Bankruptcy Judge Steven Rhodes Advising State About Detroit Schools

Now-retired Detroit Bankruptcy Judge Steven Rhodes has been advising officials in Lansing about whether a Chapter 9 filing would be wise for Detroit Public Schools, a spokesman for Gov. Rick Snyder says.

Dave Murray confirmed to WDET a report in the Detroit Free Press that Rhodes, who oversaw Detroit’s historical bankruptcy, has been meeting with lawmakers and answering their questions about Detroit Public Schools finances and options for recovery. Judge Rhodes declined to comment about his work. Murray said Rhodes, who retired from the federal bench in early 2015, had been paid $12,500 a month since June for work with the state related to DPS.

The district, which has been under a governor-appointed emergency manager since 2009, has about $3.5 billion in debt. Teachers have staged sick outs, and Mayor Mike Duggan has called for inspections of school buildings after he saw first-hand the conditions: inadequate heat, rodents and mold. Snyder has proposed a package of bills that would overhaul the district and use state money to pay down debt.

The Legislature has not moved toward adopting Snyder’s proposal, but Murray says some Legislators have been meeting with Rhodes and asking about a potential Chapter 9 filing by the state’s largest district. Rhodes, Murray says, has advised against it.

Compared to the city at the time of its bankruptcy filing, the district has a greater portion of “secured” debt, which would allow fewer financial restructuring options in a Chapter 9. In addition, it’s unlikely another “grand bargain” could bring in private funding to help minimize pension cuts for the district’s retirees.

Here’s what Murray told WDET about Rhodes:

“He has been working with us as a consultant. It started he was helping us explore long-term pension liability and pension debt around the state and challenges that could cause. As the Detroit Public Schools legislation was being discussed in the Legislature, many of the members had questions about bankruptcy and what that could do in Detroit schools and how that would affect the rest of the state.

“The judge is our top expert on large municipal bankruptcies. He has talked to groups of lawmakers and had some one-on-one meetings. They used him as a resource. He would tell them that a legislative solution is far better than having a judge in a bankruptcy court determine the future of the public schools.

“The meetings started in late December or early January as members started having questions (about the governor’s proposal.

“(Bankruptcy) is very different for a school district than it is for a city. The state is far more liable in the case of a school district than in the case of a city. It’s in the state Constitution. The state is constitutionally responsible for school districts so that any debt that the school has would be transferred to the state. You can see how that would be a problem for everyone around the state if the school district would go bankrupt. A judge would decide.”