When the Michigan Legislature missed its July 1 deadline to pass a K-12 budget, a major flashpoint in the budget impasse was the Senate’s opposition to a House proposal that would eliminate categorical grants (funds restricted to specific programs such as special education or funding for “at-risk” students) and redirect the freed-up funds to the per-pupil foundation allowance.

Other states report positive results after partial reforms to categorical grants. California eliminated most of its categorical funds in 2013 and required school districts to create fiscal plans with community input. This shift improved school accountability and gave the local community more say in district decisions, a Stanford University study concluded. Most superintendents reported improved academic outcomes, and district finance leaders found that “freedom from categorical funding structures allowed districts to prioritize programs that meet local needs.”

House Bill 4577 proposes a similar funding reform by rolling up 37 categorical grants, which would open nearly $1.1 billion for districts to use at their discretion. Michigan’s 2025 school aid budget lists a staggering 128 categorical grants, according to a recently published study by the Citizens Research Council for Michigan. The median state had just 10 categorical grants, a 2013 Center for American Progress report found. Michigan, which had the third-highest number of categorical grants among states in 2013 (around 50), has since nearly tripled that total.

Why did the House proposal to end so many categorical grants face pushback? Some lawmakers and school officials argue that returning control of this money to local schools would reduce funding for key services. “Their budget ends school lunch programs, their budget ends transportation,” said Rep. Alabas Farhat, D-Dearborn.

But eliminating dedicated funding doesn’t mean eliminating the programs themselves. Under the House plan, districts would have the flexibility to reduce, maintain, or even increase support for those services based on their students’ needs.

Michigan’s high number of categorical grants suggests that state lawmakers know how to allocate school funds better than on-the-ground school officials. The K-12 budget for fiscal year 2025 increased the number of categorical grants and left the foundation allowance unchanged at $9,608 per student.

School officials voice frustration with overreliance on categorical grants. “Just like Goldilocks and the Three Bears, you can have too many, not enough, or just right,” Comstock Superintendent Jeff Thoenes told CBS News 3 in Kalamazoo recently.

Rhonda Kribs, chief financial officer of Grand Rapids Public Schools, said that many state aid categorical grants are an unstable funding source and are typically “not in our greatest areas of need,” in a statement to Michigan Live.

The Michigan Department of Education has also called for reducing categorical grants. The department identified only a dozen grants that it considers essential. Robert McCann of the K-12 Alliance has said that it's time to rethink school funding.

The number of categorical grants can fluctuate year-to-year based on the whims of state lawmakers, causing uncertainty among districts about programs and services that will be funded. And an overreliance on categorical funding tends to widen the funding disparity between districts, according to a Mackinac Center report.

The House budget proposal, which does not even eliminate a majority of categorical grants, fits the description of the “Goldilocks” solution the Comstock superintendent described. It would improve fiscal flexibility and school accountability. But attempts by House Republicans to compromise and reinsert a few key grants did not sway the Democratic-majority Senate, which appears resolved to leave Michigan’s categorical grants untouched.

The House and Senate have scheduled several session days this July. Lawmakers can seize this chance to give schools the funding they need and the freedom to use it wisely.

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