Thursday, February 21, 2013

When an “increase in school funding” is a decrease

I read with great interest the headline saying that Governor’s Snyder’s proposed budget includes “a two percent increase in funding for K–12 public schools.” If only that were true. Somehow, though, the details turn into a major decrease in funding for my local district. Allow me to explain this magic trick.

A little background

Since Proposal A reformed our school funding system in 1994, a per-pupil “foundation allowance” had comprised the major funding guarantee for both conventional and chartered public schools. This guarantee combined local revenue (from taxes on commercial and industrial property) and state revenue (from taxes on homestead properties, plus dedicated sources such as a percentage of sales taxes and lottery proceeds, as well as General Fund supplementation). As local revenue goes down, state revenue goes up to maintain the same guarantee — and vice versa. This made for a somewhat reliable amount that schools and districts could use for planning purposes — which is vital when we are required by law to adopt a budget by June 30 for the following year.

Under Gov. Snyder, an increasing amount of funding has been diverted from the foundation guarantee to various categorical or incentive-based grants. The foundation guarantee itself has been cut dramatically — and the budget proposal includes reduced appropriations for the required portion in each of the next two years, on top of significant previous reductions. Instead, slight increases in appropriations are planned for the “discretionary” portion — which is how the state chooses to describe any increase beyond the 1994–95 foundation allowance. Only some districts qualify for only some of this discretionary and non-foundation funding, and the amount changes significantly from year to year.

For the 2012–13 school year, for example, several kinds of non-guaranteed revenue were available:

• Best Practices Incentive: districts meeting six out of eight prescribed best practices criteria qualified for $52 per pupil. Next year, those meeting seven of eight criteria will get $16 per pupil; most of those criteria have added requirements, as well. So, if you qualified for this incentive this year, as we did, your funding will decrease next year, whether or not you can meet the higher bar. In 2014–15, this incentive funding is eliminated, which translates into yet another decrease.

• Another discretionary category provided partial reimbursement of transitional costs associated with consolidation of two or more districts, as is happening on our western border. That entire category is to be repealed.

• Another section gave districts grants to help pay for technology infrastructure, given that state achievement tests will be required to be administered via computer soon. No new such grants are allowed for in the proposed budget.

• “Performance grants” of $30 per elementary/middle school student and $40 per high school student were awarded for specified growth in achievement on state-mandated tests. While this funding is scheduled for continuation, the total amount will be the same, so there will be proration (that is, another decrease) in per-pupil awards if the number of districts qualifying increases.

• A section providing parent involvement (PIE) funding, which was capped and had its allowable uses limited this year, will be eliminated altogether.

• Categorical funding was provided for “class-size reduction,” but the appropriations covered only about one-third of the promised amount. Now this categorical is proposed to be reduced and, the following year, eliminated. Both of those translate into funding decreases.

Back to the Governor’s proposal

For the next school year, the governor is proposing an actual increase in per-pupil funding — a major source of the “two-percent increase” headlines. This increase, however, is only for the lowest-funded districts, raising it from $6,966 to $7,000. Alas, no local districts will benefit from this, since they already receive slightly more than $7,000 per pupil per year. For us, the “two percent increase” translates to zero increase.

But even for the districts that do qualify, this increase will not be added to the foundation allowance. Instead, it will be a one-time “equity payment” that will not be built into the funding base for 2014–15. That means their funding will decrease the following year. I am at a loss to explain how a small, one-year increase addresses the growing inequity in revenues available per child depending upon geography. If inequity is truly an issue — and it most assuredly is! — then why are such attempts to ameliorate it not made permanently?

Current Operating Expenditures Per Pupil (which includes federal funding and, in wealthier districts, “hold-harmless” millages) ranged in 2011 from $5,167 to $25,815, so YES, there is considerable spending disparity depending upon where a child lives. [I excluded a few very small, island districts, where spending ranges above $50,000 per child.] Can you conceive of any reason why some children are “worth” five times as much as others? Offering a few districts up to $36 more per pupil for a single year in the name of “equity,” given the unconscionable lack of parity, is almost insulting.

The Governor also wants to expand funding for the Great Start Readiness preschool program, which has never had enough appropriations to cover all the children who qualified for it. The eligibility requirements are tightened somewhat, but this is a terrific idea, since it helps at-risk preschoolers to catch up with their more advantaged peers before kindergarten. Excellent research shows long-term benefits from such interventions. Pardon me if I worry about how this will be funded, however. Program funding, which is scheduled for substantial increases in each of the next two years, comes from the State School Aid Fund — the source of foundation, discretionary, and categorical funding now. Will this translate into the same — or even less — money for schools overall? Robbing Peter to pay Paul does not really help districts that are already in dire financial straits.

The MPSERS Burden

The folks in Lansing have also tried to relieve the increasing, almost suffocating, burden of the MPSERS (Michigan Public School Employee Retirement System) program. While every employee of traditional districts (but not of charters) is required to participate in this program, its costs have become ever more difficult to bear. Given the variety of circumstances, as new and less generous retirement provisions are phased in, the MPSERS employer contribution rate ranged this year from $20.96% to 24.32%.

Let me give a simplified example of how this works. Suppose your district has a $50M General Fund budget. If 85% of that is employee costs (typical for a “service” industry), that amounts to $42.5M. Suppose that 40% (or $17M) of that expense is for benefit costs (also typical, or even a bit low). That means that the remaining $25.5M is “payroll.” If we assume an average MPSERS rate of 23%, the district must pay nearly $5.9M ($25.5M x 23%) to the retirement system. In other words, 11.6% of the General Fund budget goes to pay for employees who are already retired.

In an effort to cap the MPSERS rate increases, the proposed budget also appropriates more than $1B to the retirement system over the next two years. But more than $802M of that comes from the State School Aid Fund. Again, if the SAF is diverted to other purposes than foundation, discretionary, and categorical funding for school operations, how much will be left for those operations? The Governor and Legislature get to say that they are increasing K–12 funding, but the overall net translates into a decrease in revenue for our classrooms.

I realize that this can sound like ungrateful whining. It has been a very tough recession, after all, and most of us suffered significant losses in both income and net worth. We have all had to make do with less. That includes all of our public school employees, whose net pay is now significantly lower than it had been, while demands for accountability and better performance rise every year.

As a side note, the state budgets almost $9.5M a year for the operations of the Center for Educational Performance and Information (CEPI). This appropriation is to increase almost a quarter million dollars “to pay for economic adjustments.” One has to wonder exactly what that means, and why K–12 districts, which do the actual work that is monitored by CEPI, are not allowed any similar “economic adjustments.”

Michigan State University Professor David Arsen calculated the average total state and local revenue per pupil since 1994 for all local and intermediate school districts and charter schools in Michigan, adjusting for inflation and enrollment. His chart shows a steep decline in per-pupil revenue every year since 2002 — long before the Great Recession hit. The per-pupil figure is now significantly below what it was in 1994, just as the disparity between highest- and lowest-revenue districts has grown.

One can only conclude that Proposal A has been a failure on both equity and adequacy grounds. It is time to try again to enable a pubic school system that allows both our children and our state to thrive. We cannot continue to expect more and more of our schools and teachers (as our children deserve) while providing fewer and fewer resources to get the job done.

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