For Immediate Release:
July 11, 2013

Contact: Bob Schneider
517.485.9444

New CRC Report asks whether school budget increases can survive in FY2015

The recently enacted school aid budget provided Michigan public schools with small increases in per-pupil funding, but state policymakers may find it challenging to maintain those budget increases in FY2015, according to a new report from the Citizens Research Council of Michigan.

The School Aid budget signed by the Governor in June will provide the average school district with a net increase of $60 per pupil in operational funding thanks to enhanced May revenue estimates which allowed the budget to increase by $126.6 million over the Governor’s February budget recommendation. Those increases, however, rely on the utilization of existing fund balances. Those one-time revenues will not be available again in FY2015.

That creates structural issues next fiscal year, with another $246 million needed to meet escalating retirement system costs and another $65 million proposed by the Governor to finance a second-round increase for pre-kindergarten programs.

“The good news from May was that School Aid revenues are seeing some healthy growth again, with an extra $342.6 million projected for FY2015,” said Bob Schneider, CRC’s Director of State Affairs. “But most of that new revenue is going to be needed to meet retirement cost increases and, potentially at least, for the proposed increase for the Great Start Readiness Program. When you add to that the loss of about $277 million in fund balances, resources get limited once again.”

The report projects a shortfall of around $239 million in the School Aid Fund for FY2015 given current projections and assuming the increase for pre-kindergarten programs is implemented. That would mean further reductions that could wipe out the FY2014 gains unless new resources are tapped from the general fund or another source.

A major unknown is the eventual disposition of over $508 million in escrowed funds collected though a disputed three percent employee contribution implemented in 2010 legislation meant to cover retiree health care costs. The Michigan Court of Appeals has affirmed a lower court ruling that the charge is unconstitutional; the case is still pending before the state Supreme Court.

“If the Supreme Court overturns the Court of Appeals ruling, that $508 million would help fill the void for FY2015,” said Schneider. “But it’s not clear yet what direction the case will take. That ruling will have big implications for next fiscal year.”

CRC’s report is available at no cost on the Citizens Research Council’s website, www.crcmich.org.

Founded in 1916, CRC works to improve government in Michigan. The organization provides factual, unbiased, independent information concerning significant issues of state and local government organization, policy, and finance. By delivery of this information to policymakers and citizens, CRC aims to ensure sound and rational public policy formation in Michigan. For more information, visit www.crcmich.org.

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