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Tuesday, August 9, 2005
William F. Coleman III, CEO of Detroit Public Schools, released the following statement regarding recent reports that tens of millions of dollars of tax money had been paid to the District in spite of the fact that the levy expired in 2002:
“The District is in no way facing bankruptcy or the appointment of a receiver because of the lawsuit filed on August 8, 2005, or as a result of the allegations contained in that complaint. Any statement that this is the case is a blatant and reckless disregard for the truth. While we recognize the need for disclosure to the public and specifically to the taxpayers of Detroit, pending litigation demands that our comments be limited.
Nevertheless, the following points must be made:
• The District’s authority to levy certain millage for operating purposes is subject to periodic renewal by the District’s voters. On July 28, 2005, District officials became aware that the District’s authority to levy 18 mills for school operating purposes on non-homestead property expired on June 30, 2002. The District immediately disclosed this to the State Treasurer’s office and to various financial institutions and investors. Only one rating agency, Fitch, lowered the District’s limited tax general obligation (LTGO) rating to BBB- from BBB. The District does not consider this a substantial downgrade. It is also important to note that neither Moody’s nor S&P, two other influential ratings agencies, have changed the District’s rating. In addition, this disclosure has not impaired our ability to issue debt, and important financial institutions have renewed their commitment to two District bond transactions totaling over 5 million.
• The operating millage, which is the subject of a lawsuit, totals less than 6.3% of the District’s total annual operating revenue for each of the affected years. The District intends to certify a ballot question seeking a reinstatement of the 18-mill non-homestead operating levy to be presented to voters in November 2005. If approved, the District intends to levy the entire 18 mills during the 2005 tax year on all non-homestead properties. The expiration of the authorization to levy such millage does not impair the District’s ability to receive state aid. Local non-homestead property taxes for the 2005-2006 fiscal year represent approximately 6.1% of the District’s general fund revenues.
• The District’s Office of General Counsel, in consultation with legal tax experts, has developed a number of strategies for addressing the matter, none of which can be disclosed at this time. However, we are confident that the fiscal impact will be minimal - provided that voters approve the 2005 ballot question. The District has yet to be served formally with this lawsuit, but we intend to vigorously defend against this and other lawsuits. The District is also consulting with its advisors to evaluate options, including legislation, ballot proposals and other options to minimize the impact on its general fund. Ultimately, if a court orders the District to refund taxes, funds to satisfy that judgment would not come from the District’s general fund, but from a judgment levy against all taxable property in the City of Detroit as required under Michigan law.”
