Unraveling Our School Aid Budget

by Senator Patrick Colbeck

Every year, arguably the most important budget that we pass in the State of Michigan is our K-12 School Aid budget.  Consistent with the school aid budgets of his first three years, Governor Snyder has again proposed an increase in our investment in our students for FY14 by 2%.  Prior to his taking office, state spending on K-12 schools was in decline:

• FY08: $11,421,776,200 (Down 1.51% from previous year)
• FY09: $11,097,798,200 (Down 2.84% from previous year)
• FY10: $10,675,097,700 (Down 3.81% from previous year)

The state spending on K-12 schools over the past three years has been:

• FY11: $10,775,902,900 (Up 0.94% from previous year)
• FY12: $11,088,852,800 (Up 2.90% from previous year)
• FY13: $11,243,487,100 (Up 1.39% from previous year)

Despite this increase in spending on education, many school districts are vocal in their claims that they are receiving less revenue from the state.  Can it be true that we are spending MORE state funds on education while at the same time districts are receiving LESS in revenue?  The short answer is YES.

The long answer involves an examination of the expense side of the general ledger as well as the revenue side.  Over the past three years, the state has reduced the discretionary spending provided to school districts and increased spending in specific areas controlled by the state.  In other words, the state has indeed increased spending, but they have also increased their control over how that money is spent.  So the issue is more about who controls what portion of the spending than it is about the level of state spending on K-12 education overall.

Much has been made of the infamous “$470 per pupil cut” to schools in the FY11 budget.  Despite this “cut” to local discretionary spending, the overall state spending on K-12 education increased almost 1% during the first year of our state’s turnaround.  What is not often discussed are the details behind the $470 figure.  $170 of the reduction reflected the end of our state’s receipt of

Federal “Stimulus” funding that had been used to offset previous reductions.  $100 was carved out of the base foundation allowance into a Best Practice fund.  Schools could receive these funds if they demonstrated compliance with the state school code.  Another $100 was dedicated to funding the Michigan Public School Employee Retirement System (MPSERS).  The remaining $100 did actually reflect a reduction in discretionary spending for districts, however, this reduction was more than offset by reductions in spending due to reform legislation passed by the state.

Several recent changes have greatly impacted how school funding is spent. In 2011, the state enacted reforms that now require ALL state employees (including legislators) to pay at least 20% of the premium for their health care. This reform was implemented so that public employee compensation would be brought in line with that of the average taxpayer working in the private sector while bringing down the costs to school districts.

In 2012, the state enacted a reform of the Michigan Public School Employee Retirement System (MPSERS) to address the fact that for years the state had been promising a greater rate of return on investments than it was actually earning on these investments. Prior to the reform of MPSERS, we had been promising retirees an 8% return on their retirement investments. The actual returns on these investments have been only 2.9% over the past 3 years and 5.1% over the past 10 years. We need to fill this gap between our obligations to retirees and the reality of the actual returns. 

The K-12 school budget for FY14 continues the practice of increasing total state spending but also restricting the use of these funds.  The Michigan Senate passed the FY14 School Aid Budget (SB 182) on April 24th.  On the Senate Floor, I was able to pass two amendments to SB 182 with bipartisan support.

The first amendment restored the Governor's $155M proposal to offset the rising costs of school employee retirement (MPSERS) by pre-funding the system. Prior to this amendment, the School Aid formula effectively "redistributed the wealth" from high property value districts (i.e. higher tax contributions) to districts with lower costs of living.

The second amendment moved the money in the Governor's "Equity Payment" fund to the school Foundation Allowance. Prior to my amendment, the Equity Payment line item accelerated the redistribution of wealth from high property value districts to lower cost of living districts even more than the school aid formula. My amendment restored some measure of fairness to an otherwise unsettling trend.

In addition to these amendments, $274M was appropriated to cap the MPSERS charge back rate to school districts at 24% of payroll. Without this cap, school districts would be charged 29% of payroll in FY14 resulting in even more money being diverted from the classroom to support our financial obligations to retired school employees. Payroll represents well over 80% of school expenses in most districts.

Under the amended Senate budget, the base foundation allowance was kept at last year's level for each district. If my equity amendment survives the budget conference committee, all school districts will see a slight increase in their foundation allowances rather than a select few.

In summary, the FY14 School Aid budget continues the trend of increasing state spending on education while also increasing the strings attached with that spending.  The additional cost of honoring our MPSERS obligations to school retirees has in large part contributed to this situation.  While these new strings are necessary to get our school funding issues under control, it is my preference that we have more local control of spending within the school districts as we move forward. 

Posted in Editorials, Uncategorized.