by Laurie Cummings, Economist

This report, the fifth in a series on school reform, discusses the effects of the ballot on statutory proposals on funding equity for Michigan’s school districts.

Introduction

A prime objective of Michigan’s school finance reform was to lessen the revenue gap between the state’s wealthy and poor school districts. In FY 1994–95 every district in the state will receive more money per pupil than it is now receiving. Some will receive an increase as large as 50 percent; others will receive as little as one percent more. This report discusses whether the result is greater funding equity among school districts.

The New Distribution System

P.A. 336 of 1993 radically changed how funding will be allocated to individual school districts. Under the old system funds were distributed based on a “power equalizing” school aid formula, which last year allocated $400 per pupil plus $102.50 per locally raised school operating mill. This system benefitted wealthy districts far more than it did poor districts. Under the new system, school aid is based on a per-pupil foundation grant, where districts receive a flat amount per pupil and locally raised school mills are much less important than in the past.

Distribution of FY 1994-95 Funding

In time all districts will receive a per-pupil foundation grant of at least $5,000, but this level will not be reached in the next school year. The FY 1994–95 grant is $4,200 per pupil. Once reached, the $5,000 foundation grant will increase each year at the same rate as state school aid fund revenue, adjusted for the change in pupil count. Categorical funding will be rolled into the foundation grant, with the exception of special education, adult education, and a few other programs.

Until all districts reach the $5,000 per-pupil level, aid will be based on each district’s FY 1993–94 (current school year) per-pupil school aid revenue. Because it is calculated from FY 1993–94 revenues, this funding base will reflect current inequities. As described below, however, the base is adjusted according to the revenue category into which a district falls.

Districts that receive less than $4,200 per pupil in FY 1993–94 will receive in FY 1994–95 the greater of (1) $250 more per pupil than they spend in FY 1993–94 or (2) $4,200 per pupil. In this way, the state’s poorer district will be brought up to a minimum revenue level of $4,200 per student from a level currently as low as $2,688 per student.

FY 1994–95 funding will be distributed to districts with a base between $4,200 and $6,500 per student according to a formula.1  This formula guarantees each district an increase in funding over FY 1993–94 levels, but the more a district now spends, the smaller its increase. For example, a district with revenues of $5,000 per pupil in FY 1993–94 will receive $219 more per student next year, and a district receiving $6,000 per pupil will receive $179 more.

Districts that now spend more than $6,500 per pupil are guaranteed $160 per pupil more than they spend in FY 1993–94. To achieve this $160 per-pupil increase, the state’s top-revenue districts may have to levy “hold-harmless” mills.

Only districts now spending more than $6,500 per pupil are eligible to levy these additional mills. Currently, 48 districts are eligible. However, districts with fewer than 100 pupils or requiring less than one-half mill to achieve the $160 per pupil increase over 1993–94 spending will be provided with funds by the state and will not have to levy additional mills.

The FY 1994–95 state payment to districts with a foundation guarantee of $6,500 per pupil or less is the difference between the foundation guarantee and local revenue per pupil (based on 18 mills on nonhomesteads under the ballot plan or 12 mills on all property under the statutory plan). Under both plans the FY 1994–95 state payment to districts with a foundation guarantee of more than $6,500 per pupil is the difference between $6,500 and local revenues per pupil.

In addition to the base foundation grant, certain districts will receive “at-risk” payments. These must be used to help students with special needs, such as for tutoring. Only districts with a base less than $6,500 per pupil will be eligible for at-risk funds, thereby giving lower-revenue districts an additional boost.

Exhibit 1 shows the 20 school districts that will receive the most at-risk funds. The average FY 1994–95 increase for these 20 districts is 10.8 percent including at-risk funds and 4 percent without them. The average FY 1994–95 increase in funding for all school districts is 8.2 percent including at-risk funds and 5.9 percent without them. The average increase is 5.2 percent in FY 1994–95 when weighted for district size.

Wealthy and Poor Districts

Funding inequities certainly existed under the old system of school finance. In FY 1993–94 the state’s 20 poorest districts will receive estimated revenues of between $2,688 and $3,477 per pupil, or an average of $3,477 per pupil. The state’s 20 wealthiest districts will receive between $7,279 and $13,703 per pupil, or an average of $8,831 per pupil. (See Exhibit 2.)

The wealthiest districts’ per-pupil revenues are about 2.5 times those of poor districts on average. The difference in revenues between the richest district and the poorest district is currently more than $11,000 per student.

Will the new finance system correct these inequities? Although inequities are not eliminated under the new system, they should be reduced.

In Exhibit 2 the average revenues of the poorest districts are estimated to be $4,294 per pupil in the coming school year, including at-risk funds. This represents an average increase of 25 percent for these districts.

Revenues of the wealthiest districts are estimated to be $9,089 per pupil in FY 1994–95, up 3 percent from the current year. The 110 poorest school districts (bottom 20 percent) will receive an increase in per-pupil revenues of 13.3 percent, more than two and one-half times the 4.8-percent increase the state’s 110 wealthiest districts (top 20 percent) will receive.<

District Size

The new finance system also reduces differences in revenues between large and small districts. Exhibit 3 compares current and future per-pupil revenues for large, medium-sized, and small K–12 school districts.

In FY 1993–94 large districts received the most per-pupil revenues, followed by medium-sized districts, while small districts received the least. This pattern of more revenues per student for larger districts will likely hold true again in FY 1994–95, but not to the same degree.

The exhibit shows that smaller districts will receive the greatest increases in school aid revenues in FY 1994–95, up 8.2 percent per student. Larger districts will receive the smallest increase per student, up about 6.3 percent.

The higher revenue growth for small districts is good news for the state’s rural areas, because, in general, smaller districts tend to be rural. Moreover, higher revenues provide an even greater boost than the numbers imply because the cost of living in rural areas is usually lower and a dollar of revenue can buy more there than in urban areas.

For example, as shown in Exhibit 4, school districts in the Oakland Intermediate School District (ISD) could on average buy only 74 staff per 1,000 students, assuming a grant of $4,600 per pupil, while districts in the Menominee ISD could buy 114 staff per 1,000 students with that amount. The cost of living difference is also reflected by the average teacher’s salary: $46,623 in Oakland and $30,292 in Menominee.

The flip side of this is that larger, generally urban, districts are receiving smaller increases than other districts even though they may need more to offset the higher cost of living.

Conclusion

Michigan’s K–12 education system will receive more money overall under the new system than under the old and will capture a larger share of state spending. All districts will receive an increase in FY 1994–95 per-pupil funding, and poorer, smaller districts will receive the most.

Although poorer districts will see the most revenue growth, the new system does not eliminate school funding inequities. The gap between per-pupil revenues in the state’s 110 wealthiest and 110 poorest districts will remain a substantial $2,506 in FY 1994–95.

1The formula for each district’s FY 1994–95 per pupil increase is $250 – {90 x [(FY 1993-94 base – $4,200)/$2,300]}.

Exhibit 2


Copyright © 1994

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