In a Nutshell:

• Michigan Legislature passed another “historic” school aid budget, largely fueled by the $6.0 billion federal relief provided over the last 18 months.
• With the improved state revenue outlook, policymakers chose to close the per-pupil foundation funding gap that has existed between low- and high-spending districts since the mid-1990s.
• In addition to fully equalizing state foundation funding, lawmakers also partially equalized the disparate per-pupil federal funding amounts across school districts under the American Rescue Plan Act.

Before adjourning for its summer recess in early July, the Michigan Legislature approved a school aid budget for the upcoming fiscal year that few would have imagined possible during the spring of 2020 when the Covid pandemic took root and public finances at all levels faced great uncertainty from the nascent economic downturn. Despite the early funding concerns among K-12 school officials, the state school aid budget hit another funding milestone. Of critical importance, lawmakers made sure to more equally allocate state and federal dollars among Michigan’s nearly 1.5 million students – something we’ve been urging them to do since last spring.

Beginning last spring, the economic slowdown arising from stay-at-home and other lockdown edicts triggered projections of steep state tax revenue losses and proposals to tighten public spending plans. Not surprisingly, public schools braced for the possibility of the first per-pupil funding reductions since the Great Recession. 

However, state tax revenues dedicated to K-12 finances did not crater. Instead, tax collections stayed remarkably strong as the national and state economies were buoyed by multiple, massive federal fiscal stimulus efforts directed at businesses and individuals. The healthy state revenue picture that materialized over the past 18 months, combined with three progressively larger tranches of federal education aid, generated billions of new dollars for the state’s public schools.

Taking into account all the one-time federal cash coming to Michigan this year, the school aid budget exploded to $21.7 billion for the current year, a new all-time high. This compares to $16.0 billion for Fiscal Year (FY)2020 and $14.8 billion for FY2019. The FY2022 baseline spending plan, with the federal stimulus funds largely removed, comes in at $17.0 billion, roughly an eight percent increase over the current-year. This too represents a high-water mark for the amount of on-going dollars directed to K-12 education.

Proposal A Promise Achieved

Lawmakers used a substantial portion of the new-found tax revenue flowing into state coffers to honor a promise made to residents in 1994 with the adoption of Proposal A and a new school funding system. Specifically, they were able to direct millions of dollars to eliminate the long-standing per-pupil foundation allowance gap that has existed between low-spending and high- spending districts. This was THE headline item coming out of the recently-passed school aid budget.

Beginning in FY2022, all public school districts, charter and traditional alike, will receive the same $8,700 per student foundation grant; the primary funding source for school operations. A total of 38 districts (of 829 total), referred to as “hold harmless”, will continue to receive a foundation grant above this amount, but these higher-spending districts were grandfathered in under the Proposal A reforms and must generate the additional funds via a local tax.

In the current year, a $418 per-pupil gap exists between low-spending and high-spending districts. This is way down from the $2,300 gap that existed when Proposal A was adopted. At its current amount, this gap was always going to be eliminated in the near future. But, it was the near 180-degree change in the state’s revenue outlook that presented policymakers with the option to equalize foundation allowances across all districts for the upcoming year.

Over time, state officials narrowed this gap gradually by “raising the bottom”; providing up to two times the annual per-pupil funding increase to those districts with lower foundation amounts. The graph below tracks the growth in the minimum and maximum foundation grant amounts, along with School Aid Fund revenue, since the adoption of Proposal A.  While growth of the minimum foundation grant generally tracked available revenue, those districts receiving the maximum foundation grant did not see the same degree of growth as policymakers endeavored to close the gap.

Closing the current gap was not cheap as 84 percent of all districts receive the minimum grant amount ($8,111) this year and it will require over $720 million in School Aid Fund dollars to bring each of them up to $8,700 next year. 

Equalizing Federal Dollars

In addition to closing the state foundation allowance gap across school districts, lawmakers also prioritized resources to better equalize federal Covid dollars sent to public schools through March’s American Rescue Plan Act. This was the third, and largest, tranche of education-specific federal aid received since the onset of the pandemic and the second time Michigan policymakers appropriated resources to better equalize the per-pupil allocation directed by Congress. 

As we noted with the very first relief package approved in March 2020, the CARES Act required that 90 percent of each state’s federal award must be directed to local school districts (charter and traditional) via the existing federal Title IA formula. This was the same allocation percentage and distribution method designated in the two subsequent federal aid packages; in December 2020 and the ARPA passed in March. Using the Title IA formula to allocate Michigan’s $3.7 billion ARPA award resulted in massively different per-pupil amounts, ranging from over $20,000 per student to less than $200 per student.

Given the scale of the per-pupil funding inequities created by Title IA, especially against the backdrop of the pandemic’s near universal impact on children and their learning, we called upon state officials to correct what Congress got wrong with the federal aid distribution method. Recognizing that their hands were tied and unable to change federal law, we encouraged state lawmakers following the December package, and again with the ARPA, to prioritize state budget resources to ensure more equal per-pupil amounts across Michigan schools.

We are happy to report that our advice was followed, both times. Most recently, with the approval of the FY2022 school aid budget, lawmakers included $362 million in state appropriations to ensure that public schools will receive at least $1,093 per-pupil in federal Covid relief dollars under the ARPA. This appropriation is sufficient to equalize per-pupil funding at roughly one-half the median ARPA award ($2,000), basically the same equalization percentage budget makers used with the December relief package approved by Congress.

There is little doubt that the state’s current rosy revenue outlook prompted policymakers to take a serious look at closing the long-standing per-pupil funding gap across districts. They decided to do it sooner rather than later, which is a good thing.  By doing so, they achieved a key objective of Michigan’s school finance reforms adopted nearly 30 years ago. With per-pupil funding equalized across the state, the public policy debate should pivot towards addressing the learning needs of our most struggling students, regardless of where they chose to attend school.