Putting School Funding Inequity in Perspective

Proposal A put a solid funding floor under even the poorest school districts

For years, and especially in the wake of the state’s school funding “adequacy study,” people have called for more “equity” in how Michigan funds its public schools. Unfortunately, many of the appeals for more funding equity fail to consider the progress that has been made over the years. Instead, they treat each and every funding disparity as evidence of an entirely rigged, broken funding system.

For example, the Traverse City Record-Eagle recently declared that the distribution of funds to different school districts is “as off-kilter as it was when Proposal A passed in 1994,” asserting Michigan’s 22-year-old systemic change was a “dismal failure.”

That bold assertion falls apart under close scrutiny.

The northern Michigan newspaper’s editors build their case on a shaky foundation, selectively comparing the financing of their largest local school district, Traverse City Area Public Schools, with one of the highest-funded districts in the state: Oakland County’s Birmingham Public Schools. The $4,400 gap in foundation allowances between the two districts should be considered in context.

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The foundation allowance represents the state’s minimum per-pupil funding guarantee for both conventional districts and charter schools. On average, it represents about two-thirds of the total revenues districts receive. Even so, a large gap among districts within the primary funding formula can drive a significant disparity in overall funding levels.

In 1994, four out of every five school operating dollars came from local property taxes. Wealthy suburbs and upscale tourist towns thrived under the system. Districts with lower assessed business and residential properties lagged far behind. Proposal A capped local millage rates and mixed these limited local revenues with state revenues to create a minimum per-pupil allotment for each district.

So, districts are still funded by local property taxes — on “nonhomestead property” — but the state uses its own resources to ensure that every district gets at least a certain level of funding per pupil. This amount is a district’s foundation allowance.

As part of the deal made to advance Proposal A, lawmakers agreed that the higher funded districts at the time would not have their funding cut — the state would hold them harmless. The plan instead was to increase funding for relatively lower funded districts at a faster rate, so these districts would eventually (but very slowly) catch up to their higher funded counterparts.

At the time, the gap between the richest and poorest districts was $7,532 per pupil. That chasm has been closed by almost $3,000. And the share of conventional districts and charter schools funded at the minimum foundation allowance rate (currently $7,511 per pupil) has grown from less than half to 84 percent. The graph below from the Senate Fiscal Agency displays these changes over time, through the 2014-15 school year.

Proposal A’s plan has mostly worked. Foundation allowances are more equitable today than they used to be. Four out of every five school districts and charter schools receive the same sum through Proposal A’s foundation allowance. And 95 percent of school districts get between the minimum of $7,511 and $8,229. This convergence shows what an outlier the highly funded districts are: Only 43 districts, or 5 percent, get more than an $8,229 foundation allowance.

In no way is the funding distribution as off-kilter as it was more than 20 years ago. Whether the gap has been closing quickly enough is a fair point for discussion. But one needs to keep in mind the costs associated with a more dramatic approach to equalizing all foundation allowances.

Using the latest available data from the state, from the 2015-16 school year, we can estimate how much districts and charter schools would gain if funding for the rich districts were reduced to the minimum level. If all the money spent on foundation allowances were divided equally among every district, the minimum per-pupil rate of $7,391 would grow by roughly $300, or about 4 percent. If the state used this method to equalize foundation allowances, there’d be a few dozen school districts much worse off (those whose funding was cut back significantly). Most other districts would be only a little better off financially.

Alternately, the state could equalize funding by bringing all the lower funded districts up to the level of the Birminghams of the world. But this plan is untenable: To fund Traverse City, 400 other conventional districts, and more than 300 charter schools at Birmingham’s foundation allowance of roughly $12,000 would require an additional $6.42 billion in tax dollars. The state would need to double the revenue it receives from the state’s sales tax. A 100 percent sales tax hike isn’t likely to fly with the Legislature or voters.

There are other approaches that lie between these two extremes. For instance, bringing up all districts to the “hold harmless” level of $8,169 per pupil would cost nearly $900 million more and leave only 43 districts funded above the norm. Those 43 districts serve one-ninth of Michigan public school students.

It’s important to remember too that, even by the admission of the recently released education adequacy study, any such funding increases would have at most a small effect on student achievement. Sure, school officials’ jobs would get a little easier; they’d have fewer difficult budgetary decisions to make. But based on their track record, there’s no guarantee that schools would spend this extra cash on things that would boost student learning.

These are the kinds of considerations that have to be made when thinking about altering Michigan’s school funding system. It’s easy to highlight lingering gaps between a select few wealthy outliers and the average school district. It’s a greater challenge to accelerate Proposal A’s equalizing effect with an acceptable approach that will make a meaningful difference.

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