Published Online: October 21, 2009

Detroit Mayor Supports $500.5M Schools Bond Issue

The financial manager for Detroit's public schools has enlisted — and received — the support of the city's mayor on an ambitious $500.5 million building plan expected to extend taxes for district capital projects through 2039.

But some say Detroit's rapidly declining tax base could affect the amount residents would pay for the two federal bonds or push the payments past the bonds' repayment date. The Detroit School Board also has declined to back the proposal, saying it was concerned there wouldn't be enough oversight of how the money is spent.

Mayor Dave Bing on Wednesday urged voters to approve Proposal S in the Nov. 3 general election, calling it "the best thing that can happen for the city of Detroit and its school children."

"This is a true investment in neighborhoods," Bing said. "If we don't take advantage of this stimulus offer, another city will."

If approved, Proposal S will allow the financially troubled district to build eight new schools and modernize 10 others.

Money would come from federal economic stimulus dollars. About $246.5 million would be repaid at zero percent interest on one bond. The interest on the remaining $254 million would be repaid at a zero to 2 percent interest rate.

Detroit residents will pay off the two bonds at the same rate being paid on a $1.5 billion proposal approved by voters in 1994, said Robert Bobb, who was appointed in March by Gov. Jennifer Granholm to fix the district's broken finances.

Repayment on the earlier referendum is scheduled to end in 2033. Repayment of Proposal S will continue those levels another six years, he said.

However, the number of taxpaying Detroit residents is decreasing.

Between 1980 and 2000, the city lost one-fifth of its population and dropped below 1 million people, according to the U.S. Census.

Another 140,000 may have fled Detroit between 2000 and last year. Census figures show that as few as 778,000 people lived in the economically challenged city in 2008.

"If your tax base is shrinking and you have to raise the same revenue, you have to have higher rates," said Paul Bachman, economist and director of research The Beacon Hill Institute at Suffolk University in Massachusetts.

Detroit School Board member Anthony Adams said he worries that the Proposal S repayment could be "extended indefinitely."

Taxes for homeowners are capped, but it's unlikely the bond repayment amounts would be reached by 2039 because assessed value of property in Detroit continues to go down, he added.

Detroit's current poor financial condition is due in part to a deteriorating manufacturing base, thousands of layoffs, and bankruptcy protection filings by two of its three automakers.

About one in four working-age adults is jobless, and the city is among the nation's leaders in home foreclosures.

"If everybody was here in the city and paying their property taxes, they would meet their deadline," Adams said of Proposal S proponents.

A Michigan Treasury Department revolving loan program would step in if Detroit has difficulty repaying the two Proposal S bonds on time, school district spokesman Steve Wasko wrote in an e-mail Wednesday to The Associated Press.

Detroit's School Board voted earlier this month not to support the proposal. The board is wary of proper public oversight and are concerned that some Detroit businesses may be squeezed out for the 11,000 jobs expected to be created by the construction projects, Adams said.

Bobb said Wednesday that the district's office of Auditor General and Inspector General will be among several layers of oversight to guard against waste and fraud.

The bonds only can be used on capital projects and provide no help in reducing the district's $259 million budget deficit.

Bobb closed 29 schools heading into this fall, in part to cut costs and because of declining enrollment which dropped below 100,000 students last year.

There now are 172 schools for the district's approximately 84,000 students.

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