By the numbers: the Snyder education budget

When is an increase not really an increase? When it’s an election year budget.

Gov. Rick Snyder’s budget proposal for the 2012-13 fiscal year was much anticipated, but its introduction was something of an anti-climax. In his budget presentation to the Legislature, the Governor described his proposals for K-12 education as a small but solid increase in funding. Other observers, looking closely at the numbers, begged to disagree. Regardless, the governor’s budget proposal makes the recent, much-reduced funding levels permanent. What little room there is for increased funding will be occupied by incentive payments: financial carrots intended to encourage what the governor calls “best practices.” Perhaps most important, it is clear that the Snyder Administration intends to lay to rest the idea that the School Aid Fund should be reserved for K-12 education.

UPDATE: This article describes the Governor’s “executive recommendation” for the budget; versions passed out of both the House and Senate appropriations subcommittees will be analyzed in a forthcoming article.

In an ironic turn for a budget document signed by “Rick Snyder, CPA, Governor,” what the administration called a 2.5% increase in K-12 funding triggered arguments over budget minutiae: when are “one-time” funds not really one-time, and do we use my numbers or yours? In what was probably the most widely-read salvo, former House Fiscal Agency head Mitchell Bean contested the governor’s numbers, arguing that what appeared to be modest planned increases over the next two years were, in fact, modest reductions in overall spending on K-12 education. We agree with Mr. Bean, and here is what we found.

Everything is one-time

Part of the confusion stems from funding that the Administration described as “one-time” funding last year, but which is now partly built into the regular budget. Last year’s school aid budget was originally slated to cut nearly $1 billion from education at all levels, though an unexpected surplus in the School Aid Fund allowed legislators to restore some $460 million of that as “one-time” funding. The Governor and his team clearly want to compare “ongoing” funding this year with what they propose for next year. But as Mr. Bean says in his article, in truth, every appropriation is “one time” in the sense that the legislature must renew spending every year. If you add this spending into last year’s figures, you get a year-on-year increase in gross appropriations of 0.22% — hardly exciting. But much of that increase can be traced to a 2.9% increase in Federal education funding. Excluding Federal funds, Gov. Snyder’s budget represents a 0.18% decrease in state funding for education.

Funding declines are long-term

This small decline follows a precipitous drop the year before, as school aid spending fell 17% when Federal stimulus funds (in the form of ARRA and EdJobs grants to states) expired. (State-source funding for K-12 by itself remained flat from FY11 to FY12, which indicated how much we had relied on Federal stimulus dollars to maintain education spending.) All told, the Governor’s proposal would cement what has been close to a 20% decline in the inflation-adjusted value of state appropriations for K-12 education over the last ten years. While Michigan has seen a decline in the total number of students, even in per-pupil terms state appropriations have declined almost 11%, after inflation, over the same period.

While some of this decline stems from the troubles with Michigan’s economy over the last ten years, much of it also reflects a steady decline in the share of our state’s economy committed to public education. As measured by state “personal income” (a measure of income earned by people and business in the state), state-source funding for K-12 education has received a smaller and smaller share of total state resources – regardless of the ups and downs of the economy. In large part, this is the result of tax policy that has not allowed K-12 funding sources to keep pace with the size of the economy. (This will be the subject of a separate article.)

So what’s different?

With proposed spending for FY13 nearly identical to this year’s budget, one would expect the budget’s provisions to be roughly the same. That is partly true, but there are some important differences.

In terms of numbers, most changes are small. The largest shift from last year is that a $133 million payment into a reserve fund for retirement system (MPSERS) reform is not repeated. (That money has not been used.) Some line items, including funds earmarked for special education and school bond loan fund payments, see small increases. Perhaps the most significant changes in the Governor’s recommendation are increases to the proposed payments to districts to help with pension system payments and changes to the “best practices” incentive system introduced last year.

The largest changes come in the incentive funding area. Not only does the Governor propose increasing funding for these incentives by $46 million (to $200 million), but the budget introduces major changes to the requirements. A somewhat smaller amount of funding ($120 million, down from $154 million) is earmarked for districts that meet specified “best practices.” The proposal replaces the current 5 criteria (of which 4 must be met) with 6 criteria, of which 5 must be met to receive funding: participate in schools of choice; measure “student growth” at least twice each year and report that information to parents; provide dual enrollment and other post-secondary coursework opportunities; provide online learning opportunities; act as policy holder for health care benefits; provide a dashboard to the community. (The first four of these are new.)

Entirely new “performance-based” funding is included in the FY13 budget. About $70 million would be earmarked for districts that met certain academic goals:

• $30 per pupil for showing proficiency growth (as measured by the new MEAP cut scores) in grade 3-8 mathematics;
• $30 per pupil for proficiency growth in grade 3-8 reading; and
• $40 per pupil for proficiency growth over 4 years in all tested subjects in high school.

The Department of Education is charged to develop fairly complicated models to determine districts’ eligibility for these incentive payments.

Funds directed to districts to defray increases in mandatory pension system payments are proposed to increase by $24 million to $179 million. This funding would offset about 2 percentage points of the 27% of payroll local districts must pay into the retirement system. Since the funding is distributed by relative payroll cost, rather than simply per-pupil, districts with higher than average per-pupil payroll costs would receive proportionately higher offset funding.

Some things don’t change

One thing this budget recommendation will not change is the use of School Aid Fund revenues to help pay for state universities and community colleges as well as K-12 education. In addition to the $10.8 billion from the School Aid Fund that will still go to K-12 education, some $197.6 million will go to community colleges and $200.6 million will go to state universities. These amounts represent a little over 15% of state funding for universities and some 67% of state funding for community colleges. (In fact, the Senate version of the bill proposes to change the name of the School Aid Fund to “Comprehensive Education Fund.”)

While one can certainly argue that the School Aid Fund should be used for all levels of education, the problem remains (in our view) that the stream of revenues earmarked for the School Aid Fund was originally designed to fund just K-12 education. It has not always been adequate to do that. If the legislature intends to shift more responsibility for higher education funding onto the SAF, we urgently need to reassess the source and size of the revenues available to do that.