On September 12, President Obama presented a $450 billion jobs plan to the U.S. Congress entitled the “American Jobs Act of 2011”. Contained therein is a sizeable amount of funding earmarked to support K-12 education finances, including $30 billion for states to retain, rehire, or hire school teachers. As proposed by the President, Michigan schools stand to receive nearly $1 billion of this funding. This cash infusion is likely to be welcome news for districts that were forced to absorb per-pupil state funding cuts this year. However, if enacted, this $1 billion represents the third installment of temporary federal funding in recent years and will likely create another funding “cliff” that the state budget will have to contend with when the federal resources are exhausted.
Since the enactment of the American Recovery and Reinvestment Act (ARRA) in 2009, the state budget has enjoyed sizeable doses of temporary federal aid in the face of declining state revenues. Education programs have been a key recipient of these resources. Approximately $1.5 billion from ARRA and the subsequent Edu-Jobs package passed in 2010 has been allocated to school districts to help stabilize budgets and avert workforce reductions. While these resources were used to achieve annual balance in the School Aid Fund budget and to minimize funding cuts at the district level from FY2009 through FY2011; they created a structural imbalance between on-going revenues and spending.
Since the early 2000s and until the passage of ARRA in early 2009, state budget writers often defaulted to the path of least resistance to achieve annual balance in the General Fund and School Aid Fund budgets by using nearly $8 billion in nonrecurring resources. The State of Michigan favored this avenue over more permanent budget solutions, such as reducing spending or raising state revenues. However, as Michigan finances continued to deteriorate in response to the national economic downturn, the federal government sought to stimulate the economy through enhanced state and local government spending. With the availability of ARRA resources and subsequent federal stimulus funds, Michigan policymakers amped up their dependence on temporary stopgap measures to balance the state’s two primary budgets.
The temporary federal monies are now gone, as are many of the one-time state budget resources. Policymakers achieved balance in the FY2012 General Fund and School Aid Fund budgets primarily through spending cuts. In the absence of non-recurring federal resources and as a result of these spending cuts, the budget was forced to match the level of ongoing spending with the level of projected revenue from both funds. Thus, the FY2012 budget achieves a degree of structural balance missing during much of the last decade.
Michigan school districts will likely see the proposed American Jobs Act of 2011 funding as one way to cope with the state spending cuts scheduled for FY2012 and FY2013. However, it is critical to understand that the money would only provide temporary assistance and would extend the “funding cliff” that was created by the availability of nearly $1.5 billion the past three years. Furthermore, the availability of additional nonrecurring resources to retain and rehire teachers will further delay the state’s efforts to achieve long-term structural balance.