As local school board members and superintendents across the state continue fiscal planning for catching-up students this summer and dive into discussions about the next year’s budget (eyeing a July 1 start), many are finding that they have much more money to program for their schools thanks to Uncle Sam.  A situation they could have hardly envisioned last spring when the pandemic was in control of many facets of life, including public education.  

With Congress’s recent approval of a third stimulus package, the federal government’s injection of over $6.0 billion into Michigan’s public schools since last year’s CAREs Act is changing the fiscal landscape for many districts. The unprecedented amount of aid, coupled with a healthy state education budget, paints a much brighter fiscal picture for many district budgets compared to last year at this time.

For the benefit of our readers whose eyes automatically glaze over at the mention of SIX BILLION DOLLARS and for those unable to soak in the details of the tidal waves of federal cash crashing Michigan shores, we are taking a small step back.  Instead of digging into some of the finer details, we are using this space to provide some insights about the sheer size of the federal aid flowing into Michigan, particularly the most recent (possibly final?) $3.7 billion coming to schools.

Question:

I hear that Michigan public schools are scheduled to share in billions more federal education relief funding this spring. Billions? That’s a lot of money, no doubt, but give me a better perspective, keeping in mind we are living through a worldwide pandemic?

Answer: 

A LOT OF MONEY? You got that right!! 

You’re also right, that these are unprecedented times.  Education, at all levels, has been transformed by the sudden disruptions caused to student learning for preschoolers, K-12 students, those in college, and adult learners. And the unfortunate truth, at almost every level, is that poor students and students of color have been disproportionately impacted by COVID-19 compared to their whiter and richer counterparts. Recognizing the challenges facing public and private schools across the country, including K-12 and higher education, the federal government is stepping up with this financial assistance.

Back to your question.

It is the SINGLE LARGEST INVESTMENT in public schools ever. This is not just hyperbole. We did the research to prove it! We went back to when the school revenue data series began, collected and compiled the numbers, made inflation adjustments to get an apples-to-apples comparison, and examined all of this federal aid in a historical context.

Here is what we found.

From the Fiscal Year (FY)1987 (school year 1986-87) to FY2020, and after adjusting for inflation (FY2018$), the average annual increase in total revenue (all sources) for all Michigan public schools was roughly $150 million. This means, after taking into account the general rise in prices over this period, Michigan schools had an additional $150 million each year to serve students. Over the 33-year period, the single largest annual increase ($1.4 billion in FY2018 dollars) occurred in FY1993 with Michigan’s shift to a new state school finance system under Proposal A and the additional state taxes raised to implement it. 

Back to the present. 

Congress just approved, and President Biden signed, the $1.9 trillion American Rescue Plan Act, which will send K-12 schools another $3.7 billion. So lets place this funding in historical context. It is more than two times as large as the historic Proposal A revenue increase.  Further, it comes on top of $2.1 billion previously approved by Congress for Michigan schools. It is also two times larger than the total federal aid ($1.5 billion) sent to Michigan schools under President Obama’s American Recovery and Reinvestment Act to help them weather the fiscal effects of the Great Recession.

Taking into account the full $6.0 billion Michigan is scheduled to receive, and spreading the revenue over a four-year period, districts and charter schools across the state will have an additional $1.5 billion per year, for four years in a row, to re-open and operate schools, while providing compensatory learning services. This funding is layered on top of existing federal, state, and local education revenue streams have gone largely untouched by the economic downturn.

Michigan K-12 schools, including charter schools and intermediate districts, received about $22.1 billion in total revenue in their 2019-20 fiscal year. Of this total, they spent approximately $18.4 billion for current operations – this includes teachers, books and supplies, but excludes capital spending. In nominal terms, another record-setting funding year. 

The federal Congressional Budget Office (see below) estimates that the largest share of the federal assistance will be spent in Fiscal Year (FY)2022 ($1.6 billion) followed by another 24 percent ($1.4 billion) in FY2023. Note: Because these are grant dollars, and authorization for schools to spend them may be provided today, the actual spending of the money by schools can happen throughout the grant period, as well as any extensions. That means nearly one-third ($2.1 billion) of the spend down on these federal dollars will occur in FY2024 and beyond. For the latest round of ARPA dollars, nearly one of every two dollars will be spent after FY2023.

As the chart below shows, these federal relief funds will be part of local school budget debates for a number of years.

Looking forward, if you combine the added federal revenue (per the estimated spending schedule) with very modest inflationary increases to baseline school revenues, Michigan public school revenues are set to hit another historic milestone very soon.  From a purely fiscal resource perspective, this has to be further good news.

The graph below shows our estimates for total K-12 public school revenue through FY2028, building off of the actual FY2020 revenues. These estimates take into account all the promised federal relief funds as a supplement to total baseline revenue (FY2020), adjusted for inflation. We show both actual/projected total revenue numbers as well as inflation-adjusted figures (2018$).

Again, looking at the inflation-adjusted projections in the graph below (blue line), total revenue will approach the $25 billion level in FY2023. This is nearly $500 million more than the previous all-time revenue high in FY2003 ($24.5 billion). That peak was reached with the help of healthy state and local revenue growth during the period, not federal funding. Also, unlike the post-03 peak period when real revenue growth flattened, total real revenue is projected to continue growing through FY2028.

By historical standards, the federal aid flowing to Michigan is helping set new revenue records for public schools. In part, this is expected as states and local governments have certain structural limits, including balanced budget requirements, that constrain their ability to provide fiscal relief in response to a pandemic.

However, even after accepting an increased federal role in responding to COVID-19 (recall the $1.5 billion for schools during the Great Recession), it is the scale of this relief that is beyond what Michigan, or any state, has ever experienced. And, as our projections highlight, are being layered upon growing state and local funding streams and the political reality that public schools have avoided major funding cuts in the state appropriations process.