Michigan public schools are primarily dependent on state level revenues for school operations. The K-12 budget is by far the largest of the state’s appropriations, all the doing of 1995’s Proposal A. The K-12 budget is called the School Aid Fund (SAF) and is discrete from the state’s General Fund (GF) – except when legislators raid it, such as they did this past fall to the tune of about $208 million. But I digress.
Given this dependence, forecasting School Aid Fund revenue is an intricate and important process. Three agencies take recurring cracks throughout the year – the Senate Fiscal Agency, the House Fiscal Agency, and the state treasury. Each puts out their own reports and ultimately they meet to craft a single report that becomes the Consensus Revenue Estimate. This serves as the baseline for how the Foundation Allowance – or per pupil funding amount received by each district per student – is calculated.
Over the last few years these estimates have been bleak, but recently the Senate Fiscal Agency issued theirs – and it was relatively rosy compared to the recent past. Here’s an excerpt from the full report:
School Aid Fund revenue from all earmarked taxes and the lottery will total an estimated $11.1 billion in FY 2011-12, an increase of $193.4 million or 1.8% from the revised estimate for FY 2010-11 and the largest increase since FY 2007-08. The forecasted increase in SAF revenue reflects growth in several major revenue sources, such as the State Education Tax, the real estate transfer tax, and the casino tax, coupled with very stable sales and income tax revenue. The SAF also will receive a boost from the earmarked revenue from the MBT (Michigan Business Tax) , which is indexed to inflation in the preceding year, and unlike in 2009, inflation is expected to be positive during 2010.
To give a sense of scale, SAF revenues in 2008-9 were $10.9B and even lower in the 2009-10 fiscal year ($10.8B). Estimates for 2010-11 are $10.9B, a tick higher than in 2008-9. So an estimate of $11.1B for 2011-12 is, in comparison, pretty darn good.
If you consider also that the state would expect to see it’s continued moderate outflow/reduction of overall students, this sort portends well for the Foundation Allowance. The total forecasted revenue is divided by the number of students thus the potential for higher aid per pupil. In the big picture, losing student population is not ideal – and the recent census results show Michigan uniquely shrinking. But from a per pupil aid standpoint, it sort of helps.
This is just the Senate report. I’ll be eager to watch the House and state treasurer’s reports, but this is a good start. As noted in my recent post regarding our budget development here in Grosse Pointe Public Schools, the most concerning looming factor is a potentially large increase in the state mandated retirement rate (MPSERS). It would not surprise me if the K-12 budget ended with a moderate increase in the per pupil Foundation Allowance (good news), but that it would be more than offset in a substantial increase in the MPSERS rate (bad news) – what I called in an older post a “back door cut”.
In the even bigger picture, the relative health of the School Aid Fund in comparison with the General Fund is further evidence that the SAF revenue structure is a more accurate index to the state economy. Indeed this was one of the main drivers for its creation and design from Proposal A. The policy wonks in Lansing know this and as a result a tax structure change in the General Fund must be high on their list. But new governor Rick Snyder already has an advantage on his much maligned predecessor as, for the moment, pending reduction in per pupil funding looks unlikely.
But as with all things Lansing, stay tuned.