DETROIT PUBLIC SCHOOL! Judge Steven Rhodes ‘Transition Manager Fisher Duitding = 1 Foor Phone: (313) 870-3772 3011 W. Grand Boulevard Fax: G13) 870-3726 Detrot Mi 482022710 vie detroit 2.0rg June 21, 2016 Board of Education HAND DELIVERED School District of the City of Detroit AND EMAILED 3011 West Grand Boulevard, 6th Floor Detroit, Michigan 48202-3096 Attention: Hermann Davis and Lamar Lemmons, Jr. Dear Board Members: Re: Submission of Proposed Action under the Local Financial Stability and Choice Act, 2012 PA 436, as amended, MCL 141.1541 to 141.1575 (“Act 436") Pursuant to section 19 of Act 436, | hereby submit to the Board of Education (the “Board”) of the School District of the City of Detroit (the “Distriet’) actions under sections 12(1)(t), 12(1)(u), 14(d) of Act 436 authorized by me in my capacity as emergency manager for the District. approval of the borrowing of up to $235,000,000.00 and issuance of school financing stability bonds by the District under section 1356 of The Revised Schoo! Code, 1976 PA 451, as amended, MCL 380.1356, for the Purpose of eliminating a deficit or refunding or refinancing state aid anticipating notes and related multiyear repayment obligations of the District, or both; and approval of the borrowing of $150,000,000.00 by the District under the Emergency Municipal Loan Act, 1980 PA 243, as amended, MCL 141.931 to 141.942, for transitional operating costs under section 3(1)(b) of the Emergency Municipal Loan Act, including transitional operating costs incurred by the Community School istrict of the City of Detroit consistent with section 12b of The Revised School Code, 1976 PA 451, as amended, MCL 380.12b. transfer of assets of the School District of the City of Detroit to the Detroit Public Schools Community District as required by section 12b of The Revised Schoo! Code, 1976 PA 451, as amended, MCL 380.12b. ‘These proposed actions are necessary to address the District's financial emergency and provide for the education of Detroit residents consistent with legislation recently enacted by the State of Michigan, including Public Act 192 of 2016. The rationale for the proposed actions is detailed in the attached authorization. | respectfully request the Board Page 1 of 2approve the actions contemplated by the attached authorization within the time limits set forth in section 19 of Act 436, We would appreciate the Board's consideration by July 1, 2016. Please note that we can have a representative available at the meeting for your questions if you so desire. If you have questions or require additional information, please contact me at (313) 873-3299. Sincerely, YM. —— Steven W. Rhodes Emergency Manager Attachment cc: State Treasurer N.A. Khouri Page2 of 2Order 2016-EMSR-09 AUTHORIZATION RELATING TO (i) AN EMERGENCY LOAN FROM THE LOCAL EMERGENCY FINANCIAL ASSISTANCE LOAN BOARD IN AN AMOUNT NOT TO EXCEED $150,000,000 TO PAY FOR TRANSITIONAL OPERATING COSTS, (i) THE ISSUANCE OF NOT TO EXCEED $235,000,000 IN SCHOOL FINANCING STABILITY BONDS FOR THE PURPOSE OF ELIMINATING THE SCHOOL DISTRICT’S DEFICIT OR REFUNDING OR REFINANCING THE SCHOOL DISTRICT’S OUTSTANDING STATE AID ANTICIPATION NOTES AND ITS ELATED MULTIYEAR REPAYMENT OBLIGATIONS, OR BOTH; AND THE TRANSFER OF ALL REAL AND PERSONAL PROPERTY OF THE SCHOOL DISTRICT TO THE COMMUNITY DISTRICT CREATED WITH THE SAME GEOGRAPHIC BOUNDARIES AS THE SCHOOL DISTRICT, BY THE POWER AND AUTHORITY VESTED IN THE, EMERGENCY MANAGER FOR THE SCHOOL DISTRICT OF THE CITY OF DETROIT, MICHIGAN (“EMERGENCY MANAGER”) THROUGH MICHIGAN COMPILED LAWS MCL” §§380.1 - 380.1853, 388.160 — 388.1772, AND 141.154 - 141.1575, THE EMERGENCY MANAGER, STEVEN RHODES HEREBY ISSUES THE FOLLOWING WHEREAS, on March 28, 2013, the Local Financial Stability and Choice Act, Public Act 436 of 2012, as amended (“Act 436”) became effective and was enacted 10, among other matters, safeguard and assure the financial accountability of local units of government and school districts: to preserve the capacity of local units of govemment and school districts to provide or cause to be provided necessary services essential to the public health, safety, and welfare; to provide for review, management, planning, and control of the financial operation of local units of government and school districts and the provision of services by local units of government and school districts; to provide for the appointment and to prescribe the powers and duties of an emergency manager for a local unit of government or school district; and to provide for the modification or termination of contracts under certain circumstances; andWHEREAS, pursuant to that certain contract titled Professional Services Agreement (the “Contract”), dated February 29, 2016, between Governor Rick Snyder (the “Governor”) and Steven Rhodes (“Rhodes”), Rhodes was appointed as the Emergency Manager under Act 436 for the School District of the City of Detroit (the “School District”); and WHEREAS, pursuant to Act 436 and the Contract, the Emergency Manager has control over all fiscal matters of the School District and can solely exercise the authority and responsibilities affecting the financial condition of the School District that are prescribed by law to the board of education and superintendent of the School District, including, but not limited to, the borrowing of money and issuance of obligations of the School District on behalf of the School District, subject to the conditions of applicable law; and WHEREAS, on June 21, 2016 (the “Effective Date”) pursuant to Section 12b(3) of the Revised School Code, Public Act 451; Public Acts of 1976, as amended (“Act 451”), the School District became a qualifying school district under Section 12b of Act 451 (the “Qualifying School District”); a community district was created for the same geographic area of the School District (the "Community District") under Section 383 of Act 451; and the Governor designated the Emergency Manager as the Transition Manager (the “Transition Manager”) of the Community District as described in Section 12b of Act 451; and WHEREAS, on the Effective Date, except for the limited purposes provided in Act 451, the School District lost its organization and will be dissolved as provided in Act 451 and the Emergency Manager will continue on as the Emergency Manager of the Schoo! District under Public Act 436; and WHEREAS, on July 1, 2016 (the “Transfer Date”) Section 12b of Act 451 provides that the School District’s school buildings and other real and personal property and other assets will become part of and owned by the Community District, and Section 12b also requires the officers of the Qualifying School District to execute any instrument of transfer necessary to accomplish the transfers of real and person property and other assets of the Qualifying School District to the Cornmunity School District on the Transfer Date; and WHEREAS, the State has enacted the Emergency Municipal Loan Act, Act 243, Public Acts of 1980, as amended, (“Act 243”), relative, inter alia, to the borrowing of money and the issuance of certain debt and securities as emergency loans, and WHEREAS, under Act 451 the School District is a municipality which has the power to borrow money and issue evidences of indebtedness for repayment of obligations, including, but not limited to, money advanced or previously advanced to a school district or approved or previously approved for advancement to a school district under Section 15(2) of The State School Aid Act of 1979, Act 94, Public Acts of 1979, as amended (“Act 94”) or money borrowed by the School District under Section 1225 of Act 451; and WHEREAS, the State has enacted the Revised Municipal Finance Act, Act 34, Public Acts of 2001, as amended (“Act 34”), relative, inter alia, to the borrowing of money and the issuance of certain debt and securities, providing for tax levies, authorizing the issuance of certain debt and securities and to generally govern municipal finance practices in the State; and Page 2 of 6WHEREAS, now that the School District has become a Qualifying School District, the Emergency Manager has determined that it is necessary and in the best interest of the School District to make an application (the “Application”) to the Michigan Local Emergency Financial Assistance Loan Board (the “Loan Board”) established pursuant to Act 243, to borrow the sum of not to exceed One Hundred Fifty Million Dollars ($150,000,000), 10 be evidenced by a note or notes issued in one or more series, which loan (the “Loan”) will allow the School District to pay for transitional operating costs incurred by the Community District consistent with Section 12b of Act 451; and WHEREAS, the Emergency Manager has also determined that because the School District has an operating deficit, it is necessary and in the best interest of the School District to borrow money by issuing school financing stability bonds (the “Bonds”) in a principal amount not to exceed the sum of Two Hundred Thirty-Five Million Dollars ($235,000,000), in one or more series, pursuant to Section 1356 of Act 451, for the purpose of eliminating the deficit or refunding or refinancing the School District's outstanding state aid anticipation notes or its related 2011 and 2012 Multiyear repayment obligations or both; and WHEREAS, the Emergency Manager has further determined that it is necessary and in the best interests of the Schoo! District to comply with the requirements of Section 12b of Act 451 and execute instruments of transfer for all of the School District's real and personal property to the ‘Community District effective on the Transfer Date; and WHEREAS, pursuant to section 12(1)(s) of Act 436, the Emergency Manager is authorized and intends to apply for the Loan subject to the conditions of Act 243; and WHEREAS, pursuant to Section 12(1)(u) of Act 436, the Emergency Manager has the power to authorize the borrowing of money by the School Distriet under Act 34 and Act 451; provided, however, that prior to authorizing the borrowing of money, in accordance with Section 19 of Act 436, he shall submit the proposed action authorizing the borrowing of money to the Board of Education of the Schoo! District (the “School Board”) for approval or disapproval by the School Board, and if the Schoo! Board does not act within 10 days the proposed action shall be considered approved by the School Board. If the School Board disapproves of the proposed action within 10 days, the School Board shall have.7 days to submit an alternative proposal to the Loan Board that would yield substantially the same financial results as the action proposed by the Emergency Manager, and the Loan Board shall have 30 days to review and approve the action proposed by the Emergency Manager or the altemate proposal based upon which of the two alternatives best serves the interest of the public in the School Distriet; and WHEREAS, Section 12b of Act 451 transfers all of the real and personal property (together, the “Property”) of the School District to the Community District on the Transfer Date; and WHEREAS, pursuant to Sections 12(1)(r) and 14(d) of Act 436, the Emergency Manager is authorized to transfer assets of the School District; provided, however, that prior to transferring assets of the School District, in accordance with Section 19 of Act 436, the Emergency Manager shall submit the proposal to transfer assets to the School Board for approval or disapproval by the School Board, and if the School Board does not act within 10 days, the proposed transfer of assets Page 3 of 6shall be considered approved by the School Board, If the School Board disapproves of the proposed transfer of assets within 10 days, the School Board shall have 7 days to submit an alternative proposal to the Loan Board which would yield substantially the same financial results as the transfer of the assets, and the Loan Board shall have 30 days to review and approve the proposed transfer of the assets or the altemate financing proposal based upon which of the two altematives best serves the interest of the public in the School Distriet; and NOW, THEREFORE, BE IT ORDERED, by the Emergency Manager that: Section 1. ‘The Emergency Manager hereby authorizes the borrowing of money in the form of the Loan in an amount not {o exceed One Hundred Fifty Million Dollars ($150,000,000) or such part thereof as the Loan Board may authorize in the form of the Loan to the School District, for which one or more notes (cach, a “Note”) of the School District shall be issued as evidence thereof and directs the submission of this authorization to the School Board for action pursuant to Section 19 of Act 436, The Notes shall be issued in one or more series, each in an amount determined by the Emergency Manager or an authorized officer of the School District (an “Authorized Officer”), not to exceed One Hundred Fifty Million ($150,000,000) in the aggregate (cach a “Loan” and collectively, the “Loans”). Each Note shall evidence the obligation of the School District to repay the applicable portion of the Loan to the State pursuant to the provisions of the Act 243. Each Note shall be dated as of the date of delivery thereof to the State. Each Note shall bear interest from the date of delivery thereof, and shall be payable as to prineipal and interest ‘on such dates and in such amounts, at such rates, and be subject to redemption prior to maturity, all as shall be determined by the Emergency Manager or an Authorized Officer; provided that the final maturity shall not exceed thirty years from the applicable date of issuance, and the interest rates, or the maximum interest rate if issued on a variable rate basis, shall not exceed ten percent. Principal of and interest on each Note shall be payable to the office of the State Treasurer of the State The Loan will be subject to such other terms and conditions as approved by the Loan Board. Each Note shall be a limited tax general obligation of the School District and the full faith and credit of the School District shall be pledged to the payment of the principal of and interest on the Note as and when due. Each Note shall be payable out of the general fimds of the School District, including collection of ad valorem taxes the Schoo! District may levy for school operating purposes on property within the Schoo! District under Section 1211 of Act 451, within Constitutional and statutory limitations. Section 2, ‘The Emergency Manager further authorizes the borrowing of money by the issuance of the Bonds and directs the submission of this authorization to the School Board for action pursuant to Section of Act 436. ‘The Bonds shall be issuable as school financing stability bonds under Section 1356 of Act 451, in one or more series, as determined by the Emergency Manager, ot an Authorized Officer, in an aggregate principal amount not to execed $235,000,000. ‘The Bonds shall be dated the date of delivery thereof, and shall be payable as to principal and interest on such dates and in such amounts, shall bear interest at rates not to exceed 18% per annum, and shall be subject to redemption prior to maturity, all as shall be determined by the Emergency Manager or an Authorized Officer; provided that the final maturity of each series of the Bonds shall not exceed ten years from their date of issuance. Each Bond shall be a limited tax general obligation of the School District and the full fuith and credit of the School District shall be pledged Page 4 of 6to the payment of the principal of and interest on the Bond as and when due, Each Bond shall be payable out of the general funds of the School District, including collection of ad valorem taxes the School District may levy for school operating purposes on property within the School District under Section 1211 of Act 451, within Constitutional and statutory limitations. The Bonds will be sold to the Michigan Finance Authority or privately placed as determined by the Emergency ‘Manager or an Authorized Officer. Section 3. ‘The Emergency Manager further authorizes the transfer of the Property and certain other assets and liabilities of the School District as and to the extent required by Section 12b of Act 451 to the Community District and directs the submission of this authorization to the School Board for action pursuant to Section 19 of Act 436. In accordance with Section 12b(7)(A) of Act 451, the Property shall consist ofall of the facilities of the School District existing as of the Transfer Date, including all lands, buildings, improvements, structures, easements, rights of access and all other privileges and appurtenances and all of the fixtures, equipment, materials, furnishings, and other personal property and certain other assets owned or used by the School District as of the ‘Transfer Date. ‘The Authorized Officers or persons authorized by the Emergency Manager or the State to act on behalf of the Schoo! District for this purpose, are hereby authorized and ordered to take such action or execute such documents and certificates as may be necessary or desirable and in the best interest of the School District in connection with the delivery of the Notes and the Bonds, including the application to the State for the Loans, the School District's receipt of the proceeds of the Loans and Bonds, the sale and delivery of the Notes and the Bonds and the transfer of the Property to the Community District. Section §. This Authorization shall be effective immediately upon adoption, Section 6. All orders, resolutions, authorizations and parts of orders, resolutions or authorizations insomuch and insofar as they conflict with the provisions of this Authorization be and the same are hereby rescinded. {balance of page left blank intentionally] Page 5 of 6Section 7. ‘This Authorization may be amended, modified, repealed or terminated by any subsequent Authorization issued by the Emergency Manager SCHOOL DISTRICT OF THE CITY OF DETROIT Charter County of Wayne State of Michigan py Sees Steven Rhodes Its: Emergeney Manager Dated: June 21, 2016 26973973.8022715.0165 Page 6 of 6