Download - DPS - Shaping the Future
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Detroit Public Schools: Shaping the Future
January 20, 2016
Presented By Mr. Darnell Earley, ICMA-CM, MPA, Emergency Manager Detroit Public Schools
Marios Demetriou, Deputy Superintendent - Finance and Operations
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Executive Summary
The Detroit Public School System has undergone tremendous change over the past 10+ years
Enrollment has declined over 65% since FY2005; in response the district has closed over 150 schools,reduced its workforce by over 10,000 positions , outsourced services and garnered various concessionsto address mounting deficits
While enrollment is beginning to show signs of stabilization, DPS continues to face operating losses inlarge part due to legacy operating debt obligations
Without these debt obligations, DPS has a path to fiscal stability
The initiatives currently underway and future initiatives will position DPS for success:o Complete reorganization of the central office which reduced 100 positions and overhead and
pushes resources towards schoolso Establishment of a network structure that will enable the district to operate more efficientlyo Increased accountability to ensure the districts overall best interesto Comprehensive enrollment stabilization and retention program
DPS needs legislative support in order to implement an orderly transition to fiscal stability allowing thedistrict to focus on stabilizing enrollment and increase educational outcomes for Detroits youth
The time to act is now because Detroit Public Schools is running out of funds and the alternative is farworse for the State of Michigan, all Michigan school districts and for Detroit
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Table of Content
Historical efforts undertaken1
Current situation2
How to shape the future3
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DPS has cut over $800M in expenses since 2005 but expenses continue toexceed revenue
Detroit Public Schools, Revenue and ExpendituresFY 2005 FY 2015
* Includes one-time grant revenue awarded under the American Recovery and Reinvestment Act (ARRA) Includes $245M revenue from new bond issuance, Deficit would have been $ (37M) without bond issuanceSource: Detroit Public Schools Comprehensive Annual Financial Reports
$1.5B
$1.4B $1.4B$1.3B
$1.2B $1.2B
$1.1B
$0.9B
$0.7B $0.7B $0.7B
0
20
40
60
80
100
120
140
160
$-
$0.2B
$0.4B
$0.6B
$0.8B
$1.0B
$1.2B
$1.4B
$1.6B
$1.8B
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12* FY13 FY14 FY15
Enrollment(in
thousands)
RevenueandExpe
nses(in$billion)
Expenditures
Revenue
Enrollment
FY05 FY06 FY07 FY08 FY09 FY10 FY11* FY12 FY13 FY14 FY15
Annualsurplus (deficit)
$ (115M) $ (25M) $ (15M) $ (136M) $ (79M) $ (108M) $ 43M $ 208M $ (18M) $ (76M) $ (46M)
Enrollment declined over 65% since FY05
Over the same time DPS closed more than 150 schools and has continuously cut expenses but has been behindenrollment and revenue declines
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DPS workforce has declined steadily since 2005 but has lagged the loss inenrollment
Detroit Public Schools, Enrollment and Employees
FY 2005
FY 2015
141.1K
130.7K
118.4K
106.5K
95.5K
84.9K
75.2K
66.7K
51.3K
48.5K 47.2K
15.7K15.0K
14.2K13.6K
12.6K
11.0K
8.7K7.8K
6.6K 6.5K6.0K
0
2
4
6
8
10
12
14
16
18
0
20
40
60
80
100
120
140
160
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Employees(inthousand
s)
Enrollment(inthousand
s)
Enrollment Employees
CAGR: -10.4%
CAGR: -9.1%
Note: CAGR stands for Compounded Annual Growth RateSource: Detroit Public Schools Comprehensive Annual Financial Reports
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DPS has closed over 150 schools since 2005 in response to enrollment losses.School planning will continue to be important as enrollment stabilizes
Detroit Public Schools, School closures and School sizeFY 2005 FY 2016 Budget
255232 225
198172
146 146130
100 96 96 96
141.1 K
130.7 K
118.4 K
106.5 K
95.5 K
84.9 K
75.2 K
66.7 K 51.3 K 48.5 K 47.2 K46.3 K
553 563
526 538555
582
515 513 513 505491 483
0
100
200
300
400
500
600
0K
20K
40K
60K
80K
100K
120K
140K
160K
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Schools/Studentspersc
hool
Enrollment
Schools* Enrollment Students per school
Creation of EAA resulted in transfer of 15 schools.*Includes elementary schools, middle schools, high schools, alternative education schools, special education schools, and career technical and vocational centers.Source: Detroit Public Schools Comprehensive Annual Financial Reports
(Budget)
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DPS has undertaken a number of cost cutting measures but moretransformation is necessary to align the district with current enrollment levels
Actions Taken
Wage concession of 10% and pay freezes dating back to FY 2000
Sale of assets to generate revenue (>$15M in FY14 and FY15 alone)
Reduction of nearly 10,000 positions since 2005 (62% decrease)
Reduced number of schools by 159 since 2005 (62% decrease)
Multiple modifications to healthcare benefits to reduce costs
Implementation of two Employee Severance Plans to reduce payroll costs
Continual effort to cancel, renegotiate and re-bid vendor contracts to reduce
operating costs
Enrollment stabilization campaign
DPS is transforming the way it operates beginning in FY16 with a smaller centraloffice that includes new functions and a shift of resources to schools
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Table of Content
Historical efforts undertaken1
Current situation2
How to shape the future3
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DPS faces a structural imbalance due to legacy debt and high fixed coststructure
Source: FY14 actuals
Drivers of Expenses
High personnel cost due to costlybenefits and state pension system
High transportation costs
Legacy debt payments (~$53M peryear)
DPS serves a higher proportion ofhigh school students than otherLEAs in Detroit that cost more toeducate
DPS serves a higher proportion ofspecial education students thanother schools in Detroit
DPS serves a higher proportion of
English Language Learners,homeless students, and otherstudents that require additionalsupport and services
Other
Federal
State
Property Tax
Personnel
Pension
Benefits
Non Personnel
Debt$668M
$714M
$-
$100
$200
$300
$400
$500
$600
$700
$800
Revenues Expenses
Per Pupil $14.2K $15.2K
General Fund
FY15 Revenue and Expenses
($ in millions)
DPS 2014-150Foundation Grant was $7,296
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Without debt expenditures, DPS budget would have been balanced in FY2015
Source: FY14 actuals *This actual figure was $22.3 mill ion less than th e projected figur e in the FY15 adopted bu dget
Other Other
Federal Federal
State State
Property Tax Property Tax
Personnel Personnel
Pension Pension
Benefits Benefits
Non Personnel Non Personnel
Debt$668M
$714M$668M
$655M
$-
$100
$200
$300
$400
$500
$600
$700
$800
Revenues Expenses Revenues Expenses
Per Pupil $14.2K $15.2K $14.2K $13.9K
General Fund FY2015
($ in millions)
(without Debt)
Actual Results Illustrative
$13M surpluswithout the debt
costs
$46M* deficit
in FY 2015
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OldCo will continue tooperate in its currentform through6/30/2016 (FY16)
Steady elimination oftotal OldCoobligations withdedicated funds fromproperty tax receipts
What does DPS need?Approximately $515M of legacy obligations and $200M of start-up costs
Legacyoperatingliabilities
($ ~515M)
Startup cost/reinvestment
financing
($ ~200M)
Total OldCoobligation
($ ~715M)
Deferred maintenance
Operational supportduring transition
Investment in key
academic programs
Operating cashrequirements
Transition costs
Other
Remaining operatingdebt (2011/2012bonds)
Short-term borrowing
Deferred pensionpayments
Deferred vendorpayments
Other
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To start with a clean slate at the beginning of FY17 DPS needs to retire itslegacy obligations and start up funding
Outstanding operating liabilities as of 12/31/2015 after set asidepayments ($ in millions)
$245M 2011/2012 Operating Bonds
66M 2015B SAN (State Aid Notes)
96M 2015E SAN (State Aid Notes)
117M MPSERS
51M Trade debt
575M Subtotal
(66)M Cash on hand (12/31/2015)
$509M Net debt (12/31/2015)
~$515M Net debt projected as of 6/30/2016
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DPS has taken recent action to
address the mounting cash flowtroubles, including more costreductions, State Aid Note (SAN)debt issuance ($120M in Sep15),and deferrals
Even so, DPS is expected to face acash shortfall of ~$45M by June 2016
We are exploring options to address
the FY16 shortfall including thefollowing:
Further deferrals
Personnel and benefitsreductions (transformationalsavings)
Another refunding and/or
SAN/TAN transaction Distress funding from State (i.e.
cash flows presented do notinclude distressed district funds of$50M)
Why act now?DPS faces near term cash shortfalls due to maturing debt and past dueoperating obligations
6886
136
77 7555
33 461616
-6 -22-45 -57
-77
-126
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Ending Cash Balance($ in millions)
20162015
Cash balance if
monthly required
pension
contr ibut ions are
made
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Table of Content
Historical efforts undertaken1
Current situation2
How to shape the future3
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The Central Office moved from 60 departments to 16 offices within 5 divisions
0
20
40
60
80
100%
Academics
Office Of Social Work Srv
Dept-Staff&LeadershipDev
Office Of Athletics Education
Ofc Of History Society & Cultu
Ofc College & CareerReadiness
Off/EngLangLearn& Glob Lang
Adult Education Dept
Department OfCurriculum
Specialized StudentSvcs
Off Of Psychological Serv
Off Of Foundations/EarlyLearn
Associate Superintendent- Lea
Ofc Of Arts Education
Office - Literacy Support
Guidance
Off Student Asst/Int Prog
Off OfHealth &Phy. Educ
R.O.T.C. Instruction
Office/General Superintendent
Finance andOperations
InformationSystemsManagement
Office Of Risk Manage ment
Office OfBudget
Environ Health& Safety
Office Of Procuremen t
Office Of Accounting
Office Of PublicSafety
Off ComplianceTitle1/31A
Program Development
Office Of Payroll
Grant Development
Dept Of ChiefOper Ofcr
OfficeOfThe Cfo
Central Hub
Office Of Auditor General
Office Of The InspectorGenera
Office Of StudentTranspProgram Evaluation
SchoolBased
Positions
Departmen
tOfCurr
icu
lum
PupilPopulationManagement
Vacanc
ies
Vacanc
ies
Ta
len
t
Office Of
Labor
Relations
Ta
len
tAcqu
isition
Hris
/Adm
inSrvcs
&
Consu
lting
Hr
Operations
Benefits AndCompensation
EmployeeRelations
Emergency
Manager
Dep
tOfCommun
ica
tions
OffOfGenera
lCounse
l
Office
OfStudentTransp
Secretary T oTheBoard
Office
OfComm
Respon
Stra
tegy
O f f O f E v a
l & A s s e s s m e n
t
Pup
ilPopu
lation
Managemen
t
O f f i c e
O f A u
d i t o r
G e n e r a
l
Source: DPS Internal Data
DPS Central Office BudgetedOffices and Departments
FY15
DPS Central Office ProjectedOffices and Departments
FY16
Student Services
Finance Safety
Acco
untability
HR
Talent
Planning
Enrollment
Commun-ications
GeneralCounsel
Operations
IT
Network
OCCR
Curriculum
Early Childhood
Academics Finance andOperations
Emergency
Manager/
Superintendent
Strategy
Talent
0
20
40
60
80
100%
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Addressing the debt will allow for a shift in focus towards improving academicoutcomes
Building Staff Capacity New Teacher Intensive Pre-Service Training Ongoing/Differentiated Teacher Professional
Development
School Leadership Institute (Building the Pipeline)Data and Accountability
Implement Data Cycles in Schools to focus on studentacademic progress data
Creating/enhancing Data Dashboards to communicateongoing progress
Increased Performance ManagementNetwork Supports
Continuing to build out network systems to supportschool improvement, leadership coaching, and program
effectiveness.
Curriculum/Program Enhancements Begin work to enhance the curriculum Determining additional needs for curricular programs Piloting special programs
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The DPS transformation has begun, and the pending legislation will be animportant step to ensure long-term sustainability
School Planning Enrollment
To date, DPS has taken a number of important steps to begin this transformation:
Central office reorganization and downsizing (~100 positions eliminated as of 12-31-2015)
Creation of network structure to better support and empower schools
Focus on shifting resources to school level
Procurement process overhaul and contract negotiations
Benefits modifications resulting in cost savings
Improved alignment of grants with district needs
Legislative Action
Transforming DPS Education
Financial Support
Address number andlocation of schools andcapacity issues
Stabilize enrollment
Common enrollmentsystem
Debt relief
Establish fullfoundation allowancefor NewCo
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School School
Central Central
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY15 Actual FY16 and Beyond
9%8% 8%
5%
0%1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
FY13 FY14 FY15 FY16
Historical Future State
Examples of how DPS is realigning the districts focus on the schools
Percent of Central Office FTEsFY13-FY16
Comparison of Personnel expensesFY15-FY16
1 2
Source: 2014 CAFR and internal data
Central office operations and services are significantly downsized as resources are shifted closer to students
Schools have access to a much larger pool of funds to be used and allocated at the school-level
Achieving this shift required support from MDE, as well as additional capacity at the school level
(effective 1/1/2016)
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The proposed structure creates a new entity (Detroit Community School
District) with the same amount of revenue and no debt
Detroit Community SchoolDistrict (NewCo)
DPS (OldCo)
DPS
Operating Debt
Operating Debt
Teachers/Students
Schools/Buildings
Operations
State Foundation Allowance(reduced by property taxes)
Federal & other revenue
Property Taxes
State Foundation Allowance(full amount)
Federal & other revenue
Teachers/Students
Schools/Buildings
Operations
Current Structure Future Structure
State revenueincreases to full
allowance to replacelost property taxes(i.e. revenue does
not decrease)
Property taxesdedicated to pay
legacy operating debtand start-up costs
Property Taxes
Start-up costs
Start-up revenueOne-time start-upfunds (~$200M)provide NewCo
runway to transition
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What are the implications of doing nothing?Tax payers could become liable for a majority of DPS costs and obligations
The State is required to ensure education is provided to over 47,000 pupils currently enrolled in DPS.
If DPS is unable to support current operating and legacy expenditures, it may need to consider formal insolvency proceedings,
potentially requiring taxpayers to finance the following obligations:
Unlike the City of Detroit, DPSwould not benefit from abankruptcy as it would
predominantly shift liabilities ontoother municipalities
*Risk assessment relates to impact to State; Direct denotes liabilities that immediately fall onto the State or statewide municipalities, Potential direct denotes liabilities with uncertainty what bankruptcy ruling wouldbe, Indirect denotes liabilities which are indirectly associated with the State and where default would negatively affect o ther important or critical local and state-wide market participants that in turn could default.State backing includes: Unlimited tax general obligation pledge, State aid and the limited tax general obligation pledge of the District, Michigan Public School Employee Retirement System
Pension,$1,151M
SLRF,$196M
Capital Bonds,$1,452M
Operating Debt,$464M
Past due accountspayable, $51M
~$3.4 billion inoutstandingliabilities
most of whichare secured viaa tax or stateaid pledge.
Direct
Potential Direct
Indirect
Risk to state*
State backed
Not secured
Security
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Key Takeaways
Detroit Public Schools (DPS) has undergone tremendous change over the past 10+ years
DPS has implemented a variety of best practice and cost saving measures and will continue to do so;removal of the debt will allow for a districtwide shift toward improved student achievement
DPS is positioned to thrive in a debt free environment as evidenced by the 2014-15 audit which shows a$13M surplus if the debt is removed
The time to act is now; Detroit Public Schools is rapidly running out of funds and the alternative is far
worse for the State of Michigan (all Michigan school districts) and for Detroit