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School Aid Budget: Heavy Weather

Having narrowly avoided a government shutdown on October 1st, our legislators got perilously close to Halloween before approving final budget documents for the fiscal year that was already one month old. One of the less controversial, but still critical, items, was the School Aid budget, which determines per-pupil spending limits and state aid payments to local school districts. Constant readers will not be surprised that we – like many others concerned about school funding – found the budget bill to be a mixed bag. The bill does provide for a modest increase in per pupil funding, and resumes closing the gap between lower and higher-spending districts. But overall state spending for school aid is flat, and our lawmakers have made no clear commitment to invest in education. School aid revenues remain vulnerable, and the future of the extended services tax – the one part of the compromise revenue package which increased direct revenue to the school aid fund – became more uncertain as the month wore on. Our forecast: storm clouds ahead.

There was some good news in the budget passed by both houses: districts will receive an increase in their per pupil allowance. The amount varies, but will be between $48 and $96 per pupil, depending on the current allowance level. This is a far cry from the $178 increase originally proposed by the Governor (a 2.5% bump, to keep up with inflation), and even the $100 per pupil proposal passed by the House. Both these earlier proposals, however, assumed more dramatic moves to increase tax revenues than the Legislature could bring itself to enact. As a sweetener, lawmakers restored provisions which offer increased payments to lower-spending districts; these provisions in Proposal A became inactive once all districts were brought up to the “basic” foundation allowance in fiscal 2000. The budget bill jumps the basic to $8,433 from the current $7,108 (which also rolls in the $23 equity payment from last year); districts at the old basic will get an increase of $96 per pupil. Those at or above the new basic will get half that – $48 per pupil. School systems with allowances between those two levels will receive an increase between $96 and $48 on a sliding scale. [See below for a printout of expected allowances for all Michigan districts.] For districts at the old basic, this represents a 1.4% increase; for most districts, it will be much less than that. State economists estimate that inflation will run at 2.1% during this fiscal year; health care costs to schools will likely rise even faster.

The bad news was that, in reality, total state school aid appropriations were essentially flat, even when a nearly 5% increase in Federal funds is included. The $156 million addition that made the foundation allowance increases possible is balanced by nearly $193 million which the state is no longer obligated to pay to local districts. The reductions, which are not “cuts” per se, reflect the fact that there are fewer pupils attending Michigan public schools; higher property values, boosting local school taxes, have also reduced the state’s spending obligation. (Each district is expected to levy 18 mils [$18 per $1000 of property value] on non-homestead property; this money is collected and kept locally, but it is included in the foundation allowance formula. The State only pays the difference between locally collected taxes and a district’s foundation allowance. Thus, districts with higher commercial property values receive smaller payments from the state, and those with lower values get higher payments.)

So, the increases in our schools’ foundation allowances have been made possible only because property values have increased and families are leaving our public schools. The Legislature gets to claim credit for increases, while actual state spending on K-12 education stagnates. In the eyes of those who care about public education, this certainly does not qualify as making an investment in our public schools.

To complicate things further, one of the key elements of the budget deal – expansion of the services tax – has run into stiff opposition since being signed into law by the governor. Business groups strongly oppose the measure, objecting to the new taxes and arguing – with some justice – that the list of services to be taxed seems arbitrary. However, as an extension to the sales tax, part of the services tax was automatically earmarked for the School Aid Fund – an estimated $200 million in FY08. The front-runner replacement for the services tax is a higher rate on the new Michigan Business Tax. At the moment, however, the MBT makes a fixed contribution to the school aid fund that is not dependent on rates or collections. It’s not clear if this would be adjusted to make up for the lost revenue for schools if the services tax is repealed.

On the whole, the Legislature’s commitment to education seems to be more in word than in deed. The funding “increases” included in this budget will not allow most districts to keep up with rising operating costs. Fear of being blamed for a tax increase has paralyzed our lawmakers just when irreplaceable services like our public schools are in jeopardy. When Michigan’s economy is on the ropes, we need our schools more than ever. Clearly, the impetus for ensuring strong and vibrant public schools must come from the people of Michigan themselves.

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