New law guarantees bonds for troubled school districts

Feb 7, 2012

Governor Snyder has signed legislation he says will let financially-strapped school districts guarantee their bond payments—using state school aid funds.

The legislation applies to all school districts with deficit elimination plans or emergency managers. But it was written with the Detroit Public Schools in mind.

Detroit State Representative Fred Durhal, who sponsored the bill, says the new law should help set bondholders’ minds at ease.

“What you’re going to do is to guarantee that you will be held harmless, and paid no matter what the situation is with [a district’s] budget,” Durhal said.

“It means if a school district is going to go bankrupt, for example, that whatever monies are there have to go toward the bond payment first.”

Durhal says that without that implied guarantee, the Detroit Public Schools—under the control of an emergency manager and saddled with a huge structural deficit-- would have faced an accelerated bond re-payment schedule totaling nearly $95 million over four years.

“So we had to act quickly to try to get this done, so these insurance companies would be in a better position to make a judgment on those accelerated payments that they threatened the school district with,” Durhal said.

In a statement accompanying the signing, Governor Snyder wrote the law is “intended to assist financially struggling school districts, including Detroit Public Schools (DPS), as they work toward financial reforms.”