WALL STREET, STATE, BOBB ROB DETROIT’S CHILDREN

DPS EFM Robert Bobb testifies as Chief Academic Officer Barbara Byrd-Bennett listens Feb. 9

By Diane Bukowski

LANSING—Hat in hand, Detroit Public Schools (DPS) czar Robert Bobb and his Chief Academic Accountability Officer Barbara Byrd-Bennett begged a Feb. 9 joint meeting of the House and Senate Education Committees for legislation that would ensure approval of another $219 million deficit bond by the end of March.

The legislation has not yet been presented, but Bobb said it was being drafted.

Several Democratic legislators subjected the two to severe criticism for Bobb’s actions in slashing school services while still not reducing the district’s alleged $327 million deficit. The Committee chairs, Sen. Phil Pavlov and Rep. Paul Scott, and other Republican legislators were skeptical that DPS could repay the debt and said they opposed additional financial burdens being placed on the state.

House and Senate Education Committee chairs (l to r) Paul Scott and Phil Pavlov

 “We are not asking for the school district debt burden to be shifted to the state,” Bobb said. “Enacting this legislation will not cost the state one dime. This legislation is not a request for a cash infusion in any way. And this legislation does not in any way ask for the school district’s debt burden to be shifted to the state.”

He said later, “The state intercepts the district’s foundation allowance [per pupil aid] to ensure debt service.” This was the first time he has publicly acknowledged that a state trustee gets DPS’ entire allowance, then withholds what he considers necessary to pay the district’s debt before turning over the remainder to DPS.

His presentation shed light on the willingness of district officials to submit to draconian proposals by the Republican-dominated legislature expanding the powers of Emergency Financial Managers across the state, while closing schools, laying off workers and privatizing school services.

As minority vice chair of the House Education Committee, Sen. Pavlov wrote a bill last year to give the EFM power over academics, dated January 14, 2010, which died at the end of that session. (Read bill at Pavlov EFM bill 2010-HIB-5747.  (See accompanying story on Senate committee meeting on EFM powers held Feb. 9 in the afternoon, and currently proposed bills.)  

Eighty-seven percent of state DPS per-pupil aid this year, $512 million out of $590.5 million, was already set aside by the state trustee for debt payments, according to documents previously published on the DPS website, but since removed. (See chart below, go to http://voiceofdetroit.net/?p=218 to read previous article.)

Bobb said former DPS CEO Kenneth Burnley gave Financial Security Assistance, now Assured Guaranty Municipal Corporation (AGM), the right to sign off on all short term borrowings when Burnley borrowed $210 million in 2005, in order to guarantee repayment of that 15-year loan.

Bobb said if approval of the new loan is not forthcoming, payments on the 2005 debt would rise from $22 million a year to $39.5 million.

He did not say how much interest AGM is charging, but it is likely substantial.

Billionaire Wilbur Ross backs Assured Guaranty

AGM is a subsidiary of the $  billion Bermuda-based Assured Guaranty Ltd. (AGL), which is backed by billionaire Wilbur Ross. According to Bloomberg News, Wall Street bond rating agency Standard & Poors (S&P) just downgraded AGL’s ratings one tier, leaving AGL in an uproar.

 “Shares of Assured Guaranty Ltd., the only active investment-grade rated municipal bond insurer, fell the most in three months . . . .” Bloomberg reported.

It said the two biggest bond insurers, MBIA Inc. and Ambac Financial Group Inc, along with most of the rest of the industry lost their top AAA ratings in 2008 as a result of the mortgage payment meltdown.

 S&P has now proposed changes in its methods for evaluating bond insurers.

 “Among the biggest proposed changes to S&P’s ratings criteria is a new leverage test to assess the amount of risk (ed. italics) a bond insurer is assuming from guaranteeing debt relative to the capital it holds,” Bloomberg said in its Jan. 24, 2011 article.

Rescue schools, not banks

Bobb said, “Because of all the national headlines raising concerns about municipal and school district bankruptcies, Assured is looking to protect the DPS debt it insures from a potential filing even though the district has no plans to engage in such an action.”

Bobb then ticked off numerous attacks on DPS that he has initiated since the beginning of his tenure in March, 2009.

“It is vitally important that the Emergency Financial Manager must remove the rot from the system he is involved in,” Bobb said. He blamed the district’s current alleged deficit of $327 million on previous administrations over the last 11 years.

Chadsey High School, now closed

The “rot,” said Bobb, included 59 schools he has closed, with another 30 to 40 schools on the chopping block. He threatened a total of 70 more schools would be closed if the loan is not approved.

He boasted of concessions made by the Detroit Federation of Teachers under Keith Johnson, including deferment of $500 a month in pay, an assault on the “Holy Grail” of teacher seniority which excludes 52 schools from bumping in the event of lay-offs, and a new teacher evaluation system for all schools.

He boasted of the lay-offs of 232 security officers, 384 transportation workers, and the recent elimination of 823 custodial, maintenance and engineering positions, along with their outsourcing to the notorious union-buster Sodexo and other companies.

Safeway's DPS bus drivers protest outsourcing March, 2010

Despite a ruling by Wayne County Circuit Court Judge Wendy Baxter last December  which barred Bobb from interfering in academics in his role as EFM, Bobb also boasted that he had developed a “long-term” academic plan for the district. Baxter just re-affirmed that ruling Feb. 12.  

Governor Rick Snyder did not announce the extension of Bobb’s contract beyond two years, through June, 2011, in violation of Public Act 72, until Feb. 14. But members of the committee spoke of it as a done deal, as have Detroit Board of Education President Anthony Adams and a number of union leaders.

“Why should the state keep you on when you have not been able to prevent these deficits and possible bankruptcy?” asked State Sen. Coleman Young II (D-Detroit). “The legacy debt was created beginning with the 1999 state takeover. The state has violated Art. 9, Sec.29 of the state constitution which prohibits the imposition of non-funded mandates.

Sec. 32 says that any citizen can file suit to enforce this provision.”

Young evidently referred to the state’s insistence on the district’s maintenance of a balanced budget while providing no funds to see that it happens. Text of State constitutional citations is below.

“MICHIGAN CONSTITUTION Sec. 29 State financing of activities or services required of local government by state law. The state is hereby prohibited from reducing the state financed proportion of the necessary costs of any existing activity or service required of units of Local Government by state law. A new activity or service or an increase in the level of any activity or service beyond that required by existing law shall not be required by the legislature or any state agency of units of Local Government, unless a state appropriation is made and disbursed to pay the unit.

 Sec. 32. Suit to enforce sections 25 to 31. Any taxpayer of the state shall have standing to bring suit in the Michigan State Court of Appeals to enforce the provisions of Sections 25 through 31, inclusive, of this Article and, if the suit is and, if the suit is sustained, shall receive from the applicable unit of government his costs.” 

State Rep. Tommie Stallworth (D-Detroit)

“You have said repeatedly that you are not asking the state to pick up the debt and intend to close up to 70 schools leaving 62 students in a class,” State Rep. Tommie Stallworth (D-Detroit), said. “This absolutely results in failure, which we cannot afford as a state. During at least nine of the 11 years you cited in which DPS incurred deficits, DPS was under state control.”

State Rep. Lisa Brown (D-West Bloomfield) blasted Bobb’s labor and travel policies.

“Why did you contract with Sodexo to save $75 million when according to the Detroit News and Free Press, the unions said they put a $92 million savings proposal on the table? With the number of consultants you’ve hired, why did we hire you? Your budget shows travel expenses of $900,000 in one month, $12,000 to the Sheraton Hotel. The food suppliers you choose are not the cheapest.”

Protest against Sodexo at University of Pittsburgh

Bobb denied the union savings were real and claimed that his use of Sodexo did not disadvantage current DPS workers. He said his consultants will go when he does, although he also said other officers he hired included the district’s auditor general have three year contracts and will remain.

Helen Moore of Keep the Vote No Takeover, Russ Bellant, and former DPS music teacher Callie Smith traveled all the way from Detroit to testify at the hearing. Pavlov dismissed the committee meeting without hearing from them or from the president of the Detroit School Board Anthony Adams. They did testify that afternoon at a joint Senate committee session and their testimony is presented in the following article.