Debt-laden Detroit schools need state help: study

A homeless person sleeps under a blanket on the porch of a shuttered public school covered with graffiti in a once vibrant southwest neighborhood in Detroit, Michigan July 23, 2013. REUTERS/Rebecca Cook (Reuters)

(Reuters) - Detroit's public school district is drowning under $3.5 billion of debt and needs to be rescued by the state of Michigan, according to a report by a nonprofit public affairs group released on Wednesday.

The Citizens Research Council of Michigan said debt payments by the Detroit Public Schools (DPS) are consuming revenue required to fund education services. The findings increase pressure on state lawmakers, who have been reluctant to pass a financial fix for Michigan's biggest school system.

"For the current year, 40 percent of the district's per-pupil funding will have to go towards repaying past cash-flow borrowings; borrowings that supported education provided to previous DPS students," the report said.

Despite being under state oversight since 2009, the district continues to struggle financially due to falling enrollment and hefty pension and debt obligations.

The city of Detroit exited the biggest-ever municipal bankruptcy in December 2014. A report in November by school officials, including state-appointed Emergency Manager Darnell Earley, said that unlike Detroit, a bankruptcy by DPS would be harmful because it would shift liabilities for pensions and bonds onto the state and potentially other local governments.

"Given the sheer size of the debt, there is no way of escaping the fact that state lawmakers are going to have to address the financial situation," Craig Thiel, the council's senior research associate, said in a statement.

Michigan Governor Rick Snyder's proposal to create a new district responsible for operations, while the current district would be charged with eliminating a budget deficit projected to hit $515 million in June, stalled in the legislature.

Representatives of the government and DPS did not immediately respond to requests for comment.

DPS' debt load includes $1.7 billion of bonds backed by a dedicated property tax levy, $1.3 billion in unfunded pension and retiree healthcare liabilities, and $463 million of debt paid with operating revenue, according to a breakdown by the research council.

(Reporting by Karen Pierog in Chicago; Editing by Matthew Lewis)