School districts are prohibited by Michigan law from adopting a budget deficit.[390] This restriction means that in any given budget year a district may never plan to spend — or actually spend — more than the annual revenue the district will receive from all sources. A district that spends itself into deficit cannot receive further payments from the state until the district submits a deficit elimination plan.[391] The plan must include measures to eliminate the deficit in no more than two fiscal years after the deficit was incurred,[392] and a district must file a monthly revenues-and-expenditures report with the state Department of Education.[393] The only permissible deficit is one incurred as a result of a reduction of money available to the schools due to an executive order issued during the fiscal year.[394]

In fiscal 2007, 23 conventional local school districts and charter schools are operating with deficit elimination plans.[395]