Education Funding

Facing Shortfalls, Michigan Girds for School Cuts

By Bess Keller — November 19, 2003 4 min read
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With no economic recovery expected to arrive in Michigan any time soon, schools there are bracing for a cut of at least $196 per pupil in state aid this school year after officials estimated that the state’s school fund was heading for a shortfall of nearly $350 million.

Under state law, the legislature has 30 days from the Nov. 6 notification date to find another way to balance the $12.5 billion education budget. If lawmakers do not, the cutting will start with the Dec. 20 payment from the state to the districts—less than three months after the budget took effect Oct. 1. Few expect that lawmakers can move fast enough or have the will to do much to avoid the cuts, especially when the revenue estimates in March might again fall short of planned spending.

State leaders are also pressed by a looming shortfall in the general fund, which they have tapped in recent years to help meet school aid goals. Gov. Jennifer M. Granholm, a Democrat, has told the state’s largest teachers’ union that the cuts—known as “proration"—seem “inevitable.”

Bankruptcies Coming?

The impact on the state’s roughly 550 school districts would vary widely if the cuts are made, said Justin P. King, the executive director of the Michigan Association of School Boards. Districts with reserves will be “folding over some money to preserve services and classes,” while districts operating close to the bone will see programs curtailed and positions dropped, he predicted.

Especially hard-hit will be urban school districts where enrollment has been declining as people leave city cores or enroll their children in nondistrict schools, according to Mr. King. Administrators in such districts have a hard time reducing expenses fast enough to keep pace with the funding cuts caused by departing students.

But lawmakers could harm those districts even more by choosing to reduce state aid that is earmarked for specific purposes instead of making the per-pupil adjustment, Mr. King asserted. Earmarked money disproportionately benefits districts serving mostly poor and minority children.

The state pays for about 70 percent of K-12 education costs (excluding federal aid), with much of that money distributed on a per-capita basis. Districts lost state money last year following a similar notification, again because revenues fell short. “I would not be surprised to see five or six districts going bankrupt” if the cuts continue into the next school year, warned Mr. King.

In Flint, for instance, school leaders have predicted that money lost from the state this year would wipe out the district’s reserves and leave the district enough money to operate only until the spring of 2005. “We cannot cut any further,” said Superintendent Felix H. Chow, who once served as the business manager of the 20,000-student district.

In the past two years, the Flint district lost about 2,000 students and was forced to shutter eight buildings and ax about 400 positions, Mr. Chow said.

A plan put forward by the Michigan Education Association, the National Education Association affiliate that is the state’s biggest teachers’ union, would shift money to some hardship districts, such as Flint and Detroit, by requiring districts with substantial reserves to draw on them before getting state money.

“It would keep districts from cutting programs in midyear and keep some districts from laying off people,” said Al Short, the union’s director of government affairs.

The union contends that districts have socked away $1.8 billion in reserves, a figure that local administrators have disputed. Under the union’s plan, about 130 districts would absorb the full reduction in per-pupil grants, while about 60 would see the amount of their cuts reduced, some to zero. Gov. Granholm has said she will consider the plan.

Some district administrators and legislators have criticized the MEA proposal for penalizing districts that prudently built up cash reserves, and for offering a short-term fix to a long-term problem.

Meanwhile, educators around the state, including the MEA, have begun calling for additional taxes and want to block a state income-tax rollback slated for January.

System Questioned

The state’s fiscal travails have put possible shortcomings of the state’s decade-old school finance system in stark relief, some say.

Part tax reform and part school finance, the system shifted much of the burden of paying for K-12 schools from districts to the state, and from local property taxes to state income and sales revenue.

A series of cuts to those taxes in the past decade has created a “structural imbalance” between revenue and the levels at which lawmakers and others wanted to support schools, analysts say.

“The crisis was simply waiting to happen,” said David N. Plank. He and fellow Michigan State University education professor David Ansen have recently published a report on Michigan school finance.

“In the last few years, the legislature has appropriated money from the general fund and exhausted one-time sources” to pay for schools, Mr. Plank said. “But now the flaws in [the finance system] can no longer be avoided.”

But lawmakers are plainly reluctant to breathe the word “taxes.” For the time being, the leaders of Michigan’s Republican-dominated House and Senate say they are ready to discuss an alternative way to make cuts but not new taxes.

“To raise taxes right now sends entirely the wrong message to people who might want to do business here,” said Matthew Resch, a spokesman for House Speaker Rick Johnson. Besides, he added, “the root cause of the structural deficit is spending.”

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