The state’s declining enrollment trend matters in large part because the single greatest source of a district’s revenue is directly tied to the number of students served. Created by Proposal A, the foundation allowance guarantees a floor of basic financial support for school districts and charter schools. Dollars distributed by the state fund the remaining portion of the foundation allowance not otherwise funded by a local 18-mill tax on businesses and second homes in a district. The state calculates what a district is owed according to official student counts, its estimated property tax collections and the current foundation allowance level. The money is then sent out in monthly installments, with occasional adjustments made as data and estimates are updated.
Proposal A has greatly narrowed the gap in per-student funding among most districts over the last quarter century. It has also shifted the primary responsibility to fund public schools from local property tax dollars to the state treasury. All told, nearly six in 10 dollars that reached Michigan public schools in 2020 were state-collected funds. More than three in 10 dollars came from local sources, while almost one in 10 arrived via Washington, D.C. The massive outpouring of billions in response to the COVID-19 pandemic is likely to increase the federal share, at least in the short term.[*]
In a typical school year, a count of students present in school on a single day in October determines 90% of a district’s foundation allowance. The other 10% of a district’s official enrollment comes from a similar count on a day in February, from the previous school year. This helps stem the fiscal effects of districts losing students from one year to the next. The Legislature has adjusted the formula over the years, at different times basing 20% or 25% of the foundation allowance on the previous school year’s count. From 2011 through 2019, the previous February count strictly determined 10% of the formula funding.[†]
During the first year of the COVID-19 pandemic, state policymakers adjusted the formula to further help preserve institutional budgets and payrolls. An August 2020 agreement between Gov. Gretchen Whitmer and the Legislature secured districts at least 75% of the previous year’s formula funding, regardless of enrollment.[‡] Only 25% was based on the student counts from the 2020-2021 academic year. As enrollments significantly declined that year, the state funded many districts to educate pupils who weren’t there. This temporary arrangement abandoned Michigan’s longstanding practice of student-based funding. The state resumed the normal 90-10 split to count pupil membership for the 2021-22 foundation allowance formula.
The forecast of a combined additional $1.7 billion in state school aid revenue for fiscal years 2021 and 2022 should greatly ease the return to a formula that reflects actual student numbers.[§] The availability of more per-pupil dollars cushions the impact of declining enrollment that affects many districts. It further rewards districts that buck the trend by strengthening the incentive to attract and retain students. Parents, the public school “customers,” benefit when funding follows students, because this provides an incentive to schools to meet families’ needs. After all, that is the primary benefit of a K-12 funding system that is chiefly based on enrollments.
[*] As of the end of fiscal year 2020, the last full year of available data, Michigan public schools reported receiving a total of $40.3 million in COVID relief, less than 1% of the total allocated relief funds combined from the three different, federal, COVID-19 relief bills. Funds will be available for several years. The last and largest pot of federal aid must be obligated by September 2024.See Ben DeGrow, "Adding Up the Extra COVID-19 Funding for Michigan Public Schools" (Mackinac Center for Public Policy, April 20, 2021), https://www.mackinac.org/S2021-01.
[†] Kathryn Summers, “Overview of K-12 / School Aid” (Michigan Senate Fiscal Agency, Feb. 2019), Table 8, https://perma.cc/ CSZ7-CFT3. Exceptions to this rule are few: 1) Public school academies in their first year are funded based on a 50-50 blend of the relevant October and February counts of the current year; 2) Sparsely populated districts with fewer than 1,550 pupils enrolled can average student counts going back up to three years to lessen the effect of declining enrollment, provided they do not also receive specially designated funding for isolated rural districts. See MLC § 388.1606(4)(i), (x) and “State School Aid Update” (Michigan Department of Education, Oct. 2018), vol. 27, no. 1, https://perma.cc/YBQ2-MBH2.
[‡] The 75% weight based on the prior year's enrollment is also referred to as a “super blend.” Jacqueline Mullen, Jenny McInerney and Samuel Christensen, “K-12 Education During COVID-19: Return to Learn and Funding Provisions” (Michigan House Fiscal Agency, Nov. 20, 2020), 1, https://perma.cc/T2MK-B9ZR.
[§] “Consensus Revenue Agreement Executive Summary: Economic and Revenues Forecasts, Fiscal Years 2021, 2022 and 2023” (State of Michigan, May 21, 2021), https://perma.cc/ 8WQT-JE58. That forecast may be further adjusted upward after May 2021 School Aid Fund revenues came in nearly $300 million above projections. See “Monthly Revenue Report” (Michigan Senate Fiscal Agency, May 2021), https://perma.cc/A4G5-EZDK.