The Michigan Department of Treasury is asking a state judge to dismiss a case filed by the Detroit school district, saying the harm claimed in the suit hasn’t occurred, so the lawsuit has no merit.
The treasury department also says the district is suing the wrong party.
Those are the key arguments the treasury department made in a Jan. 10 response to the lawsuit filed by the Detroit Public Schools Community District. The suit centers on a difference of opinion between the school district and the treasury department over revenue from an operating millage that has been used to pay off an emergency loan since 2016.
That was the year Michigan lawmakers created a new district, DPSCD, to operate schools and left the debt-ridden Detroit Public Schools in place to collect millage revenue. That revenue has been paying off debt that had left DPS and its schools in financial crisis for years, much of it while state-appointed emergency managers controlled the district. Since 2016, the state has filled the gap left by the loss of revenue from the operating millage.
Now, with the emergency loan expected to be paid off in February, 18 months earlier than scheduled, the district wants to use the operating revenue to accelerate the schedule by which it is paying off a remaining $1.6 billion in capital debt as well as debt to the state School Loan Revolving Fund. A separate debt millage has been paying off the debt, but district officials say that adding revenue from the operating millage would allow DPS to pay off that debt years earlier than expected, saving taxpayers in interest costs.
The district’s lawsuit, filed Dec. 20, alleges that the treasury department told the district that the operating millage revenue can’t be used to pay off the capital and revolving fund debt. It also says that once the emergency loan is paid off in February, DPS can no longer levy the operating millage, and DPSCD would have to ask voters to approve a new operating millage. Meanwhile, the district says the state would cease providing the district with local operating revenue when the load is paid off and DPS no longer has an operating millage.
At a meeting tonight, the Detroit school board will consider a proposal to place a millage proposal for DPSCD on the ballot in May.
The treasury department hasn’t commented on the specifics of the case. Here is an overview of the treasury department’s response to the lawsuit
The case isn’t ripe for adjudication, the state says
An essential argument from the state is that the lawsuit isn’t “ripe.” A case is ripe if the claims made in it haven’t happened. The DPSCD lawsuit is centered on what it says could happen based on conversations with treasury officials.
“There is no actual controversy and Plaintiffs have not articulated a particularized or cognizable injury, but instead only a hypothetical, contingent, contingent, or anticipated one that may not occur,” the treasury response said.
“This is because DPS is still collecting the operating millage assessed … and the State is still providing a per pupil foundation allowance backfill for [DPSCD].”
The response also notes that the treasury department proposed a new schedule to pay off the operating debt that would allow DPS to make smaller payments and extend the final payment to Sept. 1, 2026, instead of the district paying it off next month.
“DPS is electing not to pay according to this schedule without explanation in its Complaint or its Motion for Preliminary Injunction.”
DPSCD named the wrong parties
The treasury doesn’t have “the authority to adjust the state’s foundation allowance payments or prevent DPS from levying an operating tax,” the response says.
Instead, the response says, Michigan courts “have routinely found that only the Legislature has authority to authorize appropriations.”
DPS can’t use operating millage revenue for non-operating debts
State law allows school districts to levy up to 18 mills on non-homestead property for “school operating purposes,” and though the Legislature doesn’t define that term, treasury officials say in the response that “by its plain meaning and context, it pertains to funds used to support a school district’s day to day operational expenditures, such as facility maintenance, utilities, supplies, textbooks, vendor payments, educational programs for students, and staff compensation, to name a few.” It does not include the repayment of DPS’s long-term capital improvement debt.
Lori Higgins is the bureau chief for Chalkbeat Detroit. You can reach her at lhiggins@chalkbeat.org.
