CHICAGO -- The Detroit Public Schools are waging a solitary battle to pass a mammoth $1.5 billion bond referendum that has failed to win the support of business, civic, or government leaders just weeks before the Nov. 8 election.
The school administration wants voters to approve the issuance of $1.5 billion of general obligation debt to repair 146 crumbling school buildings and construct 14 additional facilities. The debt would be repaid with revenues raised over a nearly 45-year period through a series of property tax increases.
"It's our guess that to pass any kind of bond referendum, it may have to be for a more modest amount," said Joseph O'Keefe, a director at Standard & Poor's Corp.
School officials are campaigning hard for the money, which they say is crucial to the system's future. Last week, they released an outline of their plans at an enthusiastic rally of 600 bond advocates.
But many others in Detroit consider the plan too costly and too vague. The Greater Detroit Chamber of Commerce, the local AFL-CIO, and the Detroit Federation of Teachers have refused endorsements of the plan. The Detroit Free Press and the Detroit News have editorialized against it. And Mayor Dennis Archer has so far withheld his support.
"It lacks any specificity in terms of where and how the improvements would be made, and how much money would be spent on each school," said Catherine McCuish, vice president for government relations at the Chamber of Commerce.
"And Detroit's property tax is already the highest in the state of Michigan and considerably higher than other major metropolitan areas in the country," she said.
McCuish said the chamber is also concerned because the schools have outstanding debt from a 1986 bond issue of $162 million. A school district report showed that officials have spent only about two-thirds of the bond proceeds.
Detroit's citizens, just recently freed from a crushing property tax burden thanks to an overhaul of the state's education funding scheme, are divided on the merits of assuming additional tax obligations.
The schools' plan calls for 10 series of bonds to be issued over 15 years. The first three series, to be priced between 1995 and 1998, would total $450 million. That money would be used to remedy dangerous or illegal physical conditions at every existing building in the district.
The remaining seven series, to be priced between 1999 and 2009, would total $1.05 billion. That money would be used to build new schools, upgrade existing buildings, and install new technology.
In return, the school district's debt levy would gradually rise starting in 1995, hit a peak in 2000, and start receding in 2026 until the debt is paid off in 2037.
"'It's really hard to measure this program against the norm because it's so large and unusual," said Mitchell Savader, a vice president at Moody's Investors Service.
"It's a very substantial amount of debt on top of a total debt load already being carried by the taxpayers there," Savader said. "If you add together the debt of the city, the school district, and other overlapping issuers, you're talking about $1.5 billion outstanding debt right now."
Savader said the school district's current outstanding debt is qualified for the state's School Bond Loan Fund, which gets an A1 rating and "recognizes the state's involvement." Standard & Poor's Corp. rates bonds qualified for the fund AA.
State involvement is a key part of the proposed bond issue and another component that worries business leaders. The state has given tentative overall approval to the plan, but would have to approve each bond series separately as it comes up over the next 15 years.
"There's no guarantee that the state will support these issues in the future," said McCuish.
But Richard Barch, president of Stauder, Barch & Associates, the financial adviser to the schools, said the incremental approval is not a problem. "It doesn't concern me because we already have overall approval," he said. "I know the school district intends to stick to its original plan, so we should not have any difficulty with that."
Barch said the referendum's chances of passage are "very good" and noted that school officials are interested in insuring the bonds.
There is some confusion as to how the bonds will be issued if the measure does win voter approval next month. School officials have repeatedly assured citizens groups that pricing of the bonds will be on a competitive basis. But Barch said last week that it has already been determined that Grigsby, Brandford & Co., a minority-owned firm, will underwrite the bonds.
Both Grigsby Brandford and school board officials denied that the firm has been tapped to underwrite the deal.
"We'll be issuing a request for proposals, and there has been no commitment made to Grigsby Brandford," said Walter Jones, chief financial officer for the Detroit Public Schools. "Some observers may just assume since they did our past three deals, they'll do this one. They are the front-runner at this point, because they're familiar with the school system and how we do business, but if someone comes in with a better price, we'll look at it," he said.
