The State of Michigan adopted the 2023-24 School Aid Fund (SAF) budget which continues the state's run of healthy tax revenues.
Revenue growth among the SAF's largest sources of revenue—Sales Tax, Income Tax, and the Stated Education Tax—are expected to push total state sourced tax revenue above $19 billion with federal aid kicking in another $2.2 billion.
The tax revenue growth enabled the state to increase the per pupil Foundation Allowance by $458 to a nominally record high of $9,608. Despite this increase the share of the SAF that flows to local school district's Foundation Allowance revenue has continued to slide to less than 50% of the total SAF budget. (See figure below)
In years past, nearly 90% of SAF revenue went to Foundation Allowance payments, but new dynamics are afoot in a period of significant change for SAF expenditures that were instigated by reforms to the Michigan Public School Employee Retirement System (MPSERS) beginning in 2010 under then Gov. Snyder.
In 2023-24 the state will spend $2.5 billion from the SAF as it wages war on the MPSERS Unfunded Accrued Actuarial Liability (UAAL), which neared $50 billion at the time reforms were adopted. 13 year ago the state began its march to eradicate the UAAL problem. For years the escalating retiree benefits (MPSERS) costs eroded local school district spending power.
Ultimately the elimination of the UAAL will contribute to an unprecedented moment in the state's history when the UAAL exits the state's budget picture in 2038-39. We can only imagine the dynamics when the state finds itself with potentially $3 billion in available annual revenue to be appropriated.
Until then the local districts, for the most part, appear to be coping well with the changes. Statewide rainy day funds remain above $3 billion as tax revenues outpace revenue losses the local districts are experiencing due to declining enrollment.
Zooming out, the combination of all these statistics begs the question: How is this all working?
For all the celebration of increased Foundation Allowances and local district rainy day funds (aka "fund equity"), when adjusted for inflation, the Foundation Allowance has yet to return to pre-Great Recession levels. Even after the $458 per pupil increase of the most recent SAF budget, per pupil revenue remains 4% lower than 2010.
In ensuing posts we will examine the rate of growth of the primary expense categories of Michigan public schools to determine how all of the trends play out at the ground level of local district budgets.
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