Bobb's deep debt
It's worse than you think
Published: October 13, 2010
Expectations were high when Gov. Jennifer Granholm announced early in 2008 that she was appointing Robert Bobb to serve as the emergency financial manager of Detroit's struggling public school system.
With the district burdened by a cumulative budget deficit of nearly $220 million at the time, Bobb faced a daunting task — made all the more difficult by the city and state's mounting financial crises. But Granholm left little doubt in her faith that Bobb was just the man for the job.
"Robert Bobb is a proven leader who brings valuable expertise in financial and executive management and a passion for urban education," Granholm said at the time. "Robert has the ability to get the Detroit Public Schools' fiscal house in order so the district can devote its attention to ensuring that every student receives a quality education."
As the district's emergency financial manager, Bobb was given full financial authority over Detroit's public schools, a task that, according to the governor's statement, included "balancing the district's budget, managing spending, and establishing strong and reliable financial systems that support sound academic decisions for the students of Detroit."
Now, 18 months after Bobb took control of the district's finances, its fiscal house is in more disarray than ever, with critics saying that the public is deliberately being kept in the dark about just how bad the situation has grown while Bobb has been at the helm.
For starters, there is that cumulative budget deficit that precipitated the takeover. According to a deficit elimination plan released in July of this year, the district ended its 2008-09 fiscal year on June 30, 2009, with a cumulative deficit of $219 million.
At that time, Bobb, having taken credit for reducing the projected 2008-2009 deficit by $86 million through actions taken during his first few months on the job (a claim disputed by former School Board President Carla Scott, who says the elected board is responsible for keeping the 2008-2009 budget in check), declared that his cost-cutting measures would produce a budget surplus of $17 million by the time the 2009-2010 fiscal year came to an end.
Instead, that fiscal year — the first full year during which finances were completely under Bobb's control — concluded with an additional deficit of more than $113 million being added to the district's budget crisis, bringing the total cumulative deficit to $332 million. That's an increase of more than 51 percent over a 12-month period, and one of the largest single-year deficits in the history of the DPS.
"That was all Bobb's doing," former DPS budget director Walter Esau says of the $113 million deficit.
But even that jaw-dropping number doesn't tell the whole story.
Metro Times has learned that twice in the past 10 months, the state has approved two short-term loans totaling $443 million. Department of Treasury spokesman Caleb Buhs confirms that the loans, obtained through bond sales, were approved by his department. However, no mention of the loans — $256 million in March and $187 million in August — was made on the DPS, Department of Treasury or governor's websites. Buhs tells Metro Times the loans must be repaid by August 2011. Currently, the state is withholding $45 million per month in funding to satisfy the debt, Buhs says.
"This is the state's dirty little secret," says Anthony Adams, president of the elected school board that has been in a prolonged, often bitter power struggle with Bobb since his appointment.
"Clearly, the district is experiencing too many cash flow issues," observes Adams. "They've had to rely on this short-term borrowing to paper over the district's growing financial problems. And the state is a willing participant in this financial charade. One consequence will be that the next governor, whoever it is, will have a major mess on his hands that he will have to address."
One of the major hurdles facing the district is a rapidly shrinking student population. That's not a new problem. In the three years before Bobb's arrival, when the elected school board was fully in charge, the district lost an average of about 8,000 students per year. Since Bobb has been in charge, the district has lost about 20,000 students, according to reported enrollment numbers. Some critics contend that school closings and other cuts made by Bobb have given impetus to the exodus.
Whatever the reason, the decrease in students comes with serious financial consequences for the district. With the state providing about $7,600 a year in funding for each student, every 1,000 students lost translates into a $7.6 million annual reduction in DPS revenue.
Other factors, such as the loss of property tax revenues experienced because of the bankruptcies of General Motors and the Greektown Casino, caused a $7 million hit to the district, according to information contained in Bobb's deficit reduction plan. Another $7 million loss was attributed to costs associated with accumulated leave payouts to more than 770 district employees who opted to take early retirements.
In all, the deficit elimination plan describes nearly $92 million in unexpected costs or funding cuts that contributed to the 2009-2010 deficit. That still leaves nearly $20 million in deficit spending unaccounted for, and completely fails to address the $443 million in short-term loans.
At this point, no one inside Bobb's administration is providing answers to that question. And no one outside has access to the information needed to figure it out.
One problem is that information about contracts with outside vendors and service providers is being kept secret, say critics such as Adams and others. A Metro Times review of the DPS website has found that Bobb's administration stopped posting contracts online in the fall of 2009.
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