the Michigan Financial Review Commission Act (the “Act”), this report is being filed on behalf of the Detroit Financial Review Commission. A copy of this report will be delivered to the Senate Majority Leader, the Speaker of the House of Representatives, the Superintendent of the Detroit Public Schools Community District (“DPSCD”) and will be posted on the FRC’s Michigan Department of Treasury website located at http://www.michigan.gov/treasury/.
Pursuant to Section 6(1) of the Act, the FRC’s oversight of DPSCD began June 21, 2016, the date the District became qualified as a District. The FRC has the legislative, fiscal, administrative authorities, and duties as prescribed by the Act.
Sections 6 and 7 of the Act describe various duties and responsibilities for which the FRC are statutorily required to perform. Below is a summary of the status of these requirements.
|
Requirement |
FRC Act Section Number |
Compliance |
|---|---|---|
|
FRC review and approval of all applicable contracts. |
6(6) |
DPSCD submitted 210 applicable contracts. The FRC approved 210 applicable contracts. |
|
DPSCD and its CFO provides needed information and documents to the FRC and attend FRC meetings as needed. |
6(7), 7(d), and 7(o) |
DPSCD representatives have been responsive to requests for information, documents and have attended meetings when requested to attend. |
|
FRC review and approval of collective bargaining agreements (CBAs). |
6(9) |
DPSCD have a total of 15 CBAs that have been ratified, and 11 that required a letter of agreement (LOA) to amend. The FRC approved 15 CBAs and 11 LOA. |
|
Quarterly debt service certifications. |
6(11) |
Detroit Public Schools (DPS) provided all required quarterly certifications. The new District, DPSCD has not issued any debt. |
|
FRC review of DPSCD revenue estimates. |
7(a) |
DPSCD provided its revenue estimates to the FRC in connection with its budget submissions per subsection 7(c) of the Act. |
|
FRC review and approval of the annual budget and accompanying budget amendments. |
7(c) |
DPSCD submitted one amendment to the FY 2019 capital projects budget and it was approved by the FRC on March 30, 2020. DPSCD submitted one amendment to the FY 2020 general fund budget and it was approved by the FRC on January 27, 2020. DPS did not submit a budget or budget amendment to the FRC for approval. |
|
FRC review and approval of requests to issue debt. |
7(e) |
DPSCD has not submitted any requests to issue debt. DPS submitted a request for authorization to issue and sell bonds in a public offering and direct placement to refund outstanding unlimited tax general obligation bonds and the School Loan Revolving Fund (SLRF) loan outstanding and it was approved by the FRC on February 24, 2020. |
|
FRC review compliance by a qualified school district with a deficit elimination plan under article I of the State School Aid Act of 1979. |
7(f) |
DPSCD has not been required to submit a deficit elimination plan. |
|
FRC approval of the Chief Financial Officer’s appointment |
7(h) |
DPSCD submitted its appointment of its Chief Financial Officer. FRC approved the appointment on November 20, 2017. |
|
FRC approval to alter the DPSCD Superintendent’s contract or to terminate the DPSCD Superintendent. |
7(i) |
FRC approved the proposed DPSCD Superintendent’s contract on May 22, 2017. |
|
FRC review and approval of reimbursements for out-of-state travel. |
7(q) |
DPSCD submitted 157 reimbursement requests for out-of-state travel to the FRC. The FRC approved 157 reimbursement requests. |
Based on budget projections as of March 31, 2020, the District estimates it will finish the fiscal year ending June 30, 2020, with a general fund surplus of approximately $25.0 million, and a general fund balance of approximately $164.5 million.
The District’s ending cash balance at the close of March 2020 was $155.8 million. The District has sufficient cash-on-hand to ensure timely payroll payments, payments to vendors, and support of other expenses for the remainder of the fiscal year.
The COVID-19 pandemic has dramatically altered school operations. In response to the pandemic the District has put in place a contingency plan for the remainder of FY 2020 as well as FY 2021. If projected revenues decrease during the remainder of the year the District is able to maintain a balanced budget based on previously projected surplus and reduced expenditures due to closures, as the District will not pay contractors for services not rendered during the closure. If projected revenues decrease in FY 2021 the District will reduce central office discretionary expenditures, eliminate recurring salary increases and reduce all conferences, field trips and other travel. Vacant central office positions will be removed from the budget and negotiated salary increases will be one-time and paid from the unrestricted fund balance.
As statutorily required, the District provided its quarterly debt obligation summary for DPS. According to the 4th quarter report for FY 2020, DPS’s principal balance for the reporting period was $2.043 billion. This consists of $1.437 billion capital debt, $366.4 million operating debt and $239.5 million School Loan Revolving Fund (SLRF) debt. A total of $227.1 million of debt service payments are due in FY 2020 and DPS paid $227.1 million to-date against this obligation. DPS borrowed $89.3 million from the SLRF on April 24, 2020 in order to meet the 4th quarter 13 mills capital debt obligation of $141.1 million.
DPS capital debt is projected to be paid off by calendar year 2052, the operating debt is projected to be paid off by calendar year 2027 and the SLRF debt final mandatory repayment date is May 1, 2046. Current projections estimate the SLRF debt will not be paid off until calendar year 2065. The FRC will continue to monitor DPS’s management of debt to ensure payments continue to be made timely.
On December 19, 2019, the Board of Education approved a resolution to put the 18 mills operating levy on the August 2020 ballot and all subsequent ballots prior to the millage expiration on December 31, 2022. For discussion on the renewal schedule of the 18 mills operating levy see footnote below.[1]
Pursuant to Section 7(e) of the Act, the FRC is required to review and approve requests by a qualified city or qualified school district to issue debt. The debt may not be issued and until approved by the FRC and the FRC’s approval shall be in addition to any approval of the department of treasury as required by law.
The District’s Chief Financial Officer (CFO) presented the proposed request for authorization to issue and sell bonds to JP Morgan Chase in a direct placement to refund outstanding DPS unlimited tax general obligation bonds and the SLRF loan outstanding and the request for authorization to issue and sell bonds to Siebert Williams Shank & Company as senior manager underwriter, in a public offering to refund outstanding DPS unlimited tax general obligation bonds and the SLRF loan outstanding which was approved by the FRC at the February 24, 2020 meeting.
As of January 30, 2020, DPS debt consists of approximately $1.5 billion of bonds outstanding, as well as a SLRF loan balance of $239.5 million. DPS's 2010B Build America Bonds, 2012A Building & Site Improvement Bonds, 2015A Refunding Bonds, 2017 Refunding Bonds and the SLRF loan balances are eligible for refunding which could reduce the overall interest cost on DPS's existing debt, resulting in a reduced tax burden on taxpayers within the district. Based on current property values and interest rates, DPS is scheduled to repay the debt by 2052. Refunding the eligible debt will lock in lower interest rates, resulting in savings for the residents of Detroit by reducing debt payments and reducing the number of years to repay the debt.
In previous years, DPS completed refunding in 2017 of SLRF loan through direct placement. DPS was able to secure an interest rate of 2.91% which was lower than the state required interest rate of 3%, thus saving money for the residents of Detroit. In October 2019, the Board of Education authorized DPS to issue an RFP for direct placement and senior managing underwriting services for eligible debt. DPS will complete the refunding of eligible bonds by June 2020 through direct placement or negotiated sale. DPS estimates it could save as much as $92.5 million based on market rates as of January 30, 2020, estimated costs provided by vendor proposals. The savings are based on estimated SLRF interest rate of 3.5% and 1.25% taxable value growth in the city of Detroit.
Pursuant to Section 7(c) of the Act, the FRC is required to review, modify, and approve proposed and amended operational budgets of a qualified city or qualified school district. A proposed budget or budget amendment does not take effect unless approved by the FRC.
The District’s Chief Financial Officer (CFO) presented an overview of the proposed changes to the FY 2020 adopted budget (amendment No. 1) which was approved by the FRC at the January 27, 2020 meeting. The Districts’ FY 2020 adopted budget amendment No. 1 reflect the District’s audited FY 2019 fund balance. The updated assumptions are as follows:
The FY 2020 budget amendment No. 1 projects an operating surplus of $8.7 million and ending fund balance of $148.2 million.
The District’s Chief Financial Officer (CFO) provided an update to the FRC in response to Executive Order 2020-35. The District has continued to pay employees at school locations since the closures on March 16, 2020. As required, school staff have been recalled back to work either remotely or on-site. The District anticipated recalling most if not all staff after April 14, 2020 to support the District’s distance learning plan. As of May 7, 2020, all remaining job classifications have been recalled with some staff serving in new roles either supporting custodial cleaning of buildings or the 19 food distribution centers. All students have remained eligible for food distribution. Students are provided with six total meals, three breakfast servings and three lunch servings each Monday and eight total meals, four breakfast servings and four lunch servings, each Thursday. To date, DPSCD has served over 275,000 meals.
The District submitted the continuity of learning plan to Wayne RESA ISD on April 10, 2020 before the mandated April 28, 2020 deadline. Under the plan the District will be providing grade level content and videos via Detroit Public Television (DPT), YouTube, the district website, in addition the District will provide supplemental printed materials for PreK - 12, for regular education and exceptional students education for all core studies such as math, science, social studies, and history as well as non-core studies such as art, music and PE.
The District began implementation of the plan on Tuesday, April 14, 2020, with required virtual professional learning for all staff members engaged in the academic plan. Following professional learning, educators contacted families, established schedules, studied new academic materials, and planned to launch learning for the next week. Student schedules and printed student academic packets were available for download on April 14, 2020 and were distributed on April 22, 2020, April 23, 2020 and April 24, 2020 through the current food distribution sites, by parent pick up at the student’s home school, and home delivered for medically fragile students. Student instruction began on April 27, 2020, teachers began engaging with their students in meaningful academic work and this will continue through June 19, 2020.
The District has received additional private donations that will fund the purchase of additional tablets that were needed to supply every student within the district. Tablet distribution began in late May, with the goal of distributing all 51,000 tablets by the end of June. Online training and phone customer support for families will be available as the devices are being delivered. The District is planning for both in person summer school as well as remote summer school options based on Shelter in Place order and staff availability to work in person.
FY 2021 will mark a new contract year for all the collective bargaining units to settle on a four-year agreement. Due to the economic concerns of the state the District began non-economic negotiations with the Detroit Federation of Teachers (DFT), Detroit Organization of School Administrators and Supervisors (OSAS), American Federation of State, County and Municipal Employees Council, 25, Local 345 (AFSCME), Detroit Federation of Para-Professionals, Local 2350 (DFP), Detroit Association of Educational Office Employees, Local 4168 (DAEOE), International Union of Operating Engineers, Local 324 (IUOE) and Teamsters Local 214 in February 2020. No agreements have been reached and all negotiations are still ongoing.
[1] According to section 2(h) of the Funding Conditions Memorandum, pursuant to the Transitional Operating Cost Agreement, Detroit Public Schools Community District, on behalf of the Issuer, shall submit to the school electors of the School District of the City of Detroit, in accordance with the requirements of applicable State law, a ballot question to authorize the renewal or restoration for at least 11 years of the authority of the Issuer to levy 18 operating mills under Section 1211 of the Revised School Code on each of the following regular election dates until the renewal or restoration is approved: the November regular election date of Tuesday, November 3, 2020; the August regular election date of Tuesday, August 3, 2021; the November regular election date of Tuesday, November 2, 2021; the August regular election date of Tuesday, August 2, 2022; the November regular election date of Tuesday November 8, 2022; and/or at such other election date as shall be required by the State Treasurer, until approved, but in no event later than December 31, 2022.
