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K–12 Funding
GLOSSARY
Charter school A
public school, sometimes with a particular educational approach,
that is exempt from certain state regulations; also known as a public
school academy.
Foundation allowance A per
pupil amount of state funding that pays for school operations.
Intermediate school district (ISD)
An education service agency that provides support to
school districts within a geographic area (frequently approximates
the county).
Mill A monetary unit
equal to 1/1000 of a dollar. Millage is the tax rate on property—the
number of mills assessed against the property's taxable value.
Public school academy A
charter school.
School Aid Fund A fund into
which certain state revenues are deposited and from which funds
may be spent only on K–12 education.
Taxable value The
amount of property value upon which property taxes are levied.
BACKGROUND
[APRIL 1, 2002] After 25 years of futility and 12
ballot proposals, in 1994 Michigan voters approved Proposal A, which
revamped the way the state funds K–12 education. Voters reduced
the state's relatively high property taxes, which had been about
35 percent above the national average before the reforms and now
are about the same as the national average. Proposal A not only
gave property tax relief but reduced funding disparities among school
districts—spending had ranged from $3,400 to $10,300 per pupil.
Local property taxes for schools were largely replaced
with new state education taxes. The reforms
- increased the state's 4 percent sales tax to 6
percent and earmarked the increase for the School Aid Fund;
- created several new revenue sources for schools,
including a 6-mill state education property tax and a 75-cent
per pack cigarette tax;
- limited annual property tax increases on each parcel
of property to the lower of (1) the inflation rate or (2) 5 percent;
- stipulated that school districts on the low end
of the funding spectrum would receive bigger annual funding increases
than would the “richer” schools; and
- eliminated a number of categorical (special) grants
and rolled the funds into the foundation allowance.
Funding Distribution
To reduce funding disparities among school districts,
a “foundation allowance”—a per pupil amount of
operating funding—was established for each district in the
state. This allowance was influenced by the amount of funding a
district had received before Proposal A was passed, meaning that
districts that had higher property values before Proposal A were
assigned a higher foundation allowance. (In the first year of Proposal
A, foundation allowances for K–12 districts ranged from $4,200
to $10,294.) A “minimum” foundation allowance—the
least amount a district would receive—was established at $4,200
in FY 1994–95 and has increased each year to the current level
of $6,500.
A basic foundation allowance (the “basic”)—a
target amount to which lower-funded districts one day would be raised—also
was established. In FY 1994–95, the first full fiscal year
of the new school finance system, the basic was $5,000 per pupil.
Districts with a foundation allowance below the basic received
an increase in their per pupil funding of up to twice the dollar
amount of the increase in the basic. For example, if the basic increased
from $5,000 to $5,153, as it did from the first to second year of
the reforms, all districts with a minimum foundation allowance of
$4,200 in FY 1994–95 received a per pupil increase of twice
this $153 rise, or $306. However, every district that was above
the basic received only $153 per pupil—the amount of increase
in the basic. (See the exhibit.)
Emerging Issues
The 2003–04 legislative session will see Proposal
A's 10-year anniversary. This occasion, along with budget cuts caused
by the current recession, no doubt will bring the “new”
system's strengths and weaknesses under scrutiny, and the following
issues are likely to be part of the debate.
Reducing the Funding Gap
As stated above, Proposal A has achieved the goal
of bringing all districts up to the basic foundation allowance.
The exhibit shows that the minimum foundation
allowance has increased nearly 55 percent from the first year of
Proposal A, more than twice the 20 percent increase of the maximum
foundation allowance. The per pupil funding gap between the highest-
and lowest-funded district has narrowed from $6,900 to $5,255. While
it is good news that all districts have reached the basic foundation
allowance, it also means that all districts now will receive the
same dollar increase each year, and the gap will not be further
narrowed without additional legislation.
Infrastructure and Capital Improvements
Proposal A was targeted toward school operating funds,
which are used to pay for wages and salaries, textbooks, and other
day-to-day operational expenses. It was not intended to address
capital needs such as building, expanding, or improving school buildings;
these still are funded primarily from voter-approved debt millage.
However, the aging of the state's stock of school buildings and
the necessity to equip buildings for computer technology are escalating
the need for capital improvements, for which money must be raised
locally. The value of the property in the district affects the amount
of money per mill that a district can raise for capital expenses—for
example, in Northport one mill raises about $816 per pupil, but
in Highland Park it raises only about $32 per pupil.
Declining Enrollment
Proposal A tied a district's funding much more to
enrollment than was the case under the old system, so for every
pupil a district gains or loses, it now also gains or loses money.
In FY 2001–02, more than 300 of the 554 local districts lost
pupils and therefore funding. Although total school enrollment is
increasing statewide, much of the growth is found in the state's
190 charter schools rather than in traditional school districts.
In future years, total school enrollment is expected to decline
statewide, meaning that even more districts, as well as charter
schools, will see fewer pupils enter their doors.
Local Revenue-Raising Ability
As part of the effort to provide tax relief and reduce
funding disparities, Proposal A severely limits a district's ability
to levy additional mills in order to increase operating funds. Under
the old system, districts were relatively free to ask voters to
approve new millage for operations. Since Proposal A, however, districts
may ask at any given time for only up to three “enhancement”
mills for operation. In 1997 additional restrictions were imposed,
and districts now must request enhancement mills on an intermediate
school district (ISD)–wide basis. In other words, they must
ask all voters in the ISD in which they are located to approve the
additional mill(s) and, if approved, share the resulting revenue
on an equal, per pupil basis with all districts in that ISD. Since
1997 only one such millage request has been approved, and it is
unlikely that many others will follow.
School Revenue Growth and Stability
When Proposal A passed, there were questions about
whether, over time—in a good and bad economy—the new system
would provide sufficient revenue to support schools. It appears
that during a good economy, school revenue has been sufficient and
has exceeded the inflation rate. From FY 1994–95 to FY 2001–02,
a period during which the national and state economies were expanding,
the foundation allowance grew from $5,000 to $6,500, an average
annual increase of 3.8 percent, which exceeds the 2.7 percent Michigan
inflation rate. At this writing, the School Aid Fund is larger than
the entire state General Fund, the fund that pays for the operation
of nearly all of the rest of state government.
In March 2001 the National Bureau of Economic Research
declared that a recession was underway in the United States for
the first time in ten years. The resulting decline in state revenue
for schools forced lawmakers to reduce the FY 2001–02 budget
from its enacted level, marking the first school budget cut since
the Proposal A reforms came into being. It is too soon to determine
whether in a recession schools will suffer more under Proposal A
than they would have under the old system, but early evidence suggests
that this may be the case, and this question deserves analysis when
sufficient data become available.
DISCUSSION
Reducing the Funding Gap
As stated above, legislation is required to further
close the school funding gap. Indeed, in FY 2001–02, a one-time
“equity payment” was allocated to reduce the gap between
the minimum and maximum foundation allowances from $1,500 to $1,300.
This payment gave up to $200 per pupil to districts having a foundation
allowance below $6,300, effectively raising the foundation allowance
to $6,500. The cost to the state was $129 million. While many people
support the concept of greater equity among school districts, the
price tag of such an effort is an obstacle. The recent economic
downturn makes it unlikely that the state will be able to afford
another equity-enhancing program in the near future.
Infrastructure and Capital Improvements
Not since the 1970s, when the state provided funds
for “millage equalization,” has Michigan provided direct
state assistance for infrastructure. Many school representatives
and others are pressing for state help with infrastructure needs,
but such assistance could cost billions if fully funded. Proponents
argue that a state role is necessary because of the vast inequities
in local districts' ability to raise such money. They also argue
that Proposal A makes it harder for districts to get a debt millage
passed, since there is a misperception among many that the reform
meant there would be no more millage elections. Opponents counter
that the current School Aid Fund was created to pay only for school
operations and it is up to the locals to get their debt millages
approved by voters and provide their own bricks and mortar. Others
may not oppose state assistance on principle but argue that the
state simply does not have sufficient funding to provide such support
or has higher funding priorities.
Declining Enrollment
Supporters of financial help for districts with declining
enrollment argue that such a decline can be caused by demographic
or economic factors beyond a district's control. They point out
that shrinking enrollment could one day affect almost all districts,
as the total Michigan school-aged population is expected to decline
1.9 percent from FY 2001–02 to FY 2005–06. Opponents
argue that many districts lose pupils to charter schools or other
districts, and the state should not reward a district with extra
funding when it simply could not compete with other schools. Others
say that schools should adapt by cutting spending when enrollment
declines.
Local Revenue-Raising Ability
Support seems to be growing to allow local districts
to levy additional local operating millage. In 2001–02, legislation
was introduced (House Bill 4917), for the first time since Proposal
A passed, to permit districts to go to voters for additional operating
millage. Supporters say that if voters are willing to pay more to
support their local schools, they should be allowed to so. They
also point to the fact that many of the higher-funded districts
have received less-than-inflationary increases in their per pupil
funding since Proposal A went into effect, and they argue that a
millage would help them to keep up with rising costs. Opponents
say that allowing additional local mills would erode the property
tax relief granted under Proposal A; they also could argue that
new operating mills in some districts would once again allow the
funding gap between rich and poor districts to widen. As the state
constitution requires that the enabling legislation for any type
of new school millage must be passed by a three-fourths affirmative
vote by both legislature chambers, enacting an operating-millage
bill would be difficult.
See also K–12 Quality and Testing; K–12
Schooling Alternatives; Special Education.
FOR ADDITIONAL INFORMATION
Michigan Association of School Administrators
1001 Centennial Way, Suite 300
Lansing, MI 48917
(517) 327-5910
(517) 327-0771 FAX
www.gomasa.org
Michigan Association of School Boards
1001 Centennial Way, Suite 400
Lansing, MI 48917
(517) 327-5900
(517) 327-0775 FAX
www.masb.com
Michigan Department of Education
Hannah Building
608 West Allegan Street
P.O. Box 30008
Lansing, MI 48909
(517) 373-3324
(517) 373-4022 FAX
www.michigan.gov/mde
Michigan Department of Management and Budget
P.O. Box 30026
Lansing, MI 48909
(517) 373-1004
(517) 373-7268 FAX
www.michigan.gov/dmb
Michigan Education Association
1216 Kendale Boulevard
East Lansing, MI 48826
(800) 292-1934
(517) 337-5598 FAX
www.mea.org
CONTENT CURRENT AS OF APRIL 1,
2002
© 2002 Public
Sector Consultants, Inc.
Sponsored by the Michigan Nonprofit Association and the Council
of Michigan Foundations
www.michiganinbrief.org
 
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