Categorical Grants

If asked how much funding Michigan schools receive on average, a reasonably well-read observer might guess between $7,000 and $8,000 per student. This is not entirely off base: news stories commonly report how much districts get through the state’s foundation allowance, which typically falls in that range. But schools receive a lot more money than that, and a good chunk of this additional revenue comes from the more than 50 “categorical grants,” created by the Legislature and funded by over $3 billion in state tax dollars annually.

A sizable portion of these categorical grants go to local and intermediate school districts based on certain student or district characteristics. For instance, a categorical grant worth nearly $380 million is allocated to districts based on the number of enrolled students who are deemed “at-risk” of academic failure. Other smaller outlays are paid out to geographically “isolated” districts, to provide services to non-English language speakers and to help districts provide free and reduced-price lunches to low-income students.

The largest single categorical grant is used to hold districts harmless from the growing costs of the state’s massively underfunded school employee pension system. Just over $1 billion per year is spent for this purpose. Since most of this spending is dedicated to “catching up” on the state’s $29.1 billion school pension debt, today’s taxpayers are paying the costs of yesterday’s classrooms through this categorical.One example of a categorical grant is support for certain districts to purchase “locally-grown fruits and vegetables.”

Categorical grants are used to pay the costs of other school-related debt, too. About $130 million is paid out annually to service the debt on money the state borrows to help districts make payments on money they’ve borrowed. This is how the state’s School Bond Loan Fund program works, which only benefits the minority of districts that borrow through it.

Other uses of categorical grants are for very specific purposes and also only aid a small number of districts. These include paying districts extra funds to serve students who have transferred from recently dissolved districts and reimbursing districts some of the “transition costs” of merging with another district. Other grants refund districts that lose expected property tax revenue from designated, tax-free Renaissance Zones or land owned by the Michigan Department of Natural Resources. These add up to another $30 million in state funding to districts.

Additional categorical money is set aside to operate some of the state programs that service school districts. For instance, a handful of grants fund Michigan Virtual University, which develops and provides online courses; the Michigan College Access Network, which informs students of postsecondary options; and the Center for Educational Performance and Innovation, which collects, organizes and disseminates financial data about schools. Similarly, the state directs other grants to districts to help them cover the costs of administering the state’s standardized test and for the “collection, maintenance, and reporting of data to the state.”

Some categorical grants are handed out on a competitive basis. The 2016-17 state budget features bonuses for districts implementing year-round school or for participating in science and technology-focused student programs. Districts in western Michigan are eligible to apply for a grant that supports the purchase of “locally-grown fruits and vegetables.”

The Legislature also uses these funds to create incentives for districts to meet certain goals. For instance, districts can receive up to $60 for each student who completes a college dual-enrollment course and get grants to cover the costs for low-income students taking Advanced Placement and International Baccalaureate tests.

These are just some of the highlights of the various programs and initiatives that are funded through categorical grants. Other funding flows to districts through these grants for things like career and technical training, special education, early literacy programs, adult education and more.

The state’s foundation allowance represents just the beginning of state taxpayers’ financial commitment to public schools. Unlike the foundation allowance, categorical grants will come and go, and their budgeted amounts vary year to year, according to legislative priorities. But with a steady upward trend in their use, they form a key part of the comprehensive picture of how Michigan funds public schools.