$523.8 million debt for 2010-11 is 90.7 percent of state per-pupil aid
By Diane Bukowski
DETROIT – Former Detroit Public Schools CEO Kenneth Burnley, Jr. and current Emergency Financial Manager Robert Bobb have enslaved the Detroit Public Schools to the Bank of New York Mellon by borrowing hundreds of millions of dollars. The Bank was founded by slaveowner Alexander Hamilton.
The debt is expected to rise to $523.8 million by 2011, or 90.7 percent of state per-pupil aid for that year. This year alone, DPS debt of $438.8 million amounted to 71.2 percent of state per-pupil aid.
This bombshell is hidden in plain sight on the Detroit Public Schools website, under “Resources-District Data-Financial Data and Reports.” Monthly DPS reports to the Bank of New York Mellon Trust Company N.A., a Bank of New York Mellon subsidiary, are included on the site under “set-asides.”
“The Emergency Financial Manager was supposed to eliminate the $219 million DPS deficit when he came in,” said CPA Greg Frazier, formerly Deputy Auditor for the City of Detroit, who also filed and won a Freedom of Information Act request for DPS financials for 2006-07, in conjunction with community organization Call ‘em Out.
“But since the Emergency Financial Manager has come to manage the emergency, we are drowning in more debt with a deficit now of $332 million. We are spiraling to the bottom, and he is helping us to get there real quick.”
Frazier added, “When Bobb leaves next March, that debt will be even higher. It means a lot less funds going to resources for the children. While here, he added to the legacy debt he talks so much about. He is the proud owner of 56 percent of that debt so far. The banks have yet to share in solving any problems they have created. Even President [Barack] Obama is not holding them responsible. The debt is being paid on the backs of the citizens, while banks like Goldman Sachs have tremendously enriched themselves.”
The Bank of New York Mellon (BofNYM) is the nation’s oldest bank, with $23 trillion in assets. The Bank of New York was founded in 1784 by Hamilton, and merged with the Mellon Corporation in 2007. The Mellon family is ranked number five by wealth in America’s 60 Families.
B of NYM is also custodian of the government’s $700 billion Troubled Assets Relief Program (TARP). It was paid $20 million in fees to manage the program, and further benefited by selling $3 billion of its preferred stock to the federal government under the program, according to Bailout Sleuth. It has since repaid the $3 billion. Its CEO Robert Kelly is notorious for objecting to proposed restrictions on bonuses paid to top executives of the bailed-out banks.
It also has ties with Chase Bank, one of the nation’s foremost culprits in massive foreclosures. In 2006, J.P. Morgan Chase & Co. announced they would swap their corporate trust unit for Bank of New York Co.’s retail and small business banking network.
TARP has doled out billions to bail-out the nation’s largest banks, which in turn have done virtually nothing to stem the nation’s Katrina of foreclosures. Foreclosures in Detroit have drastically reduced another source of school funding, property taxes, which accounted for $75.4 million of DPS cash receipts in 2009-2010.
The excessive DPS borrowing began when former schools CEO Kenneth Burnley, Jr. first purchased $210 million in “deficit reduction bonds” guaranteed by state school per-pupil payments in March, 2005. Monthly letters from DPS Chief Financial Officer Ricardo Kisner and Chief Accounting Officer Delores A. Brown on the DPS website confirm this.
State law had to be changed to resurrect such “deficit reduction bonds,” which had been outlawed in 1994, according to a 2004 memo from Gary Olson, then director of the Senate Fiscal Agency.
Since state Emergency Financial Manager Robert Bobb took over, the district has borrowed untold millions more. Notes dated 2009, 2010, and 2011 account for $515.5 million of $523.8 million debt set-asides for 2010-2011.
“The state is deliberately starving the school district by freezing state aid and sending it to charter schools, while Bobb is covering it up with more borrowing, as Burnley did,” Attorney George Washington, who represented the Detroit Board of Education in its successful fight against a mayoral takeover, added.
“When the new elected board takes office, it will have a huge concrete block around its neck,” Washington said. “The two state takeovers have been the greatest financial boondoggle ever seen, but Bobb has tried to cover it up by blaming a few workers on the bottom for taking a few hundreds of dollars, while he pays millions to his consultant friends. Everybody is getting their cut except the students.”
While it is busy cutting funds to Detroit’s children, the Bank of America has been embroiled since 1996 in a $7 billion money-laundering scandal involving a top executive and a Russian bank that collapsed as a result of the transactions, according to articles in the New York Times.
“Federal and state regulators imposed embarrassing sanctions on the bank [$38 million] that took it to task for lax supervision and weak controls on money laundering,” said the Times in 2002. “But the actions fell short of stricter penalties that could have been imposed, which Bank of New York officials described as a relief.”
But, said the Times, “. . . corporations are legally liable for the actions of their officers, and now that the two suspects — a former bank vice president, Lucy Edwards, and her husband, Peter Berlin — are cooperating with prosecutors the stakes have suddenly risen for the bank.” Edwards and Berlin eventually pled guilty and got probation with restitution, but the case is still ongoing.
In 2008, after the B of NY and Mellon merged, Russia filed its own $22.5 billion lawsuit against BofNYM its’ citizens losses.
Richard Scaife is heir to the Mellon fortune.
A 1995 Clinton White House report said, “Scaife uses the $800 million Mellon fortune which he inherited to fund a virtual empire of right wing newspapers and foundations. These newspapers and foundations use their power to control the Republican Party’s agenda and viewpoints. . . Scaife also is a Newt Gingrich insider — backing many of the groups that support and defend Newt Gingrich, including contributing $60,000 to GOPAC and $450,000 to the Landmark Legal Foundation.”