Federal COVID relief funds have significantly changed the funding streams of Michigan public schools. But changes made to the state’s primary funding formula in response to the pandemic had an additional effect. A key component of Michigan’s August 2020 “Return to Learn” legislation was an adjustment to the formula that determines how the state allocates K-12 funding.[24] It centers on how districts count students who are eligible for state aid through the foundation allowance, which provides conventional districts and charter schools a minimum amount of per-student funding.
Normally, districts receive a foundation allowance for each student enrolled. The number of students is determined by counting how many are in attendance on two “count days,” one in October and one in February. A district’s official enrollment figure is then calculated to be a combination of these two counts, with 90% determined by the October number and 10% from the previous February count.
But for the 2020-21 school year, the Legislature essentially flipped this formula. It weighted the regular membership count for the 2020-21 school year to just 25% of a district’s enrollment and the membership count from 2019-20 to be 75%. This effectively protects the budgets of a large number of districts with declining enrollment. Districts feared that a large number of parents would choose not to enroll their children during the 2020-21 school year and worried that this would significantly impact their budgets.
The Legislature also made it easier for districts to count more students as being enrolled. Since many districts primarily or exclusively offered remote instruction, their students could not be tallied in membership by showing up in a classroom during the designated week in October. The Return to Learn legislation allowed districts to count students as enrolled for funding purposes if they had just one “two-way interaction” with a teacher during each of the four weeks in October.[25]
Introduced as a temporary change, the 75-25 formula prioritizes the financial stability of institutions over a more student-focused approach to funding, which is more efficient from a taxpayer’s perspective and provides incentives for districts to better meet actual student needs. Attaching more dollars to districts based on student counts that predate a potentially significant enrollment drop has resulted in a sizable increase in state subsidies to K-12 agencies for students they no longer educate.
Furthermore, many districts provided students and families with a limited range of educational services for months of the current school year. For the most part, revenue streams have not differentiated between schools that offered an in-person instructional option and those that did not. State legislation enacted in early 2021 did offer $136 million in supplemental state funding to districts that received less than $450 per pupil from ESSER grants and that re-opened for at least 20 hours of instruction per week by March 22, 2021.[26]
The Mackinac Center conducted an analysis to determine the size of the subsidy districts received due to the 75-25 formula. Applying student count data and formula adjustments used by state officials, the analysis compared the actual distribution of foundation allowance dollars with what that distribution would have been had the state followed the normal funding process. In other words, it compared what districts would have received using the normal 90-10 formula to how much they actually received for the 2020-21 school year.
The results appear relatively modest on a statewide basis. Holding foundation allowance rates the same, the state is making an estimated $301.8 million in additional net expenditures, roughly $215 per pupil, to subsidize districts for lost students through the 75-25 formula. Districts with declining enrollment cumulatively collect almost $350 million in extra foundation payments, while a smaller number of growing districts combined to lose nearly $48 million under the new formula. However, state lawmakers later approved up to $66 million to be split among these negatively impacted districts, making them whole for the new students they enrolled.[27] Thus, the total impact from the 75-25 formula is nearly $350 million, about 2.5% of the state’s annual school aid budget.
As a group, the state’s full-time online, “cyber schools” benefited the most from the growing district categorical grant. Their collective enrollment increased by nearly 35% from October 2019 to October 2020, a direct result of the limited options other districts provided during the pandemic.[28] Schools experienced in delivering academic programs online were more attractive than schools thrust into a crisis mode of remote instruction.
Factoring out cyber schools, charter schools received only half as much benefit from the 75-25 formula as conventional districts: $120 per pupil vs. $251 per pupil. Even so, charters were overrepresented among those most heavily impacted by the formula change: either gaining or losing more than $1,000 per student. Meanwhile, the state’s 20 largest conventional districts gained an extra $73.9 million in formula funding for students who are no longer enrolled.