Debt Program for Public Schools Has Gone Too Far

Forty-six years ago, Chippewa Valley Schools began borrowing state money to help make payments on its debt. As of June 30, 2012, the Michigan Department of Treasury estimates that Chippewa Valley owes the state more than $143 million — almost $9,000 for every student enrolled in the district. And the district's state debt is growing. Last year, the district owed $120 million.

The state program that allows this borrowing, the School Loan Revolving Fund, has recently come under scrutiny in the state Legislature. And it should be scrutinized: As Mackinac Center analysts have noted before, this program allows school districts to borrow money to make payments on borrowed money.

Howard Ryan, legislative liaison for the Michigan Department of Treasury, testified before the House Appropriations Committee on Tuesday that state debt taken on by school districts is "out of control." 

According to MIRS News (subscription required), Joseph Fielek, also of the Treasury, told the committee that most school districts don't use the debt program, but of those that do, 40 have taken on so much state debt that the districts won't be able to repay the money when it comes due.

Though reform is being considered, some don't like the idea. Proponents of the program have said that the fund is needed to help school districts pay for new buildings.

Yet, Chippewa Valley's SLRF debt has increased by almost 50 percent since 2010, while its student enrollment increased by just 2.4 percent during the same period. Recently, the district issued $89 million in bonds to keep up with Joneses and pay for, among other things, interactive white boards, data projectors, surveillance cameras, electronic building signs and motion sensors.

Indeed, as the state of Michigan loses students, the total amount of debt owed to the state by districts is growing, by about $200 million each year. And that's just a portion of the total amount Michigan schools owe.

According to 2008-09 data posted by the National Center for Education Statistics, Michigan public schools are more than $21 billion in debt.

Chippewa Valley has $450 million in long-term debt, nearly $29,000 per student.

The Ecorse Public School District has $89 million in long-term debt. The district has just over 1,000 students, and owes more than $84,000 for each one. It's unclear how the district will ever be in a position to pay that money back.

In fact, more than 40 other Michigan school districts owe more per student than Chippewa Valley (meaning they owe at least $28,800 per student). The vast majority of those districts are carrying SLRF balances.

Clearly, the SLRF needs to be reformed. An easy start would be to cap the fund at $1.8 billion, as has been suggested. Limiting districts from continuing to borrow money to pay off borrowed money would be an even better move.

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