Distribution of State Aid to Michigan Schools
August 2011
Report 371

Summary

In March 1994, state voters approved a ballot proposal (Proposal A) to amend the 1963 Michigan Constitution, ushering in one of the final pieces of a new public K-12 education finance system. Proposal A, along with a host of statutory changes adopted in late 1993 and early 1994, completely altered how state and local public resources for K-12 education are collected and distributed to public school districts. The new system shifted primary responsibility for financing schools from local districts to the state government. It decreased the role of local property taxes and increased the role of state taxes, primarily through an increase in the sales tax rate. School funding centralization at the state level was accompanied by the replacement of a power equalization program with a per-pupil foundation grant program to allocate state aid to local districts. The foundation grant program with its constitutional per-pupil revenue floor established by Proposal A also centralized decision making about the amount of per-pupil revenue that each school district receives (i.e., its foundation grant) and the annual adjustments made to each districts’ foundation grant. Thus, since the mid-1990s, state officials, not local voters and school officials, determine the amount of per-pupil revenue each district receives.

Since its implementation in state Fiscal Year 1995 (FY1995), a major policy directive of the foundation grant has been greater equity in the distribution of per-pupil general operating revenues across school districts. In this sense, equity is defined as the same per-pupil revenue amount (total state and local) regardless of student characteristics (e.g., wealth, learning ability, race etc.) and/or district characteristics (e.g., geographic location, type, costs, etc.). Beginning with the initial grant amounts established in FY1995 and over the past 16 years, considerable progress has been made towards the goal of greater equity as the gap between the lowest and highest per-pupil grants has been narrowed. Despite this progress, absolute equity has not been achieved and a large gap still exists. Per-pupil revenue equalization gains were the greatest in the years immediately following Proposal A, FY1995 to FY2000, when state School Aid Fund revenue growth was the strongest. Smaller and less frequent gains have been achieved in subsequent years.

Per-pupil revenue equalization has been achieved over the years almost exclusively through policies designed to raise the floor (i.e., provide greater annual increases to the lowest foundation grants). In FY1995, 307 traditional public school districts received foundation grants less than the basic or target amount. By FY2010, 396 districts (of 551 districts) received the target per-pupil amount. In terms of the spread between the lowest and highest foundation grants, equalization reduced the gap from approximately $6,300 per pupil in FY1995 to about $5,000 per pupil in FY2010.

Efforts to increase the funding for the lowest revenue districts resulted in different per-pupil revenue growth rates across foundation grants. Because of the disparate growth districts, the lowest foundation grants have seen growth relative to inflation since FY1995, but the growth rates of the higher foundation grants have trailed inflation since Proposal A’s implementation. However, during the last ten-year period as Michigan’s economy struggled and state education revenue growth has been constrained, inflation outpaced foundation grant growth for all districts. Today, the inflation-adjusted amount of the foundation grant in many school districts is below where it was in FY1995, but there is much more equity across districts.