For Immediate Release:
January 15, 2015

Contact: Craig Thiel (517-485-9444)
or Eric Lupher (734-542-8001)

New CRC Report Examines Policy Options to Address Challenges Posed by Declining Student Enrollment

LANSING, Michigan – State policymakers have altered school funding and governance policy to fit the circumstances of the day. In a new report, Managing School District Finances in an Era of Declining Enrollment, the Citizens Research Council of Michigan suggests that policymakers once again need to alter state policies because of statewide declining student enrollment. The new report examines the causes, challenges, and possible state policy responses to declining student enrollment.

Michigan funds public school districts, in part, based on the number of students enrolled. Statewide, public school enrollment has declined by more than 11 percent over the past decade. This trend, combined with many new entrants to the public education market in Michigan, has contributed to student enrollment declines for over two-thirds of all public school districts.

“To their credit, many school officials have attempted to proactively respond to changing student enrollments,” reports CRC’s Senior Research Associate Craig Thiel, “but the economics of school finance suggest that state policy reforms could assist them to better manage school finances during an era of declining enrollment.”

In recent years, state-level policymakers have shown considerable interest in revisiting Michigan’s primary school funding mechanism. The Governor, the State Board of Education, and various factions of the Legislature have examined and weighed in with finance reform ideas. As the new Legislature gets seated and begins to contemplate the school finance issues it wishes to tackle, CRC offers the following considerations for state policy reforms to help school districts manage through the current era of declining enrollment:

First, moderate to significant enrollment decline is a clear sign of existing, or rapidly developing, fiscal stress. School officials and the state must heed this signal. It should be used as an early warning to districts and the state that a district is in trouble, prompting them to take action and provide additional assistance (i.e., technical, managerial, financial) to mitigate the effects of financial problems, including the potential disruption of student learning.

Second, the state should consider revisiting the blended student count formulas used during the past. Current formulas do not take into account previous years’ student counts, but only the current year. By giving greater weight to previous years’ student counts, districts are able to make a more gradual spending transitions to accommodate new revenue levels.

Finally, and perhaps most importantly, a fundamental disconnect exists between the state’s per-pupil foundation grant and the nature of school cost pressures (i.e., heavy fixed costs in short run). Policymakers should consider modifying the per-pupil foundation grant so that the marginal revenue that a district losses or receives because of a change in student enrollment is equal to the change in marginal costs, either up or down. This would require breaking up the grant to reflect the relevant fixed and variable costs in education.

CRC’s report is available at no cost on the Citizens Research Council’s website, www.crcmich.org.

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