In a Nutshell

• Michigan’s new K-12 budget provides a massive funding increase to local school districts for supplemental academic services for low-income and other students deemed at-risk of poor educational outcomes.
• The Fiscal Year (FY)2026 School Aid budget represents a missed opportunity for policymakers to tie accountability and fiscal transparency improvements to a huge funding bump provided to local districts serving “at-risk” students.
• Policymakers should consider how to leverage future state investments in “at-risk” funding to move districts toward adoption of student-based budgeting systems to better ensure parents and the public that dedicated state dollars are making their way to the schools with the greatest needs.

Michigan’s new K-12 budget provides a massive funding increase to local school districts for supplemental academic services for low-income and other students deemed at-risk of poor educational outcomes.  However, the state’s hefty investment in “at-risk” students this year was not paired with major changes in transparency or accountability provisions for districts’ use and distribution of these resources.  That is unfortunate because without additional guardrails, it is not clear whether the new dollars will make it to the individual schools where “at-risk” students are enrolled and therefore help improve the academic outcomes of the state’s most struggling learners. Upon reflection, the Fiscal Year (FY)2026 School Aid budget represents a missed opportunity for policymakers to tie accountability and fiscal transparency improvements to a huge funding bump provided to local districts serving “at-risk” students.

Background

State budgets almost always are a product of compromise. Michigan’s newly enacted $21.3 billion School Aid budget is no different. Given the current partisan dynamics at play and the very different education spending proposals offered by Governor Whitmer, the Michigan House of Representatives, and the Michigan Senate, compromise was always going to be required to complete the state’s K-12 education spending plan.

Not surprisingly, several major items included in the final budget were the result of negotiations between the Governor and the two legislative chambers. In the end, nobody got everything they wanted in terms of the specific programs included in the final budget, the amount of state aid to be distributed to local school districts, how the approved funding flows to schools, or what restrictions/conditions accompany the flow of state dollars to schools. Case in point: the $1.3 billion funding stream that schools receive, in addition to their base per-pupil funding allocation, to provide supplemental services to eligible “at-risk” students to improve academic outcomes.

Although dedicated funding for “at-risk” students has been a priority in recent state budgets, proposals coming from the Governor, House, and Senate looked very different during this budget cycle. The Governor wanted a modest four percent funding bump to match a proposed increase in the base per-pupil foundation grant; the House proposal called for no funding increase and maintained the current-year level; and the Senate proposed an eye-catching 25 percent funding jolt, $250 million more than last year. In addition to the major funding differences, each proposal included key differences to related “boilerplate” language, which establishes conditions, restrictions, and guidelines for the use of “at-risk” student resources.

The final FY2026 School Aid budget sided with the Senate’s proposal, raising the “at-risk” student appropriation to over $1.3 billion. It also borrowed some elements from the Governor’s recommendation for increased transparency and accountability for the use of “at-risk” student funding. Given state policymakers’ continued priority for “at-risk” student funding and the growing importance of this funding stream to the overall financial picture of Michigan’s 800-plus local school districts, this brief updates the Research Council’s March 2025 district-level fiscal analysis of “at-risk” student funding for the 2025-26 school year based on the final School Aid budget.

A Potential Fiscal Cliff Becomes a Fiscal Waterfall for Some Districts Under Budget Compromise

In March of this year, following the February release of Governor Whitmer’s FY2026 School Aid budget recommendation, the Research Council alerted state policymakers and local school officials about the likelihood of an impending “at-risk” student funding cliff for the upcoming 2025-26 school year. Our analysis demonstrated how, despite the Governor’s modest increase in total “at-risk” appropriation, district-level funding allocations from this pot of money would be affected by major reductions in the number of funding-eligible students enrolled in several districts. Each district’s total funding is based on the state-determined per-student funding amount and the number of funding-eligible students enrolled. This per-pupil formula works much the same way the state calculates the total foundation allowance funding districts receive each year.

Largely because of changes in federal Medicaid-eligibility policy after the pandemic, Michigan will experience a 7.5 percent decline in the number of “at-risk” students statewide this school year. But, as our earlier analysis showed, this enrollment decrease is unevenly spread across the state’s 800-plus school districts with one-half experiencing a decline of 7.5 percent or more (Chart 1). Notably, several districts show a “at-risk” student enrollment decline greater than 20 percent, almost three times the statewide drop. Because state “at-risk” dollars are distributed on a per-student basis, these enrollment shifts can have major financial consequences for districts’ budgets.

Chart 1
Changes in “At-risk” Student Counts Across Districts, FY2025 to FY2026

Source: Center for Educational Performance and Information; Citizens Research Council calculations

To estimate the financial impacts associated with the student enrollment decline across districts, our March analysis modeled year-over-year “at-risk” funding changes based on Governor Whitmer’s FY2026 budget recommendation. Of the 546 districts analyzed, almost one-half (47 percent) were expected to see a year-over-year state funding reduction in their “at-risk” allocation (blue line in Chart 2). As with the “at-risk” student enrollment decline, the Research Council noted that there is considerable district-level variation in “at-risk” funding changes for school year 2025-26. According to our estimates, those district-level per-student funding losses range from a couple of dollars to hundreds of dollars (far left side of the blue line in Chart 2). Generally, districts that experienced year-over-year enrollment declines in the range of 11 to 12 percent would see a cut in their per-student “at-risk” funding.  Those with even greater enrollment declines faced the prospect of an even larger funding cliff.

Chart 2
Changes in “At-risk” Student Funding Across Districts, FY2025 to FY2026

Source: Center for Educational Performance and Information; Citizens Research Council calculations

Notably, under the Governor’s budget recommendation, districts with enrollment losses below the state average (7.5 percent) would see a bump in their state funding (right side of blue line in Chart 2). The per-student funding increases in these districts, however, were relatively modest (below $400 per student). Further, our analysis showed that fewer than 20 districts would be slated to receive a per-student funding increase of $400 or more (far right side of blue line in Chart 2).

With the final FY2026 School Aid budget now in place, the Research Council updated its district-level funding analysis. Not surprisingly, the massive $250 million increase in state “at-risk” dollars included in the budget eliminates the projected per-student funding decreases modeled under the Governor’s budget recommendation. This is reflected in the sizeable upward “shift” observed in Chart 2 (the orange line). The 25 percent increase in “at-risk” funding effectively eliminates the negative impact that student enrollment declines would have had on district-level allocations across Michigan. As a result, only a handful of districts (34 districts in our analysis) are expected to see a reduction in their per-student funding in the 2025-26 school year (far left side of the orange line).

This also means that, compared to the Governor’s budget, many more districts will see an increase in their state “at-risk” funding allocations this school year.  Again, the amounts vary, but for some this increase is substantial. Table 1 summarizes the distribution of district-level “at-risk” funding allocations. Notably, nearly one-third of districts will see a per-student increase of $442 or greater in the 2025-26 school year. For reference, this is the same per-student funding increase provided to ALL districts this year through the base foundation allowance grant (note: the per-pupil grant increased from $9,608 to $10,050). That means, from a state budget perspective, “at-risk” students in 161 school districts will see a combined per-student funding increase of $884 or more through these two major funding streams.

Table 1
Distribution of Districts’ “At-risk” Funding Changes, FY2025 to FY2026*

* The Research Council analyzed school districts with enrollments of 500 or more students to avoid per-pupil funding anomalies that often result with smaller-sized districts.

The bottom line here is that what appeared to be an impending fiscal cliff in “at-risk” funding for many districts due to the massive student enrollment shifts caused by federal Medicaid policy changes will, instead, more resemble a fiscal waterfall for several districts under the final FY2026 School Aid budget. In this way, the final budget compromise clearly avoids some painful funding hits to districts that the Research Council warned about when the Governor’s budget recommendation was released earlier this year. But the additional resources included in the budget didn’t come with new transparency and accountability provisions to raise academic outcomes for low-income students.

Call for Greater Transparency and Accountability for “At-risk” Student Funding

Few would argue that Michigan has a great deal of ground to improve K-12 student academic outcomes. Flagging student test scores on the National Assessment of Educational Performance, commonly called the Nation’s Report Card, places the Mitten State’s ranking near the bottom in several grades and subjects tested. Of particular concern are the outcome disparities of low-income and Black students attending the state’s public schools. For example, just 27 percent of low-income third graders tested proficient on the 2023-24 state reading assessment compared to 57 percent of students from higher-income households. These disparities among student groups are long-standing and predate the pandemic.

These alarming student results have prompted state policymakers to act on several fronts. This includes pouring additional supplemental resources into school districts to serve low-income and “at-risk” students in recent state budgets. These targeted funds must be used by districts to support the learning needs of “at-risk” students with additional instructional and direct non-instructional services and programs. The state’s total investment in “at-risk” students will be over $1.3 billion for the current 2025-26 school year, up from $525 million in the 2021-22 school year.

The steady annual “at-risk” funding increases have become a key lever in Michigan’s overall efforts to address early literacy challenges. In tandem with the state’s new “science of reading” laws enacted in 2024 intended to overhaul how children are taught to read—mandating changes in curricula, teacher training, intervention, and accountability – state policymakers, for the last 10 years, have tied “at-risk” funding to improvements in student outcomes on annual assessments. However, the additional funds have not been paired with any major changes in state transparency or accountability provisions related to school districts’ allocation and use of these dollars. Without the added provisions, policymakers and the public don’t know whether districts are using “at-risk” investments to address the needs of struggling learners and to help close achievement gaps of low-income students.

The annual School Aid budget holds districts accountable for the use of “at-risk” funding to improvements in third grade reading proficiency. To provide insights into districts’ progress improving early literacy with “at-risk” student funding, the Research Council recently analyzed changes in third grade reading proficiency rates across school districts. Our analysis shows that fewer than one-half of all Michigan school districts showed improvement in their “at-risk” students’ reading proficiency rates since the end of the COVID-19 pandemic. These unimpressive improvements come against a backdrop where the state budget raised the amount “at-risk” funding school districts receive from just over $700 per student in 2021-22 to about $1,800 this school year.

One accountability concern previously documented by the Research Council is whether state “at-risk” dollars are reaching the individual schools and classrooms with the greatest proportions of struggling readers. That is because state and federal school funding flows to the district entity, not individual schools. The problem is that school districts rely on age-old centralized staff-based budgeting systems to allocate resources (primarily staff positions) among various school buildings. Staff-based budgeting models don’t guarantee that greater sums of per-pupil resources, or even that the state dollars dedicated to specific subgroups of students, will be directed at the highest-need schools. 

Changing or modifying current district-level budgeting policies, strategies, and practices to ensure low-income schools within districts are properly resourced may be fertile ground to address Michigan’s early-literacy challenges and improve accountability for the use of state ”at-risk” dollars. One popular reform to school budgeting practices adopted by many large districts across the country is a “student-based” or “weighted-student funding (WSF)” model. The use of WSF budgeting by districts to allocate resources across their schools has been shown to drive additional resources to higher-need schools, helping them to improve academic outcomes, especially among low-income students. Student-centered budgeting systems provide greater public assurance and transparency that state-directed policies and investments are implemented with fidelity.

The FY2026 School Aid budget nudges school districts in the direction of student-centered budgeting, but stops well short of directly linking a portion of districts’ “at-risk” funding to changes in their budgeting practices. The new spending plan includes “boilerplate” language requiring districts to report to parents how they are targeting their “at-risk” funding to schools with the greatest needs. This is a slight improvement in transparency and accountability, but more should be done.

While state policymakers must be careful about “mandating” how local schools do their budgeting to avoid running afoul of Michigan’s constitutional prohibitions against “unfunded mandates”, they are able to use state resources to encourage and incentivize local budgeting practices that more closely align with state objectives. To this end, policymakers should consider how to leverage future state investments in “at-risk” funding to move districts toward adoption of student-based budgeting systems. Such a move would provide a signal to parents and the public that the state is as serious about accountability and transparency as it is about increasing investments for “at-risk” students.