Detroit to default

'Insolvent' Detroit to default on some of $18.5bn debt, says emergency manager

Ratings services downgrade city's status after Kevyn Orr asks creditors to take around 10 cents in the dollar

the Guardian,

15 June, 2013

The "insolvent" city of Detroit will default on some of its $18.5bn debt and has asked creditors to accept a fraction of money owed to them, in an attempt to stave off the largest municipal bankruptcy in US history.

In a plan unveiled on Friday by the city's emergency manager, Kevyn Orr, creditors were asked to take around 10 cents in the dollar, a move that will kick-start negotiations. Orr also announced that the city would stop making certain payments in order to save money. A $34m instalment on debt due to be issued on Friday was stopped as part of the plan. Orr said the moratorium on payments could save Detroit up to $25m every month – money that could go towards essential services.

Orr said that $1.25bn would be invested over the next decade to improve infrastructure, fix crumbling buildings and update the city's computer systems.

Two ratings services, Fitch and Standard and Poor's, reacted by downgrading Detroit's status to a level reserved for borrowers about to default.

Some creditors emerged from meetings with Orr complaining that he was expecting too much. One bond-holder told Reuters: "It is an unprecedented amount to ask." But Orr insisted that shared sacrifice was needed if the "insolvent" city was to rebound from financial crisis.

Detroit is amongst the poorest large cities in the US, with the highest rate of violent crime. A population decline of around 700,000 has contributed to its problems, resulting in a slump in tax revenue and the blight of deserted properties.

In a statement, Orr said: "Financial mismanagement, a shrinking population, a dwindling tax base and other factors over the past 45 years have brought Detroit to the brink of financial and operational ruin." He added that the city was "tapped out" and that creditors needed to shoulder the sacrifice.

The financial plan is aimed at helping Detroit avoid filing for Chapter 9 municipal bankruptcy. Whether the city is able to do so will largely depend on the course of negotiations between the emergency manager, creditors and labour leaders in the coming weeks.

Orr, a bankruptcy attorney brought in by the state of Michigan, said on Friday that he believed the odds remained at 50/50, regarding whether the city would have to file for bankruptcy.

From roads to schools, Michigan budget touches you

15 June, 2013

LANSING, Mich. (AP) — The state budget that takes effect in 3 ½ months will impact everything from Michigan's roads and the school calendar to its hunters.

The Republican-crafted spending plan was signed by Gov. Rick Snyder on Thursday.

It includes the first significant increase in hunting and fishing license fees since 1997. The plan also makes school districts provide at least 175 days of instruction, five more than the current year.

Overall spending will rise about 1 percent. Universities can't raise tuition more than 3.75 percent without risking some funding.

Another highlight includes a significant boost in money for road and bridge repairs. But it's a one-time expenditure and about a quarter of what Snyder says is needed year in and year out to get Michigan's roads up to par.

http://www.sfgate.com/news/article/From-roads-to-schools-Michigan-budget-touches-you-4602212.php

Bills to dissolve Michigan schools in financial trouble are put on fast track

Detroit Free Press,

12 June, 2013

Bills that would allow the state to dissolve financially insolvent school districts as a last resort are being fast-tracked through the Michigan Legislature. But the bills could come with a hefty price tag for the state.

Three districts — Buena Vista, Inkster and Pontiac — were cited during a legislative hearing Tuesday as being likely candidates for dissolution.

“It’s imperative that we move forward with this” legislation, Rep. Bill Rogers, R-Brighton, said before a joint meeting of the House and Senate education committees. “This is, unfortunately, a necessary, proactive approach to make sure we can accommodate the kids.”

Rogers and Rep. David Rutledge, D-Ypsilanti, have introduced bills that would allow state Superintendent Mike Flanagan and Treasurer Andy Dillon to dissolve a troubled district if it fails to submit a viable plan to eliminate its deficit, doesn’t submit a plan at all or cannot continue to offer an education program to students.

If the district is dissolved, the students would be assigned to nearby school districts. But the district’s debt would remain. The dissolved district would continue to collect the local millage and use that revenue to pay off the debt.

“The debt burden would not follow the students into the receiving district,” Rutledge said.

Until the debt is paid off, the state School Aid Fund would have to cover per-pupil payments to the district that takes in the students. A House Fiscal Agency analysis released Tuesday estimates that if the Buena Vista, Inkster and Pontiac districts were to be dissolved, the state aid fund would need to kick in $34 million annually in per-pupil funding.

Michigan has 55 school districts and charter schools operating in a deficit, the largest number ever.

Some of the most urgent problems are in the three districts cited. The Buena Vista School District in Saginaw County closed for two weeks because it couldn’t pay staff. Many of its problems stem from a drastic drop in enrollment and having to repay hundreds of thousands of dollars this year for a program the district no longer runs.

In Pontiac, the Local Emergency Financial Assistance Loan Board formally found last week that “probable financial stress” exists in the Pontiac school district, which is dealing with a deficit of nearly $30 million. The declaration is the next step toward the possible appointment of an emergency manager, a consent agreement, a neutral evaluation process or Chapter 9 bankruptcy.

And Inkster Public Schools, which is having cash-flow problems, is moving forward with ceasing to operate its high school and turning it over to a charter management company.

Some lawmakers expressed frustration that the bills are being fast-tracked in the next two weeks, before the Legislature takes its summer break. “I just hate rushed votes like this,” said Rep. Tom McMillin, R-Rochester Hills.

The tight time frame is also one of the reasons some aren’t willing to support the bills.

Vickie Markavitch, superintendent of Oakland Schools, the intermediate school district for Oakland County, told lawmakers that there are too many issues to be resolved.

“I don’t know if it can be crafted well and passed in time for implementation for this fall,” Markavitch said. “There are some questions, some issues, some details we think this legislation has yet to address.”

The legislation is getting the backing of Gov. Rick Snyder. Dick Posthumus, a Snyder adviser who spoke at the hearing, said the Buena Vista and Inkster districts “are not likely to have money to open schools in the fall.”

“There’s no place for the kids to go to school. We need to take emergency action,” Posthumus said.

Flanagan, in a statement read to lawmakers Tuesday, said he’s willing to take on the responsibilities the legislation would give him, saying, “It will help keep our state’s children in schools and their educations continuing.”

Concerns were raised about residents in the communities where districts are dissolved not having elected representation. And many of the lawmakers who spoke questioned why the Michigan Department of Education and the state Treasury Department had not acted sooner to address issues in the struggling districts.

“Someone has to be held accountable for this,” McMillin said. “We need to make sure this doesn't happen again.”

Lawmakers clashed during the hearing, as Democrats on the committees tried to make the point that cuts in funding are a key reason many of these districts are struggling.

But Rep. Pete Lund, R-Shelby Township, said that’s not the problem.

“We’re here because of mismanagement, gross mismanagement. That didn’t take place over one year or two years.”

Sen. Coleman Young, D-Detroit, said funding can’t be ignored.

“Long term, this is a conversation about funding. Quite frankly, we have to decide long term how we’re going to fund our children’s future.”

Philadelphia Closes 23 Schools, New $400 Million Prison Being Built

Cryptogon,

June 15th, 2013

Via: Opposing Views:

Philadelphia officials are closing almost two dozen schools and decimating the budgets of the remaining schools under a so-called “doomsday” education plan.

However, amid all these cuts for education, the state of Pennsylvania is building a new $400 million prison for Philadelphia.