School Funding: What Does The Future Hold?

by Ron Koehler  

While the Michigan economy has, officially at least, been in recovery for more than six years, school districts are still struggling to make ends meet. But with the recovery continuing, the future should look better, right?

Guess again.

While the current recovery hasn't met the needs of students, the future may look even worse. Two major studies this year documented funding shortfalls, one commissioned by the state itself. They were:

  • The Michigan Education Finance Study, released earlier this year, indicates schools should be receiving nearly $1,200 more per student to achieve proficiency goals set by the state, and significantly more for at-risk and English-language learners. 
  • The Michigan State University Policy Institute says schools are failing into financial distress "because of inadequate state funding, declining enrollment and more students with special needs."
     

After years of budget cutting and consolidation of services, superintendents of districts within Kent ISD recently commissioned former House Fiscal Agency Director Mitch Bean to project future revenues. Their goal was to better understand what to expect in the near future and to determine if they will have the resources to meet future demands for new programming.

What they learned was sobering.

Bean for decades was a participant in Michigan's unique Consensus Revenue Estimating Conference, where the House and Senate Fiscal Agencies team up with the Michigan state treasurer to forecast revenue available for state operations. His report to Kent superintendents suggested the long, hard climb out of recession and a $470 per-pupil reduction in the foundation grant -- schools' primary source of operating revenue -- may be a continuing slog, even if the economy continues to grow. Bean concluded:

  • The impact of tax cuts already enacted and being phased in will dramatically reduce available revenue in future years;
  • The combination of spending pressures and already enacted tax cuts will strain every area of the budget and require either more revenue or drastic cuts to state service;
  • The variability and dramatic increase of refundable business tax credits has added a great deal of uncertainty to state resources.
     

Burning a Hole in K-12 Firewall

Those knowledgeable about state funding know Michigan, since 1994, has had a unique budget structure that segregates general fund/general purpose dollars from revenues dedicated to education, which are in a separate budget called the School Aid Fund.

For the first 16 years of this structure, there was a firewall between the general fund and the school aid fund, which was totally dedicated to K-12 spending. In the depths of the Great Recession, however, the Granholm administration broke through that firewall to fund community colleges through the school aid fund. Now, more than $450 million goes to community colleges and higher education from the school aid fund and the number could grow much larger, as the state still directs more than $1 billion in general funds to higher education.

The new highway plan, passed by legislators in November 2015, will cost more than $800 million in additional general fund dollars when fully implemented. In addition, there is an income tax reduction mechanism embedded in the road funding package that will roll back taxes when general fund revenues total more than 1.425 times inflation. If that mechanism were in place in 2016, the income tax rate would have fallen from 4.25 percent to 3.96, resulting in a permanent revenue reduction of $593 million, Bean said.

What does that mean for state funding?

Says Bean: "More money will go to transportation – but the rest of state government will be in a permanent state of recession ... policymakers will be looking for ways to reduce budgets in all areas ... including education, or they will need to identify new sources of revenue."

So what does that mean to your children in the classroom?

Schools will struggle to maintain the programming they need to ensure your child's success. Our children have only one shot at an education. We should all be concerned.

Submitted on: December 26th 2016

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