#3 The Underfunded Myth

A common claim by Michigan’s public school establishment and its political allies is that, despite spending $20 billion annually on education, our schools are “underfunded.”[22] Comparisons to other states and to historical funding levels show that the claim is unsubstantiated and misleading.

The underfunding myth rests on an assumption that there exists some known “price” for a public school education that taxpayers are failing to meet. In fact, no such figure exists. All we have are the amounts actually spent on schools and the knowledge that they have consistently increased each year for at least the last five decades.

According the National Center for Education Statistics, the per-student operating cost of Michigan’s public schools nearly quadrupled from 1960 to 2007, from $2,991 in 1960 to $11,337 in 2007, as measured in 2007 dollars.[23] Therefore, insinuations by the school establishment that its funding has undergone some dramatic declines in recent years should be taken with a large grain of salt. (These per-pupil operational expenses do not include school buildings and other capital spending.)

In addition, Michigan taxpayers transfer a greater proportion of their income to public schools than all but two states. Figures from the Bureau of Economic Analysis (and reported by the National Education Association) show that some $52 out of every $1,000 in state personal income is consumed by our public school establishment. Wyoming residents pay $56 per $1,000, and the national average is around $42 per $1,000. Residents in Nevada pay the least, $28 per $1,000 of personal income.[24]

There are other ways of comparing public school price and value. Some types of tax-supported schools cost much less to operate than others. Michigan’s public charter schools cost on average $2,200 less per pupil in 2007 than conventional schools.[25] Put another way, public charter schools provide essentially the same service at a 25 percent “discount.” Rather than accepting the “underfunded” myth, perhaps taxpayers should complain about being overcharged.

The tone of many media reports about school money issues contributes to the underfunded myth. One reason is that school funding is allocated on a per-pupil basis. When a district’s enrollment drops, the local headlines often read, “School funding down ...” and give a dollar amount that represents the lost students. The article may or may not explain why schools should not get funding for students it is no longer obligated to educate, and is very unlikely to note that the alternative is to allocate a greater share of scarce resources to districts with fewer students.

In addition, many media reports focus on the state School Aid Fund, which the Legislature controls. Since Michigan’s economy and tax base have shrunk over the last decade, the amount of state revenue flowing into this particular funding source has declined as well. However, that decline has been offset by a huge increase in the amount of federal money being funneled through the School Aid Fund. These revenues grew from $122 million in 2000 to more than $2 billion in 2009.[26]

Also, the number of students statewide has declined 6 percent over the last decade. After adjusting for inflation, districts on average get $450 more School Aid Fund revenue per student than they did in 2000.

Other reasons for what may seem to be perpetual school money troubles are merely circumstantial.[27]

By law, Michigan school districts must adopt a balanced budget by the end of June. However, the state’s fiscal year doesn’t begin until Oct. 1, and the Legislature rarely finalizes its budget before July. This unquestionably generates uncertainty for school boards, which among other things contributes to the “underfunded” myth.

Finally, union contracts dictate that school districts notify employees of potential layoffs prior to the end of the school year.[28] As a result, many more “just in case” pink slips are issued than the actual number of layoffs. Not surprisingly, the warnings get more attention than their later non-execution. In fact, the actual student-to-employee ratio has steadily declined over the last decade.

The real reason for school money troubles is not “underfunding,” but a failure to contain employee costs, which comprise about 80 percent of operational budgets. As long as school boards continue to agree to contracts that grant school employees, particularly teachers, automatic pay increases and lavish benefits packages that outpace comparable private-sector averages and the ability of taxpayers to support, schools will never have “adequate” funding.[29]

The beneficiaries of those unsustainable benefits have a strong incentive to promote the “underfunded” myth, but taxpayers should exercise a healthy measure of skepticism. On the whole, Michigan schools have more resources available than ever before, and receive a larger portion of state and local tax revenues than almost any other state.

[22] For just two examples of this claim being made, see these two news releases made three days apart: “Legislature Pulls Bait and Switch on State’s K-12 Students” (Michigan Education Association), October 16, 2009, http://www.mea.org/press/pdf/101609_Legs_Pulls_BaitSwitch.pdf (accessed October 7, 2010); “Governor Granholm Signs State School Aid Budget, Warns That K-12 Education Underfunded” (Michigan Office of the Governor) October 19, 2009, http://www.michigan.gov/gov/0,1607,7-168-23442_21974-224579--,00.html (accessed October 10, 2010).

[23] “Table 185: Current Expenditure Per Pupil in Fall Enrollment in Public Elementary and Secondary Schools, by State or Jurisdiction: Selected Years, 1969-70 through 2006-07,” in Digest of Education Statistics (National Center for Education Statistics, 2009). Also available at http://nces.ed.gov/ programs/digest/d09/tables/dt09_185.asp.

[24] “Rankings & Estimates: Rankings of the States 2009 and Estimates of School Statistics 2010” (National Education Association, 2009), http://www.nea.org/assets/docs/010rankings.pdf (accessed October 7, 2010).

[25] Andrew Coulson, “How Michigan Could Save $3.5 Billion a Year” (Mackinac Center for Public Policy, 2009), http://www.mackinac.org/11462 (accessed October 7, 2010).

[26] Author’s calculations based on data provided by the Michigan Department of Education’s Center for Educational Performance and Information. For school fiscal information prior to 2004, “Historical Form B Data” was used (available at http://www.michigan.gov/cepi/0,1607,7-113-21423_35782_40460---,00.html). Fiscal data for 2004 to 2008 was compiled from “Financial Information Database Summary Reports” (http://www.michigan.gov/cepi/0,1607,7-113-21423_35782_49874---,00.html).

[27] For a national perspective of this phenomenon, see: James Guthrie and Arthur Peng, “The Phony Funding Crisis,” Education Next 10, no. 1 (2010), http://educationnext.org/the-phony-funding-crisis/ (accessed October 7, 2010).

[28] Detailed analyses of several union contracts are available at http://www.mackinac.org/12341.

[29] For more information, see: Michael Van Beek, “What a Teacher Pay Freeze Really Means” (Mackinac Center for Public Policy, 2009), http://www.mackinac.org/11291 (accessed October 7, 2010); Michael Van Beek, “Most School Health Care Plans Are Too Expensive for Michigan” (Mackinac Center for Public Policy, 2010), http://www.mackinac.org/12083 (accessed October 7, 2010).