Detroit Teachers Face "Payless Paydays" As Dilapidated School District Faces Financial Reckoning

When last we looked at the effect America’s multiple state and local government fiscal crises are having on the country’s school systems, we noted that budget drama across both Illinois and Pennsylvania threatened to force layoffs and class cancellations.

In Chicago, for instance, the Board of Education has variously been described as “a gambler at the end of his run,” a reference to officials’ bad habits when it comes to skipping pension payments and borrowing heavily to stay afloat. “Let’s be clear Chicago Public Schools are in dramatic trouble,” Governor Bruce Rauner said in December. “They’re looking at a disaster somewhere in the next nine months.”

Just this month, the Board sold another $725 million in bonds at punishing interest rates of up to 8.5%. Here's a look at the 2042s:

Things have gotten so bad that Rauner wants to block the system from borrowing more money and take over the schools. “If it determined that any school district was in financial duress, the state board has the right -- the legal authority -- to block any debt offerings,” he told reporters on Monday. “The state board has not ever chosen to do that for the city of Chicago. I hope that never becomes necessary, but we’ve got to be ready to take action and step in.”

As for Pennsylvania whose schools, you're reminded, started the year minus $1 billion in funds, Governor Tom Wolf warned earlier this month that the state's ticking budget timb bomb would eventually force massive layoffs. "At the Senate hearing Monday, Majority Leader Jake Corman, R-Centre, challenged Mr. Wolf’s claim during his budget address that if his proposals are not enacted, thousands of teachers will be removed from Pennsylvania schools," the Pittsburgh Post Gazette writes. "Mr. Corman noted that the Republican budget would have increased education funding, though not by as much as Mr. Wolf wants."

Whatever the case, partisan budget brawls and gross fiscal mismanagement are imperiling the future of America's school children. Literally. That's not some attempt to employ hyperbole in order to tie the future of America's youth to economics and finance. It's a reality in more locales than one. 

Case in point: today we learn that Detroit's public schools have officially reached their borrowing limit which means absent some manner of intervention from the state government, the district will run out of cash by April.

"This month the amount of state aid that’s siphoned off to service debt will jump to roughly what is spent on salaries and benefits, pressuring the district’s ability to pay its bills," Bloomberg writes, and that means "the district may have to stop paying workers if lawmakers fail to reach an agreement."

Detroit's school system is sitting on more than a half a billion in debt to the state loan authority and will be insolvent in less than 60 days. Last month, some schools were forced to close because teachers called in sick to protest poor conditions. Poor conditions like those shown below:

"The city began inspecting the buildings last month after the teacher strikes began," Bloomberg goes on to note. "On Feb. 6, the district announced it was reallocating $300,000 from other spending to begin repairs to buildings."

"DPS is finally on the brink," State Treasurer Nick Khouri told lawmakers today. “When they run out of cash, sometime in the spring or early summer, without legislative interaction, they will have payless paydays," he warned.

In order to "fix" the situation, lawmakers want to split the district into two entities one that will carry the debt burden which the state will help to pay down, and another to administer the schools themselves. 

"The package of six bills would split the 46,000-student DPS into two entities, creating a new debt-free school district," The Detroit Free Press reported, earlier today. "Two bills already pending in the Senate contains a similar plan, but the House bills have been more controversial because they add collective bargaining restrictions to teachers and don't restore a fully elected school board to the city for eight years."

Each year, the district spends $70 million more than it brings in in revenues, but a bankruptcy would result in 12 months of "chaos," Khouri cautioned. 

So, just another day in the heart of America's gutted manufacturing heartland. For anyone who is still clinging to the idea that US manufacturing is in the midst of or is somehow capable of experiencing a renaissance in the years ahead, we encourage you to have a look at one last chart from Bloomberg, which should tell you everything you need to know about the Rust Belt's future.