Most districts are funded by a mix of local and state dollars to fund their foundation allowance. In 2020, however, 39 districts — disproportionately representing less populated vacation destinations that have high property values subject to the 18-mill tax on nonhomestead property — raised more than enough local funds to cover their entire foundation allowance.[*] These “out-of-formula” districts combine to educate fewer than 1% of Michigan public school students.[†]
Collecting the foundation allowance entirely through local dollars does not mean forgoing state aid altogether. In 2020, these 39 districts received a total of $37.4 million in other sources of state revenue. That amount represents a tiny fraction of the state’s school aid budget.
Out-of-formula districts received about $4,300 per pupil in state dollars, half the total that their formula-funded conventional district peers did. Because extra local dollars enable them to take in more tax dollars than otherwise provided in the state foundation allowance, out-of-formula districts’ total revenue, including all local, state and federal funds, is about $23,000 per student, on average, roughly $9,700 more than other conventional districts. The disparity is at least partly explained by the fact that nearly half of the 39 districts are composed of 100 or fewer students. Tiny districts do not typically provide as many services at scale compared to their larger counterparts and tend to have greater per-pupil spending as a result.
[*] Small districts with vacation destinations typically have a large amount of high-value property they can assess, because the second homes and vacation properties are subject to the 18-mill nonhomestead local property tax.
[†] Author’s calculations based on “2019-2020 State Aid Financial Status Report” (Michigan Department of Education, 2020), https://perma.cc/CXM6-X2ZM; “Historical Student Enrollment Counts Data File” (Center for Educational Performance and Information), https://www.mischooldata.org/historical-student-enrollment-counts-data-file. Out-of-formula districts receive no state aid in the form of the foundation allowance. The 39 out-of-formula districts enrolled 8,632 students in 2019-20, or 0.6% of the state’s total headcount of 1,444,258.