1. OFFICE OF CONTRACTING AND PROCUREMENT 1 Presented by: Ricardo A. Kisner, CFO Date: October 21, 2010 The Detroit Public Schools ADDRESSING THE FINANCIAL CRISIS

2. 2 Discussion Topics Recent History and Trends The Emergency Financial Manager Current Financial Condition Two Long-Term Financial Sustainability Plans A New Business Model DETROIT PUBLIC SCHOOLS

3. Recent History and Trends CITY OF DETROIT AND THE SCHOOLS The student population is decreasing at a faster rate than the City’s overall population decline. 3 945,000 908,000 4% Decline 175,000 84,000 52% Decline!

4. Recent History and Trends DPS FINANCIAL TRENDS 4 A balance budget adopted for fiscal 2011. $250 million in long- term cash borrowing for operations.

5. 5 Factors Leading to a Financial Emergency THE EMERGENCY FINANCIAL MANAGER Several years of operating deficits “High-Risk” Status Questionable audits Governance structure Adverse operational reviews

6. 6 The Emergency Financial Manager (EFM) THE EMERGENCY FINANCIAL MANAGER Mr. Robert Bobb, Emergency Financial Manager Two-Year Term March 2009 to February 2011 Mr. Robert Bobb, Emergency Financial Manager Two-Year Term March 2009 to February 2011 Negotiate contracts Borrow money and issuing long-term debt Hire and fire personnel Approve and amend budgets Declare Chapter 9 Bankruptcy, if appropriate. Negotiate contracts Borrow money and issuing long-term debt Hire and fire personnel Approve and amend budgets Declare Chapter 9 Bankruptcy, if appropriate. The EFM’s Primary Responsibilities

7. 7 What the “Turn-around” Team is Doing THE CURRENT FINANCIAL CONDITION Financial Re-negotiated contracts Eliminated positions and froze hiring Developed austere operating budgets and financial plan Accountability Established the Inspector General and Auditor General Conducted audits of ghost employees and health care dependent audit Established a confidential hotline Operations and Systems Engaged a school closure team to review facility right-sizing Developing an information technology strategic plan Restructuring Human Resources

8. 8 Drastic Remedies Were Considered THE CURRENT FINANCIAL CONDITION 8

9. TWO FINANCIAL PLANS PREFERRED PLAN A “NEW” Detroit Public School District 9 By November 2010, the EFM will submit to the Governor and the Legislature a transition plan that will provide a omnibus legislative remedy to: 1.Eliminate the accumulated deficit. 2.Establish a separate governance structure for financial operations. 3.Provide two education settings: A traditional learning environment. A “charter-like” governance structure with autonomous learning schools and classrooms utilizing outside providers.

10. 10 APPROVED PLAN Draconian Cost Cutting TWO FINANCIAL PLANS Schools 100 school closures planned by 2013 leaving 72 schools remaining Increase class size in all grade levels Adoption of a regional principal model and eliminate assistant principals Closure of five technical schools and eight alternative schools Central Office Outsource administrative functions, including finance, legal, and human resources Eliminate public safety department and contract with City or County Consolidate space and sell administrative offices Continuation of 7.5% pay concession for central office staff Employee Concessions Additional employee concessions when labor contracts expire in 2012 Ten percent (10%) increase in employee share of medical benefits Extension of $250 per pay period wage deferral Continue to eliminate school-based positions

11. Michigan Public School Districts’ Consolidation Initiative With 551 districts, Michigan ranks fifth in the nation with the largest number of school districts. A recent study by Michigan State University estimates that Michigan taxpayers could save $612 million a year by consolidating public schools along county lines. A NEW BUSINESS MODEL Regional Cooperation, Consolidation and Shared Services 11 Detroit Regional Consolidation and Shared Services Authority Possibility of mayoral control of the school system. A potential DPS, City, and Wayne County shared services regional authority. The Shared Services Initiative Project Phase I – Ready Detroit Public Schools Phase II – Ready City of Detroit Phase III – Implementation and integration of other partners. A NEW BUSINESS MODEL 11

12. CONTACT INFORMATION Contact Information 12 Ricardo A. Kisner, CFO Detroit Public Schools Phone: (313) 873-4577 Email: ricardo.kisner@detroitk12.org Ricardo A. Kisner, CFO Detroit Public Schools Phone: (313) 873-4577 Email: ricardo.kisner@detroitk12.org