Detroit Public Schools Status Update

Nick A. Khouri, Michigan Department of Treasury

May 9, 2016

DPS Status Update

DPSs operating debt was approximately $515 million. In April 2016, the legislature provided a
$48 million supplemental appropriation to solve cash flow needs through June 30, 2016,
reducing the total operating deficit to $467 million.
An additional $200 million is still needed for new investments, start-up and conversion costs
to transition from the OldCo to a NewCo model.
Without further legislation, the district will run out of cash in July. The package of bills passed
by the Senate provides enough new money to transition to the NewCo. The House passed
package leads to a projected cash flow deficit of $22m in August, rising to $80m in
September.

DPS Operating Debt as of June 30, 2016

This summary of outstanding operating debt is identical to the version widely shared with the legislature, and updated with the
$48.7 M supplemental appropriation

Previous Estimate for

2016 Year End

Current Estimate for 2016

Year End

Series 2011/2012 bonds

$214

$214

FY16 short-term note payments

$52

$52

Deferred pension (through FY15)

$76

$76

Deferred pension (FY16 estimate)

$81

$81

Deferred AP (>90 days past due)

$47

$47

Year-end cash shortfall (estimate)

$45

$0

Total before start-up costs

$515

$470

Start-up costs / reinvestment financing

$200

$200

$715

$670

($ in millions)

Total

Solving the FY 2017 structural budget deficit

($ in millions)

Estimate

Projected Annual deficit

($60-70)

Reduced Debt Service

$50

Cost savings from recent actions

$10

Net deficit remaining

Potential opportunities for other savings

($0-10)
$10

Potential savings opportunities could come from:

Portfolio optimization
Central office optimization
Special education efficiencies
Career technical optimization
Procurement process efficiencies

NewCo Start-up and Transition Costs ($ in millions)

Initial
Description/Examples of use
Estimate

$75

Deferred maintenance, Upgraded school security

equipment space consolidation, school closure
rationalization planning, and school/building closure
related costs

Transition & working capital

$50

Academic and instructional support, portfolio planning,

professional transition costs (IT, legal, HR, financial),
vendor continuity payments, timing lag for grant
reimbursements

Minimum cash requirements

$25

Cash needed at inception for NewCo to operate

based on timing of revenue receipts

Other operating liabilities

$25

Expenditures related to other pending contingencies

and claims that may need to be funded by NewCo

Program retention/Improvement

$25

Investment in key academic programs that have been

deferred due to financial constraints and austerity
measures

Total Startup Costs (estimated)

$200

Facilities related costs

Revised
Detailed Description/Examples of use
Estimate

$65

Deferred maintenance ($53), Upgraded school

security equipment ($10),school closure
rationalization/planning ($2)

$125

Cash needed at inception for NewCo to operate

based on timing of revenue receipts/lack of state aid
($58), Other pending contingencies and
claims/accrued payroll costs($55), Professional
transition costs (IT, legal, HR, financial)($10),
Academic and instructional support ($2)

$10

Investment in key academic programs that have

been deferred due to financial constraints and
austerity measures

$200

This is a high level summary of anticipated needs/costs of the new district

The FY 17 budget is still being developed and some decisions on future spending will be made by the new
board and Superintendent

NewCo Start-up and Transition Costs ($ in millions) Continued with detail

Revised
Detailed Description/Examples of use
Estimate
$65

Deferred maintenance ($53), Upgraded

school security equipment ($10),school
closure rationalization/planning ($2)

$125

Cash needed at inception for NewCo to

operate based on timing of revenue
receipts/lack of state aid ($58), Other
pending contingencies and claims/accrued
payroll costs($55), Professional transition
costs (IT, legal, HR, financial)($10),
Academic and instructional support ($2)

$10

Investment in key academic programs that

have been deferred due to financial
constraints and austerity measures

$200

Item Description

In millions

Roofs

$16

HVAC

$19

Windows

$15

Lighting

$3

Fencing/Paving

$250K

Security equipment

$10

School closure
rationalization/planning

$2

Total

$65

Program

In millions

Educational Enhancements (art, music, gym)

$5

Literacy (libraries; take home libraries)

$3

Investment in Innovation
(Science, Technology, Engineering, Arts &
Mathematics programming)

$2

Total

$10

NewCo Cash Flow Projections for School Year 2016/17 3 Scenarios

Scenario 1 Legislation Does Not Pass

Without passage of further legislation, the district runs out of cash in July
Senate/House Scenarios Legislation Passes with Funding of $200M or $33M
Under the Senate passed proposal, DPS bridges the short term transition cash flow needs this
fall, and ends the 2017 school year with a cash surplus
Under the House passed proposal, the district runs out of cash in August 2016

Scenario 1 Legislation does not pass

|----------------------------------- 2016 ------------------------------------| |---------------------------------------2017 -------------------------------------|

$ in millions

Cash Receipts
State School Aid
Property Tax (Gross)
Grants
Other receipts
Total Cash Receipts
Cash Disbursements
Payroll and benefits
Vendor services
Debt service
Other
Total Cash Disbursements
Beginning cash balance
Net cash flow
Ending cash balance

July
Forecast

August September October November December

Forecast Forecast Forecast Forecast Forecast

January
Forecast

February
Forecast

March
Forecast

April
Forecast

May
Forecast

June
FY 17 Total
Forecast

$
$

$
$
$

32.3
15.0
12.1
4.6
64.0

32.3
25.0
12.4
2.1
71.8

15.0
0.7
5.4
21.1

29.9
14.0
8.0
7.8
59.7

32.4
11.0
7.6
51.1

(37.1) $
(14.5)
(6.6)
(3.0)
(61.3) $

32.4
25.0
29.0
8.6
95.0

(41.0) $
(16.0)
(6.6)
(17.5)
(81.1) $

32.4
3.0
10.5
8.6
54.5

(37.1) $
(14.5)
(6.6)
(4.7)
(63.0) $

32.4
28.0
10.5
8.6
79.5

(37.1) $
(14.5)
(6.6)
(19.2)
(77.5) $

32.4
12.0
14.8
8.6
67.8

(48.5) $
(16.0)
(6.6)
(9.9)
(81.0) $

32.4
8.0
10.5
8.6
59.5

(37.1) $
(14.5)
(6.6)
(7.6)
(65.9) $

32.4
6.0
10.5
8.1
57.1

(37.1) $
(14.5)
(6.6)
(6.5)
(64.7) $

32.4
11.5
7.6
51.5

354.0
151.0
141.7
86.1
732.7

(33.5) $
(14.5)
(26.1)
(11.9)
(86.0) $

(32.4) $
(14.5)
(26.1)
(15.8)
(88.8) $

(49.2) $
(16.0)
(10.0)
(75.3) $

(34.1) $
(14.5)
(6.6)
(11.1)
(66.3) $

(41.0) $
(16.0)
(3.0)
(60.0) $

(465.4)
(180.0)
(105.2)
(120.2)
(870.9)

3.3 $
(22.0)
(18.7) $

(18.7) $
(17.1)
(35.8) $

(35.8) $
(54.1)
(89.9) $

(89.9) $ (96.5) $ (106.6) $ (92.7) $ (101.2) $ (99.1) $ (112.4) $ (118.8) $ (126.4) $

(6.6)
(10.2)
13.9
(8.5)
2.0
(13.3)
(6.4)
(7.7)
(8.4)
(96.5) $ (106.6) $ (92.7) $ (101.2) $ (99.1) $ (112.4) $ (118.8) $ (126.4) $ (134.9) $

3.3
(138.2)
(134.9)

Key Assumptions
1. No legislative action becomes effective during FY17
2. Pension contribution resumes July 1, 2016
3. Federal grant reimbursements for pension contributions are not available (~$20m)
4. No consolidation of EAA during FY17
Notes:
Payroll and benefits includes wages and related taxes, fringe benefits, health benefits, and pension contributions
Assumes enrollment declines less than 1%
8

Senate/House Scenarios with Legislative Action Effective July 1, 2016

with Funding Amount of $200m or $33m
|----------------------------------- 2016 ------------------------------------| |---------------------------------------2017 -------------------------------------|

$ in millions

July
Forecast
Cash Receipts
State School Aid
Property Tax (Gross)
Grants
Other receipts
Total Cash Receipts
Cash Disbursements
Payroll and benefits
Vendor services
Debt service
Other
Total Cash Disbursements
Beginning cash balance
Net cash flow
Ending cash balance

$
$

$
$
$

August September October November December January

Forecast Forecast Forecast Forecast Forecast Forecast

March
Forecast

April
Forecast

May
Forecast

June FY 17 Total
Forecast

3.1 $
8.7
14.1
4.6
30.4 $

3.1 $
14.5
14.1
2.1
33.7 $

- $
8.7
3.2
5.4
17.3 $

36.4 $
8.1
10.0
7.8
62.3 $

38.9 $
13.0
7.6
59.5 $

38.9 $
14.5
31.0
8.6
93.0 $

38.9 $
1.7
12.5
8.6
61.7 $

38.9 $
16.2
12.5
8.6
76.2 $

38.9 $
7.0
17.7
8.6
72.2 $

38.9 $
4.6
12.5
8.6
64.6 $

38.9 $
3.5
12.5
8.1
63.0 $

38.9 $
13.5
7.6
60.0 $

353.9
87.6
166.4
86.1
693.9

(33.5) $
(14.5)
(11.9)
(59.9) $

(32.4) $
(14.5)
(15.8)
(62.7) $

(49.2) $
(16.0)
(10.0)
(75.3) $

(34.1) $
(14.5)
(11.1)
(59.7) $

(37.1) $
(14.5)
(3.0)
(54.6) $

(41.0) $
(16.0)
(17.5)
(74.5) $

(37.1) $
(14.5)
(4.7)
(56.4) $

(37.1) $
(14.5)
(19.2)
(70.9) $

(48.5) $
(16.0)
(9.9)
(74.4) $

(37.1) $
(14.5)
(7.6)
(59.3) $

(37.1) $
(14.5)
(6.5)
(58.1) $

(41.0) $
(16.0)
(3.0)
(60.0) $

(465.4)
(180.0)
(120.2)
(765.6)

3.3 $
(29.5)
(26.2) $

(26.2) $ (55.2) $ (113.1) $ (110.5) $ (105.6) $

(29.0)
(58.0)
2.6
4.9
18.5
(55.2) $ (113.1) $ (110.5) $ (105.6) $ (87.1) $

(87.1) $
5.3
(81.8) $

(81.8) $
5.3
(76.4) $

(76.4) $
(2.2)
(78.7) $

(78.7) $
5.3
(73.3) $

(73.3) $
4.9
(68.4) $

(68.4) $
0.0
(68.4) $

3.3
(71.7)
(68.4)

94.4 $ 112.9 $ 118.2 $ 123.6 $ 121.3 $ 126.7 $ 131.6 $ 131.6 $

200.0
131.6

Senate Passed
Legislative action funding
200.0
New ending cash balance
$ 173.8 $ 144.8 $
House Passed
Legislative action funding
New ending cash balance
$

February
Forecast

33.0
6.8

(22.2) $

86.9 $

89.5 $

(80.1) $

(77.5) $

(72.6) $

(54.1) $

(48.8) $

(43.4) $

(45.7) $

(40.3) $

(35.4) $

(35.4) $

33.0
(35.4)

Notes:
Payroll and benefits includes wages and related taxes, fringe benefits, health benefits, and pension contributions
Assumes enrollment declines less than 1%