OFFICE OF CONTRACTING AND PROCUREMENT

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Presented by: Ricardo A. Kisner, CFODate: October 21, 2010

The Detroit Public SchoolsADDRESSING THE FINANCIAL CRISIS

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Discussion Topics

Recent History and Trends

The Emergency Financial Manager

Current Financial Condition

Two Long-Term Financial Sustainability Plans

A New Business Model

DETRO

IT PUBLIC SCH

OO

LS

Recent History and TrendsCITY O

F DETRO

IT AND

THE SCH

OO

LSThe student population is decreasing at a faster rate than the City’s overall population decline.

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945,000

908,000

4% Decline

175,000

84,000

52% Decline!

Recent History and TrendsD

PS FINAN

CIAL TREND

S

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A balance budget adopted for fiscal 2011.

$250 million in long-term cash borrowing for operations.

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Factors Leading to a Financial EmergencyTH

E EMERG

ENCY FIN

ANCIAL M

ANAG

ER

•Several years of operating deficits

•“High-Risk” Status•Questionable audits•Governance structure

•Adverse operational reviews

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The Emergency Financial Manager (EFM)TH

E EMERG

ENCY FIN

ANCIAL M

ANAG

ER

Mr. Robert Bobb, Emergency Financial Manager Two-Year Term

March 2009 to February 2011

• Negotiate contracts• Borrow money and issuing long-term debt• Hire and fire personnel• Approve and amend budgets• Declare Chapter 9 Bankruptcy, if appropriate.

The EFM’s Primary Responsibilities

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What the “Turn-around” Team is DoingTH

E CURREN

T FINAN

CIAL CON

DITIO

N

Financial

• Re-negotiated contracts

• Eliminated positions and froze hiring

• Developed austere operating budgets and financial plan

Accountability

• Established the Inspector General and Auditor General

• Conducted audits of ghost employees and health care dependent audit

• Established a confidential hotline

Operations and Systems

• Engaged a school closure team to review facility right-sizing

• Developing an information technology strategic plan

• Restructuring Human Resources

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Drastic Remedies Were Considered

Possible Remedies Desired Impact Resolution

Chapter 9 BankruptcyEliminate existing liabilities for a “fresh start”

Bankruptcy does not automatically relieve debt service payments or labor contracts

“Draconian” Cost Reductions

Reduce costs at a greater pace than the revenue short falls

Cannot cut fast enough without inflicting irreparable harm

Surge on Student Attraction and Retention Marketing Efforts

Increase state aid revenues by competing “head-on” with private, charter, and suburban school districts

Student enrollment continues to decline in 2009, but stabilizing in 2010

Long-term Financing of the Accumulated Deficit

Address short-term cash needs and begin building a reserve

Pursuing a second deficit elimination financing would further burden the District with long-term debt

THE CU

RRENT FIN

ANCIAL CO

ND

ITION

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TWO

FINAN

CIAL PLANS

PREFERRED PLANA “NEW” Detroit Public School District

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By November 2010, the EFM will submit to the Governor and the Legislature a transition plan that will provide a omnibus legislative remedy to:

1. Eliminate the accumulated deficit.

2. Establish a separate governance structure for financial operations.

3. Provide two education settings:• A traditional learning environment.• A “charter-like” governance structure with autonomous learning

schools and classrooms utilizing outside providers.

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APPROVED PLANDraconian Cost Cutting

TWO

FINAN

CIAL PLANS

Schools

• 100 school closures planned by 2013 leaving 72 schools remaining

• Increase class size in all grade levels

• Adoption of a regional principal model and eliminate assistant principals

• Closure of five technical schools and eight alternative schools

Central Office

• Outsource administrative functions, including finance, legal, and human resources

• Eliminate public safety department and contract with City or County

• Consolidate space and sell administrative offices

• Continuation of 7.5% pay concession for central office staff

Employee Concessions

• Additional employee concessions when labor contracts expire in 2012

• Ten percent (10%) increase in employee share of medical benefits

• Extension of $250 per pay period wage deferral

• Continue to eliminate school-based positions

Michigan Public School Districts’ Consolidation

Initiative

• With 551 districts, Michigan ranks fifth in the nation with the largest number of school districts.

A recent study by Michigan State University estimates that Michigan taxpayers could save $612 million a year by consolidating public schools along county lines.

A NEW BUSINESS MODELRegional Cooperation, Consolidation and Shared Services

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Detroit Regional Consolidation and Shared Services Authority

• Possibility of mayoral control of the school system.

• A potential DPS, City, and Wayne County shared services regional authority.

The Shared Services Initiative Project• Phase I – Ready Detroit Public

Schools • Phase II – Ready City of Detroit• Phase III – Implementation and

integration of other partners.

A NEW

BUSIN

ESS MO

DEL

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CON

TACT INFO

RMATIO

NContact Information

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Ricardo A. Kisner, CFODetroit Public Schools

Phone: (313) 873-4577Email: ricardo.kisner@detroitk12.org