The estimate in the following section is based on a framework where public school enrollments primarily dictate the amount of state revenue dedicated to foundation allowance payments. But two important caveats need to be added. First, the number of students served in public schools would be affected not only by decisions to switch to private education through a choice program, but by a host of other factors that continue to drive a long-term declining K-12 enrollment trend. Second, state lawmakers could decide to adjust other funding sources within the existing school aid budget that would alter the impacts on local districts in ways not directly related to changes in student enrollment. For example, lawmakers could devote more state aid to the foundation allowance if they reduced how much is spent on categorical grants.
Foundation allowance payments consume most of the state’s School Aid Fund. But decisions over how to use those dollars for various purposes related to education are part of a larger budget negotiation. The amount available to spend is determined by actual and projected calculations of designated School Aid Fund revenue, which comes from a variety of collected tax sources.
Among the items over which the Legislature and governor must reach agreement is the foundation allowance rate. The formula for determining the rate depends on the total funds state officials want to set aside and two projected figures. First, the total amount is divided by the number of full-time equivalent students expected to enroll during the October count period (adjusted by the declining enrollment formula protections described above). Then the anticipated collections of local property tax dollars that fund the foundation allowance are subtracted. Because these figures are estimates but the allowance rate is set in law, the total amount spent will vary at the end of the fiscal year from the initial amount budgeted to pay districts these promised funds.
The amount of money spent annually from Michigan’s School Aid Fund has grown each year since 2013, except for a brief disruption of state revenues during the initial stages of the COVID-19 pandemic. Enrollment in public schools has dropped dramatically over the same period. Just in the past four years, School Aid Fund allocations grew from $12.7 billion to $14.9 billion, or by about 17%. Spending on categorical grants grew substantially more than spending for the foundation allowance — the former increasing by 39%, the latter by only 8%. Categorical spending now consumers 33% of SAF allocations, up from 28% four years ago.
If a newly enacted education savings account program enabled more students to opt out of public schooling, the number of public school students among whom school aid dollars could be distributed would be reduced. The mechanism and source chosen to fund ESAs would more precisely determine the amount available to lawmakers to appropriate among school districts for all purposes, including but not limited to the foundation allowance.
To summarize, the following analysis estimates the fiscal impact of this proposed scholarship program, but other factors unrelated to the program will affect the actual fiscal impact experienced by the state, school districts and taxpayers.