The Detroit Public Schools are pondering bankruptcy, swamped by (let me know if any of this sounds familiar) the combination of lowered demand for their product and mushrooming expenses, including pensions for long-retired employees:

A decision on whether to file for protection under federal bankruptcy laws will be by the end of the northern summer, according to Robert Bobb, Detroit Puablic Schools’ emergency financial manager. Such a filing would be unprecedented.But in Detroit — where US Education Secretary Arne Duncan dubbed the school system a “national disgrace” — politicians and bankruptcy experts see few alternatives, given the deep financial challenges confronting the district and the state.

“Am I optimistic that they can avoid it …? I am not,” said Ray Graves, a retired bankruptcy judge who has been advising Mr Bobb in recent weeks.

As with GM and Chrysler, bankruptcy may not be the worst thing for Detroit’s schools. A filing under Chapter 9 of the Bankruptcy Code, which covers public entities such as school districts and municipalities, would allow the district to put major creditors, including textbook publishers, private bus operators and utility DTE Energy, in line for payment.

Some experts say the Detroit case could be the first in a string of Chapter 9 bankruptcies among school districts and other public entities battered by the economic crisis, and it could help shape that area of the law.

The various teachers’ unions – which long ago replaced the Teamsters and the United Auto Workers as the pre-eminent union political power in the United States – have been busy doing to the education industry what the UAW did for GM.  Indeed, the benefits – especially the pension – have long been always been the main economic reason to go into teaching.  But with inner-city public school district enrollments plummeting, both from demographic shifts and parents voting with their feet, the promises schools made to teachers in the sixties and seventies are going to prove to the untenable.

And it’s not just for Detroit anymore; it’s in Minnesota too:

Some Minnesota school districts may have to go into debt to pay for the rising cost of health care for their retired employees.Local Minnesota governments have until October to sell bonds — without a public referendum — to help pay for retired employees’ health care. But with the economy in the tank, some people are unhappy about paying higher property taxes to fund someone else’s health benefits.

The retirees’ health policy costs fall under something accountants call OPEB — Other than Pension Employee Benefits. OPEB obligations, especially for health care, are really starting to put the squeeze on school districts statewide.

So – ballooning obligations fobbed off on future generations, demand for product decreased by ruinous economic policies; future generations left holding the bag.  Sound familiar?

This entry was posted by by Mitch Berg on Thursday, July 23rd, 2009 at 7:41 am and is filed under Capitalism v Socialism, Education. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.