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A state judge has ruled against a preliminary injunction sought by the Detroit Public Schools Community District, delivering a setback to the district in a lawsuit it filed against the Michigan Department of Treasury late last year in a dispute over millage revenue.
Judge Christopher Yates rejected the motion Wednesday in the suit against the department and State Treasurer Rachael Eubanks. Barring the final outcome of the suit, that means the Treasury Department’s interpretation of state law — that limits the district’s ability to use operating revenue to pay off capital debt — will stand.
It also means that once the district pays off a $150 million emergency loan from the state next month, the state will no longer have to fill a funding gap for DPSCD, and the district will need to ask city voters for a millage that will allow it to collect tax revenue.
Detroit Superintendent Nikolai Vitti called the ruling “disappointing” and said it forces the district to either move forward with plans for a new property tax vote or “at least prepare for one.”
Yates still must hear arguments on the state’s motion to dismiss the case, as well as the larger issues in the case.
The lawsuit stems from a 2016 legislative intervention that resolved a massive debt crisis in Detroit Public Schools. Lawmakers created a new district, DPSCD, to run the day-to-day operations of district schools. DPS remained intact only to collect millage revenue and pay off about $3 billion in debt, using an operating millage and a debt millage.
The restructuring meant DPSCD would not receive revenue from local property taxes, and the state has filled in that funding gap ever since.
Now, nearly nine years later, DPS expects to pay off a $150 million operating loan from the state. Because property values have increased in the city, that loan is being paid off 18 months ahead of schedule.
The dispute comes because now, with the emergency loan close to being paid off, DPSCD officials want 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 about $350 million in debt to the state School Loan Revolving Fund. A separate debt millage has been paying off the capital and revolving fund 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 Treasury Department, however, told the district that state law does not allow for operating millage to be used to pay off non-operating debt and, once the emergency loan is paid off, DPS can no longer collect the revenue.
With the loan pay-off, the state also would stop filling the funding gap for DPSCD. Ultimately, that means DPSCD would need to ask voters to approve its own operating millage.
Unable to reach an agreement, the district sued the state in late December.
The district sought a preliminary injunction to require the state to continue making payments to DPSCD and permit DPS to continue levying the operating millage while the case is being heard.
But Yates, in his ruling on the injunction, said he must deny the request “because the plaintiffs have not established a likelihood of irreparable harm.”
During oral arguments held before Yates on Jan. 29, he told the attorneys in the case that his ruling on the preliminary injunction would be based on the standard criteria of whether there was irreparable harm, the balancing of harms, the likelihood of success of the lawsuit on its merits, and the public interest.
But he said that “absent irreparable harm, there’s really no basis at all for granting an injunction.”
Scott Eldridge, the lawyer for DPSCD, argued at the Jan. 29 hearing that if the judge granted the injunction and the DPS operating millage was used to pay off other debt, the district and its taxpayers will be able to “avoid hundreds of million dollars in unnecessary interest payments.”
But Assistant Attorney General David Thompson, who represented the Treasury Department, said the state offered to allow the district to extend the payments on the emergency loan until September 2026 by making interest-only payments.
“To the extent that there is any purported harm … it’s a harm they’re inviting upon themselves,” by electing not to extend the payment schedule, Thompson said.
Yates, in his ruling, said the plaintiffs “have not shown such hardship is imminent or that it satisfies the standard for irreparable harm, i.e., that is ‘certain and great,’ and ‘actual rather than theoretical.’”
If DPSCD opts to hold a millage election this year, it would come within a year of voters having voted to renew the existing operating for DPS. That proposal won with 77% of the vote and allowed the old district to levy the full 18 mills.
Despite the setback in the lawsuit, Vitti said “we are still optimistic that the question related to DPSCD having to tax locally before the entirety of the DPS debt is paid will be ruled in our favor based on existing state law.”
Vitti said the district will now have to decide whether to hold a special election in April or May, which would cost the district $1 million, or wait until the August primary.
The district’s school board in January approved authorizing a special election in May to decide on an operating millage. They have until Feb. 10 to formally place it on the ballot.
Lori Higgins is the bureau chief for Chalkbeat Detroit. You can reach her at lhiggins@chalkbeat.org.
