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Michigan Governor Rick Snyder said on Monday that Detroit's public schools should be split between a new community school district and the current district to raise academic performance and avoid financial collapse, Reuters reported yesterday. The new district would be responsible for operations, while the current district would be charged with eliminating a budget deficit. The Republican governor warned that without his plan, which he expects to be introduced in the state legislature this month, the school system risked succumbing to a financial crisis that would not necessarily lead to bankruptcy, but could result in a debt default that would have repercussions for the state and its other school districts. The city of Detroit shed about $7 billion of its $18 billion of debt and obligations when it exited the biggest-ever U.S. municipal bankruptcy last December, but the city's school district has been unable to shake off a state-declared financial emergency dating back to 2008.

A federal judge today ruled against Detroit pension beneficiaries who had appealed the city’s final bankruptcy plan of adjustment, the post-bankruptcy blueprint for city finances and operations after it emerged from the nation’s largest-ever municipal insolvency, the Detroit Free Press reported today. U.S. District Judge Bernard Friedman tossed out appeals by city retirees who had asked the federal court to remove pension cuts from the city’s December 2014 bankruptcy settlement with thousands of creditors, deals that helped the city shed $7 billion in debt. The retirees, including members of the Detroit Active and Retired Employee Association (DAREA), had sought full restoration of pension benefits, even though a majority of retirees in the city’s General Retirement System voted to accept the settlement. Detroit’s lawyers asked Judge Friedman to reject the appeals, arguing they were “equitably moot,” a legal doctrine that says a bankruptcy exit plan shouldn’t be reopened once it is substantially consummated, because doing so could hinder the success of the plan and harm other parties who’ve reached settlements.

Detroit is paying a high price in its return to the $3.6 trillion municipal-bond market for the first time since emerging from a record bankruptcy, Bloomberg News reported yesterday. The $245 million of bonds, to be sold today through the Michigan Finance Authority, have the top claim on city income taxes to ensure investors are repaid. Even so, 14-year debt is being offered at an initial yield of 4.75 percent. That’s 2.1 percentage points more than top-rated securities. Detroit filed for bankruptcy protection two years ago to escape from debts it couldn’t afford after the population tumbled, tax collections slid and the automobile industry’s decline left the economy reeling. That allowed the city to cut $7 billion from its obligations by the time it emerged from bankruptcy in December, an effort to steady the government’s finances and hasten its revival.

While many Chicagoans write off the relentless comparisons of their city to bankrupt Detroit, it has the lethal combination of too much debt and a dysfunctional government that could tip the city into bankruptcy, according to a Huffington Post commentary on Friday. The Illinois Supreme Court recently made Chicago's path toward bankruptcy more likely when it ruled that modest reforms to Illinois' state pension plans were unconstitutional. Moody's Investors Service followed the court ruling with a double-notch downgrade of the city's credit rating. Chicago's bonds are now rated "junk" and are the riskiest of all big cities in the nation, apart from Detroit. The collapse in Chicago's rating is the result of a massive spike in Chicago's debt in the last decade, driven by out-of-control pension obligations and the city's unwillingness to do anything about it.

Detroit's public sale of $275 million of bonds that financed the city's exit from bankruptcy has been delayed but should take place no later than early August, Reuters reported yesterday. Detroit is taking advantage of a new law that should give the bonds investment-grade ratings that could save the city between $20 million and $30 million over the life of the issue, according to the office of Michigan Governor Rick Snyder, a Republican. The law took effect in April and places a specific statutory lien on Detroit income tax revenue pledged to pay off the debt. The city is hoping the stronger payment pledge on the bonds will result in lower interest rates.

Michigan Gov. Rick Snyder proposed the state pay at least $483 million to retire debt racked up by Detroit public schools, as part of a broader plan to overhaul the struggling school district, the Wall Street Journal reported on Friday. The Republican governor introduced the financing plan to transform one of the nation’s largest public-school districts — to eliminate chronic red ink, improve poor academic performance and return management to local control after almost a decade under state oversight. But the plan could face an uphill political fight. A rally by Detroit’s unionized teachers in the state capital on Thursday led the district to close 17 schools. Many educators say they oppose any plan that moves the city toward more charter schools and doesn’t include money to reduce class size and restore needed support services in public schools.