Once the state Legislature and the governor have approved the school aid appropriations for the next fiscal year, the state Department of Education is legally required to distribute the monies in 11 installments, from October through August, to local and intermediate school districts and charter schools. [lxxix][160] This money falls into two broad classes.

One is “categorical” funding, also known as “restricted revenue.” Categorical funding is money that is not typically distributed on a per-pupil basis and that is typically allocated to schools for specific programs. One example is the $2,965,000 set aside for state school districts in fiscal 2007 for bus driver safety instruction, nonspecial education transportation and state police inspections of buses.[161] The Michigan Public School Accounting Manual requires conventional local school districts, intermediate districts and charter schools to account transparently for the receipt and expenditure of such categorical money in their comprehensive annual financial reports.[162] Categorical funding will be discussed further below.

[lxxix] Two payments from the state school aid fund are not distributed to local and intermediate school districts and charter schools: Up to $48 million in fiscal 2007 payments made on behalf of local and intermediate districts to the state Treasury Department for the school loan bond redemption fund (see MCL § 388.1611j); and up to $22.8 million in fiscal 2007 payments made on behalf of local and intermediate districts and charter schools to the state Treasury Department for fiscal year cash flow borrowing costs (see MCL § 388.1611m).