Guy Gordon (00:01.469)
Hello and welcome to the Facts Matter Podcast. I’m Guy Gordon for the Citizens Research Council of Michigan. It is that time of year again and I’m not talking birds, beads and buds on the trees. I’m talking about the budget season and this year it actually looks like the gestation period and the delivery may not be as difficult as it was last year. Some significant takeaways that we’re offering you today on the Facts Matter Podcast about the preliminary proposals that are out there from
the three chefs that are working on all the ingredients and to give us some insight on those takeaways is Craig Thiel, our research director. Also you see Bob Schneider, he is going to be with us with some late breaking news on exactly how many shackles the legislature and the governor have to play with this year. Gentlemen, welcome to you both.
Craig Thiel (00:50.813)
Glad to be here.
Robert Schneider (00:51.8)
Thanks, Guy.
Guy Gordon (00:53.233)
So Craig, let’s start with you because that’s the paper we’re focusing on. And by the way, to our viewers, you can find that at crcmish.org. As I said, first the good news, it looks like that this may be a less fraught process than last year.
Craig Thiel (01:11.138)
Yes, at least on the outside looking in, which is where we are, obviously. at this point last year, we only had really one proposal. The governor’s proposal was out there. We were waiting for the legislature to chime in on what its proposals were going to be. We just got to the May revenue conference. And we have all three spending proposals.
for the general fund, the biggest and the school aid fund. And that’s the one that I’ve been tracking thus far.
Guy Gordon (01:47.749)
Okay, and Bob, you’re no stranger to this with your background. Just give us an idea of how important this is to stakeholders that at least they’re beginning to look at where the boundaries are.
Robert Schneider (02:00.728)
Yeah, I mean, I think it’s really important that we, I think there’s some challenges still to come in deciding, especially Craig’s gonna talk about the school aid side, especially on the general fund side, some challenges with how we resolve some of the differences in the individual budgets that are out there now. But, you know, it’s progressing much closer to being concluded.
you know, by, you know, the June or July 1st deadline. And that’s going to be good for local government schools, the university, everybody that depends on the budget to know with better certainty what their budget looks like.
Guy Gordon (02:43.375)
Okay, so Craig, what do we know about base funding at the moment, the foundation for the school budgets?
Craig Thiel (02:50.008)
Yeah, and this is one of those items that there’s almost always a difference between the proposals just because it’s the largest item in the budget. It’s the one that garners the most attention. It is the revenue stream that is the most important to schools. So when there’s differences and when those differences are wide, it kind of portends maybe a little more difficult to negotiation around that item.
Well, this time the governor came out with a fairly modest bump to the foundation allowance. That’s that per pupil funding that each district receives to turn on the lights, buy books, pay teachers. The governor came out with a modest 2.5 % increase over the current year. Current year, it’s just the foundation is just over $10,000 per kid. This would bump it up to about 10,300.
Guy Gordon (03:24.54)
Mm-hmm.
Craig Thiel (03:46.616)
her kid. And then when the House came out with this proposal, lo and behold, they were smack dab at the 2.5 % bump and then the Senate came with the same proposal. So all indications are that schools are going to get a modest 2.5 % funding increase through that that main revenue stream. I would note 2.5 % 5 %
seven, 10 years ago was a healthy bump when inflation was trending, you know, in that range. Well, now we’ve got cost pressures, general price increases above that. And so, you know, you will hear some pushback on it not being enough, but from a negotiating standpoint and getting the budget done, that item can kind of get moved to the completed bucket.
Guy Gordon (04:18.663)
Right?
Guy Gordon (04:40.913)
bottom line we don’t see the wide gapping and the initial proposals that we’ve seen in past years that’s going to require a lot of negotiation. Okay we know that similar to last year cyber schools are going to be treated differently.
Craig Thiel (04:47.554)
Right, exactly.
Craig Thiel (04:56.782)
Well, that’s the proposal that the governor led with and the Senate kind of followed suit. The House, on the other hand, said a kid enrolled in a public school, cyber charters are public schools, should generate the same funding. The governor and the Senate would like to cut the funding, the per pupil funding, for students enrolled in cyber.
schools from to 80 % of that 10,300 figure. they would get just north of $8,800, I think is the math. And the rationale that’s been offered by the governor and the Senate on this is that those schools don’t operate the bricks and mortar schools and kids are, but no buses. Yeah. And,
Guy Gordon (05:51.035)
No buses, no bus fuel.
Craig Thiel (05:55.299)
That may be a fair point to lead with, but there’s a number of students that are entirely virtual education enrolled in traditional public schools, and those students receive the full foundation. So it’s a little bit of talking out of both sides of your mouth when you hear the governor and the Senate say, there’s cost differentials. Well, the students that are enrolled
in 100 % full-time program through a traditional public school aren’t going to buildings, they aren’t using the lights, they’re not being bussed to school. So those cost differentials exist there as well. this is an item that gets attention pretty much every year from the governor consistently. And the house in the last few years has said push back. I would note historically,
Guy Gordon (06:48.87)
Yeah.
Craig Thiel (06:51.074)
We’ve treated the foundation allowance of all students the same over the years. So I don’t foresee this one as being a, it’ll get negotiated for sure, but there won’t be a cut.
Guy Gordon (07:01.179)
Right. Well, I mean, mean, where do you establish the goal line for what fixed costs are? Right. Is it 20 % is it 25 % once you look at brick and mortar and, and buses and just the general maintenance. flipping to the, the other thing that we’ve given a lot of attention to this, think in our citizens research council podcast, and that is the at risk student.
programming and funding and this is going to be really a critical two years about whether the curriculum is going to Be effective that also to a certain degree will rely on the funding so in terms of the waiting for those districts who have a higher proportion of low-income children or ESL English as a second language learners, what are they getting and are they maintaining that support?
Craig Thiel (07:52.835)
Yeah, so this has been an area of focus over the last three or four years with increase funding increases well north of what the funding provided through the base foundation allowance has been. Last year, for example, there was a 25 % increase in the funding for students from low income backgrounds. And that follows up on
healthy increases in the years before. in this proposed budget, the governor led with a pretty healthy increase, a 6 % increase year over year. The House followed up with another healthy increase at 5%. But where there’s a… Yeah, and then came the Senate and the Senate has… And the Senate has kind of led on this.
Guy Gordon (08:41.021)
And then came the Senate.
Craig Thiel (08:49.376)
issue the last few years. So it’s not surprising that they have the strongest proposal here, at least in terms of the raw dollar amounts. Its proposal is a 25 % bump year over year. students who qualify for this funding would see about a $600 per student increase year over year. And so for districts that
have 80 % of their students qualifying. This is really a major revenue stream that would see a significant year over year bump. So that item will have to get worked out if the plan is to give something above the 5 and 6 % increases that the governor and the
House proposed, means something’s gonna have to give in other areas. And we’ll watch how those trade-offs play out.
Guy Gordon (09:47.095)
There have been discussions about diversions for the school aid fund to backfill some things in the general. Is that still on the table for 2026? There was an awful lot of blowback.
Craig Thiel (09:58.423)
Yeah, the legislature has basically said no to that proposal. That’s a proposal that the governor brought forward in her executive budget recommendation. She wanted to increase the use of school aid fund for the higher education appropriations. So the public appropriations, the appropriations to the 15 publics, she wanted to increase year over year.
the use of school aid fund by $400 million and basically pull that out of the K-12 appropriations and put it into the higher ed. The legislature basically rejected that proposal. So it’ll have to get worked out in the conference agreement. This is an item that given the amount of dollars involved, $400 million, I would imagine
It could drive other changes in other areas of the budget depending on how it gets resolved.
Guy Gordon (11:01.265)
And I’m sorry, did you also say that this includes diversions to higher education? OK.
Craig Thiel (11:06.326)
Yes, yes. So this would be exclusively using 400 million additional school aid dollars to support the higher education appropriations. And that’s primarily tied to some of the post-secondary scholarship programs that the state has. So funding the Michigan Achievement Scholarship from those funds, as well as
Guy Gordon (11:26.896)
Okay.
Craig Thiel (11:33.036)
some one-time operational support in the university’s budget.
Guy Gordon (11:38.095)
Now, in terms of going beyond that, School Aid Fund, when you’re talking about some of the things that we’ve seen before is they have targeted specific universities. Have we seen that this time around?
Craig Thiel (11:56.515)
Yeah, so that’s something that happens over on the general fund side of the budget. And Bob’s been monitoring that. I think he’s got some news to report there.
Guy Gordon (12:02.973)
Yeah.
Guy Gordon (12:07.014)
Alright, Bob.
Robert Schneider (12:09.616)
Sure, so I mean, last Friday, we revisited our state revenue estimates and our consensus revenue estimating conference or what we call the CREC and the acronym. And the news was good, but the news was hardly needle moving, I guess. More revenue both on the school aid fund side that Craig’s been discussing largely with K-12.
But our discretionary general fund that supports Medicaid and human services programs and corrections and state police and revenue sharing, some of revenue sharing also was up, but very modestly. So I would say probably a half percent for the most part annually for the general fund and even less, I think, for the school aid fund.
Guy Gordon (12:52.337)
Yeah, a percentage of the pie, how much are we talking?
Robert Schneider (13:05.644)
better up than down, but not revisions to revenue estimates that are gonna change the outlook for the fiscal year 27 budget negotiations that are ongoing right now, and that Craig’s talked about the school aid side. And on that general fund side, if you look at the absolute amount of general fund that the governor proposed, the Senate,
the House, it’s not really significantly different, but the makeup of it is very different. And so the general fund side is going to be a tougher sledding to get a resolution that the governor led with her budget proposal included $800 million in new revenue to help offset general fund needs. That’s gone nowhere with both the House and the Senate.
Guy Gordon (13:39.901)
Mm-hmm.
Robert Schneider (14:03.128)
Republican-led House, Democratic-led Senate have rejected those to date. The Republican-led House has engaged in a lot of budget cutting. The biggest piece, many pieces to it, but the biggest piece is $421 million, specifically to the University of Michigan and Michigan State and their operating funds. That’s like, it’s more than 60 % of their overall operating funds. You know, the Senate has also done some cutting.
You know, how do you resolve all of that? And I will say the other problem going forward is if you look at the executive budget, if you look at the House budget, if you look at the Senate budget and you look ahead to next February in fiscal year 28, none of them leave us even going into next year. if you pass any three of those budgets, you have a
$400, $400, $5500 million issue to address next year as well. So the cutting won’t stop.
Guy Gordon (15:03.783)
Well, OK. And this also assumes that the conference is getting the estimate right in the first place. what we know from the most recent indicators we’ve seen from the Fed is that this inflationary trend is something that’s going to perhaps be quite persistent and will be persistent even after the war in Iran is somehow reconciled.
Robert Schneider (15:11.441)
It does.
Robert Schneider (15:28.556)
Yeah, yeah, there’s still there has been and still is a lot of economic uncertainty. The you know, so far the economy seems inflation is again popped up as you said, Guy. That’s probably going to mean the feds less likely to cut interest rates in the same way that they would have had we not seen this pop up in inflation. But I think the economic forecast from from last week, we’re, we’re still
You know, and modest growth, but growth. And if that happens, you know, we hope we’ll get these revenues, but you’re right. It’s been, you know, 24 months of really economic uncertainty, I guess, and that continues. So that’s a risk to the forecast.
Guy Gordon (16:20.967)
Well, yeah, it just makes it harder, especially if you’re looking out two years. Let’s kind of have a jump ball, if you will. What are the three most positive areas of potential agreement? I’m going to have the word potential of that when you look at the various proposals that we have here as we wrap things up.
Craig Thiel (16:38.87)
Yeah, well on the school side, we talked about at the foundation, there’s agreement there. That’s good news because schools are in the process of putting their spending plans for next year together. They actually have to have by law their spending plans done by June 30th. So knowing how this piece is shaking out and Lansing is good news. An issue that kind of generated some angst.
between the legislative chambers last year was funding for the universal school meals program. The three proposals that have been put forward includes that funding again. That’s over $200 million of state dollars that supplement the federal dollars. So every school district who wants to participate in a universal breakfast and lunch can do so. So that item’s kind of settled.
Funding, has been kind of a key additional stream that’s going to school districts post-COVID, is designated dollars to address student mental health and safety coming out of the pandemic. It’s been funded in the $300 million range every year, and it kind of has been a political football. That money is in this proposal again.
The way it’s structured looks a little different. Last year, the governor wanted a condition put on those dollars that said if you take these dollars, then you, the school district, have to give up, waive some privileges as to sharing information around mashed casualty events. And that gave a lot of school districts heartburn because of the open-ended nature of that waiver.
Guy Gordon (18:28.413)
Mm-hmm.
Craig Thiel (18:34.51)
So the legislature heard those concerns and they’ve tempered that language a little bit such that it sounds like the school districts will be able to live at least with the language that’s coming out of the legislature. The governor has the exact same language that was in there last year. So that issue on the funding side is kind of settled around $300 million for this program. But if there’s gonna be any
Guy Gordon (19:01.693)
Mm-hmm.
Craig Thiel (19:03.598)
conditions restrictions on the use of the dollars that’s that’s still up for debate
Guy Gordon (19:09.051)
All right, and as you look down the road, both of you, the three most worrisome things. mean, things are starting out pretty well. At least it’s, we know things are incredibly contentious. We know that there’s incredible tension between the parties and an election year that’s going to be exacerbated. But in general, we seem to be ahead of where we were last year, but are there some icebergs on the horizon?
Robert Schneider (19:36.121)
think there are on the general fund side of the budget. I think that while it’s a positive that everyone has their cards on the table and can begin negotiations, there’s a lot of big differences in how everybody’s budget balances for fiscal year 27. We get out of fiscal year 27 without having a revenue problem, but all of them also kick.
shortfalls into fiscal year 28. You know, I think the governor’s revenue proposals seem to be dead on arrival with the legislature. The House has a very large higher education cut as we talked about to U of M and MSU that don’t seem like they’re going to be supported by the governor or the Senate. So you need to figure out how is it that we get out of fiscal year 27 on the general fund side. And that is not
That’s not going to be easy. And Craig, you talked about the school aid fund shift that to date has been rejected by the legislature as the rubber meets the road. you start, if I’m the K-12 school groups, I’m probably a little concerned that a fallback for challenges and coming to a consensus may be revisiting the governor’s proposal to do some significant fund shifting from.
school aid fund to the universities. But that remains to be seen. The Senate and the House have both cut, the House more, but the Senate also has cut. But the general fund budget is going to be smaller, but there are obstacles still to cover.
Guy Gordon (21:14.013)
All right, Craig, last thoughts.
Craig Thiel (21:19.086)
mean, great news that we’ve got the proposals out here. They’re public. They can be vetted. The problems that we identified on the revenue side, as well as the impacts arising from the federal social safety net program changes, are being recognized in this budget and attended to. The question is, how do you
get to consensus around the resolution of dealing with the challenges on the revenue side and with the federal policy changes. And we’ll continue to keep our eyes focused on what’s happening at the Capitol and come back with our assessment of the final product, hopefully before the legislative deadline of July 1st.
Guy Gordon (22:11.621)
All right, Craig, Bob, thank you very much.
Robert Schneider (22:14.936)
Thanks, Guy.
Craig Thiel (22:15.022)
Appreciate it.
Guy Gordon (22:15.933)
All right, and we want to remind you that we also have a great series at our website, crcmich.org, or perhaps on Spotify, wherever you get your podcasts. And it is a deep dive into the Constitutional Convention question that’s going to be facing Michigan voters coming up November 3rd. We have carved now through Articles 1 through 4 of the Michigan Constitution. We’re just dropping a new one on Article 5. I think you’ll find it interesting, so check that out as well. And remember that think tanks,
Fact tanks can’t run on fume. So if you enjoy our podcast, put a little coin in the basket, if you will, at crcmish.org. We’d sure appreciate it and make sure we can continue to give you fact-based, objective, nonpartisan information upon which to make your decisions. Until next time, I’m Guy Gordon. Take care.
