Bill Summary – FastDemocracy

Legislative Analysis
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INCLUDE SCHOOL LOAN REVOLVING FUND DEBT
                                                                              http://www.house.mi.gov/hfa
IN DEFINITION OF OPERATING OBLIGATION
                                                                              Analysis available at
House Bill 6255 (H-1) as passed by the House                                  http://www.legislature.mi.gov
Sponsor: Rep. Regina Weiss
Committee: Education
Complete to 12-15-24
SUMMARY:
       House Bill 6255 would amend the Revised School Code to include loans issued from the
       School Loan Revolving Fund in the definition of an operating obligation.
               Operating obligation means debt of a school district incurred for purposes of financing
               the operation of a school district or public schools operated by that district. It does not
               include debt incurred for the purpose of constructing, renovating, maintaining, or
               otherwise improving school facilities unless the debt is incurred as transitional
               operating costs.
       Under the code, a qualified school district is dissolved once all its operating obligations have
       been repaid and have been certified as fulfilled by the state treasurer. Currently, Detroit Public
       Schools (DPS), the public school district in the city of Detroit that was reformed as the Detroit
       Public Schools Community District (DPSCD), is the only entity that meets the definition of a
       qualified school district. The former DPS exists as a separate legal entity that receives the
       proceeds from millages dedicated to repaying bond debt incurred before the creation of
       DPSCD. Once all operating obligations are repaid and repayment verified by the state treasurer,
       the former DPS would be dissolved.
       MCL 380.12b
FISCAL IMPACT:
        House Bill 6255 would create costs for the state and would create cost savings for Detroit
        Public Schools Community District.
        Under current law, the old DPS district must redirect local revenue from its 18-mill
        nonhomestead property tax levy to pay off its operating debt while the state backfills the local
        portion of the foundation allowance for the new district (DPSCD) in the School Aid budget.
        The operating debt is anticipated to be paid off by March 2024, at which point the redirection
        of local revenue would cease and DPSCD would be required to take over the local portion of
        its foundation allowance.
        Under the bill, the definition of “operating obligation” would expand to include School Loan
        Revolving Fund loans, meaning that the 18-mill nonhomestead property tax revenue would
        continue to be redirected toward paying down debts, and the state would continue to fund
        DPSCD’s local portion of the foundation allowance until the School Loan Revolving Fund
        loans were paid off. In FY 2024-25, DPSCD’s 18-mill nonhomestead property tax revenue is
House Fiscal Agency                                                                            Page 1 of 2
       estimated to be $111.2 million, or about $2,460 per pupil. This amount is projected to increase
       in future fiscal years as taxable values rise.
       When DPS first split into two entities in 2016, the state was able to cover the local foundation
       cost for DPSCD using $617.0 million ($72.0 million annually) in tobacco settlement fund
       revenues earmarked into the Community District Education Trust Fund (CDTF). Beginning in
       FY 2020-21, CDTF funding was insufficient, and a transfer from the general fund into the
       School Aid Fund (SAF) reimbursed additional costs ($33.7 million in the prior fiscal year, FY
       2023-24). The last CDTF appropriation is in the current fiscal year, FY 2024-25, and is a partial
       amount of $41.0 million. The general fund is estimated to provide an additional reimbursement
       of $70.2 million to cover the full DPSCD local foundation cost. Beginning in FY 2025-26,
       there will no longer be CDTF funds available, and DPSCD foundation costs would be paid
       exclusively from a general fund transfer to the SAF.
       The bill would therefore create a cost shift for DPSCD’s local foundation costs, resulting in an
       increased cost to the state and an equal amount of cost savings for DPSCD of at least $111.2
       million annually until the district’s School Loan Revolving Fund debt is paid off.
       According to DPS’s June 30, 2024 audit , the district holds $348.5 million in School Loan
       Revolving Fund debt.
       DPSCD would also save an additional amount in interest payments on the School Loan
       Revolving Fund debt if the 18-mill nonhomestead property tax revenue pays the debt down
       faster than the current schedule.
POSITIONS:
       Representatives of the Detroit Public School Community District testified in support of the
       bill. (12-10-24)
       The following entities indicated support for the bill (12-10-24):
          • 482Forward
          • American Federation of Teachers – Michigan
          • Wayne Regional Educational Service Agency
          • Congress of Communities
          • Detroit Hispanic Development Corporation
          • Rising Voices
          • Urban Neighborhood Initiatives
          • Keep the Vote/No Takeover Coalition
          • After Christ Christian Center
          • Brightmoor Alliance
                                                          Legislative Analyst: Josh Roesner
                                                             Fiscal Analysts: Jacqueline Mullen
                                                                               Noel Benson
                                                                               Ben Gielczyk
■ This analysis was prepared by nonpartisan House Fiscal Agency staff for use by House members in their
deliberations and does not constitute an official statement of legislative intent.
House Fiscal Agency                                    HB 6255 (H-1) as passed by the House   Page 2 of 2
Statutes affected: 
Substitute (H-1): 380.12
House Introduced Bill: 380.12
As Passed by the House: 380.12