Detroit’s Schools Are Going Bankrupt, Too

(Editor's note: Below is an edited version of an Op-Ed that appeared in The Wall Street Journal on Friday, July 24, 2009.)

"Am I optimistic that they can avoid it . . . ? I am not." That's what retired judge Ray Graves said this week when asked whether Detroit Public Schools, which he is advising, would be forced into bankruptcy. Facing violence, a shrinking student body, and graduating just one out of every four students who enter the ninth grade on time, the city's schools have been stumbling for years. Now they face a seemingly insurmountable deficit and are expected to file for bankruptcy protection at about the time that students should be settling down in a new school year.

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As embarrassing as such a filing would be, it also may be the only thing that can force the kinds of changes Detroit schools need — as the financial turmoil is just the latest manifestation of a system in terminal decline.

Detroit is like many urban school districts — large, unwieldy and bureaucratic, with a powerful union that makes the system unable to adapt to changing circumstances and that until very recently had an indulgent political class that insulated it from reform. That insulation came in two forms. The first was neglect. Mayor Kwame Kilpatrick spent several years distracted by a scandal stemming from his affair with a staffer. He resigned last year, pleaded guilty to obstruction of justice, and was sentenced to four months in jail. Had he been an effective mayor, he might have also been a powerful advocate for students.

The other insulating force was a conscious decision to wall off Detroit from charter public schools. In 1993, Michigan's Legislature made it difficult to create new charters in Detroit by declaring that community colleges could not authorize charters for primary and secondary schools in "First-Class Districts" — defined as those with more than 100,000 students. Detroit was the only First-Class District. In 2003 the state, under pressure from the Detroit Federation of Teachers, turned down a gift of $200 million from philanthropist Robert Thompson that would have established 15 charter schools in the city. Those charters are needed today.

The net result has been a school system that's been coming apart as the teachers union has dug in its heels. In 2006, the union illegally went on strike, killing a plan to force teachers to take a pay cut to balance the system's books.

In June, seven students were wounded in a shooting near Cody Ninth Grade Academy just two weeks after 16-year-old Tenecia Walter was shot in the chest shortly after leaving class at Denby High School. Earlier this year a gunfight broke out in Detroit's Central High School and last year a student was shot and killed walking home from Henry Ford High School. All of this has forced school officials to step up security measures, including increasing the number of police patrols.

Meanwhile, only 16.2 percent of the city's 11th graders scored proficient in math this year on the state's standardized Merit Examination, compared to 49.3 percent statewide. Detroit reading and science scores are just as bleak. And this in schools that spend $1,700 more per student than the state average.

The school system also has been rocked by corruption. A few years ago, an audit revealed that DPS misused more than $46 million on insurance and other contracts and was forced to sue venders to get some of its money back. Two of the system's employees were recently indicted for allegedly embezzling $400,000 from the district over the past couple of years.

To clean up the mess, the state took control of the district earlier this year and brought in Robert Bobb as an "emergency financial manager." In June, to stem payroll fraud he required that employees pick up their paychecks in person. Paychecks for 257 suspected "ghost" employees — people who had improperly been getting checks - went unclaimed.

Bobb has been energetic in tackling problems. At the outset, he faced a $306 million shortfall in a $1.3 billion budget. He responded by closing 29 schools, laying off 2,500 employees, and cutting 80 percent from the budget of the department that draws up the district's curriculum. He plans to overhaul 40 schools and has hired private companies to run 17 of the district's 22 high schools. He also tapped Graves, a bankruptcy expert, for advice.

The Detroit Board of Education has gone along with many of these changes. But it is now seeking a court injunction to block private companies from running district high schools. The board says Bobb exceeded his authority in hiring the companies. But a court fight will only bog things down at a time when the district still faces a $260 million deficit.

This is why Graves and others see little alternative to declaring bankruptcy, and why doing so would likely be a net benefit. It would allow the city to tear up union contracts, cut some of its debt, and forge a political consensus for lasting reforms. No one will want to repeat the bankruptcy experience any time soon.

What the city needs is a multitude of charter public schools and other school-choice provisions that would give students a means to escape. It also needs to break free of collective-bargaining agreements. Collective bargaining for government employees is not a constitutional right; it is a special privilege, and one that has been abused. Michigan's education laws could be amended to allow school districts to suspend collective-bargaining agreements when that district fails to meet minimal academic standards, is pushed to the brink of bankruptcy, or is faced with an illegal teachers union strike.

Over the past seven years, DPS has lost 60,000 students. Its system is now, according to the state's attorney general, so small that it no longer qualifies as a First-Class District.

That gives the state Legislature and Gov. Jennifer Granholm an opportunity to do what they needed to do all along: Treat Detroit like other school districts in the state and hold local officials accountable when the schools fail to perform. Walling off Detroit from the rest of the state may have some appeal and was once the politically easy thing to do, but it's only given Michigan a larger mess to clean up.


Paul Kersey is the director of labor policy and Michael Van Beek is the director of education policy at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the authors and the Center are properly cited.

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