Much attention has been paid to Michigan’s economic problems over the last decade and, by extension, the direct effects on the state budget.  Local school district finances have not been immune from the state’s financial challenges because a significant portion of their operating budgets originate with state-level taxes, an arrangement created by the 1994 passage of Proposal A.  While many districts have had to cope with funding challenges in recent years, the Proposal A school funding model has been particularly hard on large urban districts.

Proposal A and the related finance reforms of the mid-1990s created a school finance system that distributes funding based on the number of students attending each district.  Each district’s total operating budget is largely a function of the amount of their per-pupil “foundation grant” guaranteed by the state and the number of students enrolled.

All school districts in Michigan have seen the amount of their inflation-adjusted foundation grant decline between 2000 and 2010, in response to the economic slowdown and underlying transformation of the industrial manufacturing base in the state.  During the same period, a great many districts have experienced declining enrollments, a function of demographic changes in the state as well as competition for students coming from other education providers, mostly charters.  As a result, the amount of inflation-adjusted total foundation funding has eroded considerably for many schools.    

As highlighted in CRC’s recent report, Distribution of State Aid to Michigan Schools, traditional public school districts serving students in some of Michigan’s largest and most iconic cities have experienced the largest total foundation revenue declines.  These changes, from 1995 to 2009, are reflected in the table below.

                                  Percent of       District                  Real                Total
                                  Statewide    Enrollment         Foundation        Revenue
                                 Enrollment      Change               Change            Change

Flint                                  0.9%          -44.8%               -1.6%                -45.7%

Benton Harbor                   0.2%          -43.8%               12.4%                -36.8%

Pontiac                              0.5%          -42.6%               -1.5%                -43.5%

Detroit                               6.2%          -40.3%               -2.9%                -42.0%

Grand Rapids                      1.2%          -28.0%                1.2%                -27.1%

Lansing                             1.0%          -27.3%               -1.0%                -28.0%

Saginaw                            0.6%          -27.0%               -2.3%                -28.7%

Muskegon                          0.3%          -23.8%                1.3%                -22.8%

Battle Creek                       0.4%          -22.6%               -1.7%                -23.9%

Jackson                            0.4%          -18.4%               -0.7%                -18.9%

Highland Park                     0.2%          -13.9%               -4.3%                -17.6%

Bay City                            0.6%          -13.0%               16.8%                   1.7%

Source:  Center for Educational Performance and Information; Senate Fiscal Agency; U.S. Bureau of Labor Statistics, Consumer Price Index (state fiscal year basis); CRC calculations.

Similar to many urban districts, Detroit Public Schools has experienced massive enrollment losses in recent years, particularly since 2003.  Enrollments in 1995 (158,379 students), at the start of foundation grant program, and 2003 (156,182 students) were basically the same.  This means that almost the entire enrollment decline under Proposal A was concentrated between 2003 and 2010, a period when the district lost 63,305 students or 43.7 percent.

For a growing number of districts over the last decade, the effects of the sustained economic slowdown were made worse by declining student enrollments that translated into fewer dollars under Proposal A’s per-pupil foundation mechanism.  Urban districts, with high concentrations of at-risk students, have been particularly hard hit.  With year-over-year enrollment declines, urban districts continue to find it increasingly difficult to maintain the educational services and facilities available to their students.  While not a primary concern of policymakers at the time of Proposal A’s enactment, the issue of declining enrollment should be a major consideration when contemplating school finance changes in the future.

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