Analysis of State of Michigan budget data seems to exonerate the usual suspect – Proposal A
My recent analysis of statewide per pupil funding incited logical questions about our aging school funding mechanism, Proposal A. I recently theorized that the gradual squeeze Hold Harmless districts have been feeling (see my entry on the Dwindling Hold Harmless Advantage) would be offered as evidence by Lansing lawmakers that Proposal A is working just fine.
If so, it doesn’t feel great – and life may not be much better for the non-Hold Harmless districts. School closures seem to be commonplace – sadly but logically follow declining enrollment. The school district misery index has other indicators. I’ll do a broader analysis shortly, but in Grosse Pointe alone the rate of teaching staff reductions is nearly double enrollment loss. District’s have flocked to tax revenue options that sidestep Proposal A’s constraints. Building and Site bonds, Sinking Funds, and County Enhancement Millages are rampant.
Is Proposal A the problem? Let’s put ourselves in Lansing lawmakers’ shoes.
The State of Michigan funds K-12 schools via the School Aid Fund (SAF). Everything else relies on the General Fund. In this year’s budget, the state’s contribution to the SAF is $15 billion. For perspective, that is more than the combined state General Fund budgets of Health and Human Services ($8.4b), Corrections ($2b), Higher Education ($1.8b), and Community Colleges ($0.4b).
On this basis alone and with a very straight face, Proposal A defenders might ask how much more favorable can the SAF be treated. But let’s add more context. How does that $15b compares to past years? Well, let’s go back twenty years. The three charts below track enrollment, School Aid Fund (SAF) revenue, and School Aid Funding on a per pupil basis.
Chart 1 shows School Aid Fund revenue’s steady climb – 56% higher in nominal dollars and 4% higher in inflation adjusted dollars versus twenty years ago. This does not factor the Federal COVID investment spike in 2021. With the SAF relying more on Sales and Use Tax (41% of SAF) and Income Tax (19%), Property Tax – that 6 mill State Education Tax equal for all Michigan homeowners – accounts for just 13% of the SAF.
Tax revenues exceeding inflation? Check. Capped state property tax rates? Check. Proposal A defenders don’t see the problem.
Their case strengthens with Chart 2. Enrollment decline is a misery index input for local districts, but actually helps the state budget. Statewide enrollment is down 15% rover the last twenty years. (Grosse Pointers, your 14% decline over the same period follows suit.) What happens when School Aid Fund revenues rise with fewer student to fund?
Behold Chart 3 – one of those “up and to the right” ones that normally warms the heart. Even in inflation adjusted dollars, SAF revenue per pupil is up 19% over the last twenty years. But a word of caution: Less than two-thirds (61%) of School Aid Fund Revenue flows to Foundation Allowance.
Proposal A defenders glance over at their bedside table and offer a nod and a wink at their autographed Gov. Engler picture.
In all seriousness, Proposal A remains abundantly defensible politically speaking. And the surface level data at the state level seems to support that defense.
Clearly there is more to the story. We’ll look at the expense side and district financial health trends in future entries. But for the foreseeable future, it’s hard to imagine significant change coming to Proposal A.
Chart 1:
Chart 2:
Chart 3 (of note): The graph is merely a ratio of SAF revenue to student enrollment, which should not be confused with Foundation Allowance per pupil. Foundation Allowance is indeed on the rise, but the School Aid Fund has a slew of other obligations beyond the per pupil Foundation Allowance paid out to local districts.