First look: Snyder election year budget

At first glance, there are a number of things to like about Gov. Snyder's budget proposal in this election year - which is hardly surprising, since he launched his reelection campaign at the same time he released his budget. Several of those things even stand up to closer scrutiny. But all this is against a background of real austerity in K-12 education, so that the executive budget proposal is a bit like having the vise around your head loosened after a long period of tightening: it's a relief, but you are still in the vise.

Highlights

• Districts will get a per-pupil increase between $83 and $111 per pupil, but this still lags inflation.
• Most of that increase is made possible by the fact that there are fewer students in Michigan schools this year than originally expected, and the same applies next year.
• The biggest increases are in the payments for unfunded liability of the state pension system.
• Per-pupil funding left after pension payments are covered has fallen 22% over the last 12 years, after inflation.
• Economic recovery is bringing a modest increase in revenues earmarked for the School Aid Fund, but no new revenue sources are being made available to schools.
• Even though the state's General Fund is projected to have a much larger increase in revenue, the School Aid Fund continues to pay for some $400 million in higher education costs that used to be covered entirely by the General Fund.

Per-pupil funding
For most school districts, the highlight will be that per-pupil foundation grants would increase between $83 and $111 per pupil under this proposal. In fact, the formula used to calculate this increase blunts the effect of the so-called "2x formula" (where the lowest spending districts get twice what the higher spending ones do) and makes the increase more equal than it would have been otherwise. The motive may be political, but districts will welcome a meaningful increase in per pupil funding.

However, even this increase does not keep up with inflation. The minimum foundation allowance will now be $7,187, since last year's equity payment is rolled into the foundation base in addition to the $111 increase proposed for next year. On a percentage basis, districts with the lowest per pupil funding will be getting the largest increase; yet, their per pupil increase of just under 1.6% lags the 2.2% inflation rate state officials predict for 2014-15. Districts with higher funding levels will fall even further behind inflation.

The Governor makes much of the fact that this per pupil increase is worth $150 million. However, most of this is actually from savings generated both in the current year and projected for next year because of lower student counts, changes in property values, and so on. The savings over this year and next add up to $115.4 million, which is money districts will not be getting because they have fewer pupils. The net increase in actual spending on the foundation allowance is only $34.6 million.

Pension costs
Overall proposed per-pupil spending does, however, rise faster than inflation. Why? The main reason for that is increases in the contributions to the Michigan Public School Employee Retirement System. This pension plan, which is state-run and under the sole control of the legislature, has suffered from both huge increases in health care costs and a collapse in the value of its investment portfolio over the last few years. As a result, accounting rules require that current contributions rise to cover the potential future shortfall.

In the last few budgets, the state has taken money off the top from the School Aid Fund and used it to make payments on the unfunded pension liability. This has the effect of reducing per-pupil funding but only because less money makes the round trip from the state, through districts, and back to the pension system. Under the pension restructuring act of 2012, the state caps local district's contribution to unfunded pension liabilities at around 20% of payroll. The state picks up the rest, but uses money from the same School Aid Fund pot. This year sees a substantial increase in that state contribution, to $675 million.

By our calculations, the real (inflation adjusted) cost of pension plan contributions per pupil has almost tripled since 2001-02. After pension obligations are paid, the amount left over for school operations per pupil has seen a real 22% decline since FY2002.

On the other hand, committing more resources to paying down the pension liability does help level the playing field between local districts and charter schools. Since nearly no charters contribute to MPSERS, they get to keep their entire per pupil funding rather than sending a large chunk back to Lansing. The legislature will be under pressure to change this provision in favor of the charter schools.

Big picture
Besides the increase in pension contributions, and the more modest increase in funding for the foundation allowance, this budget is remarkably like last year's. The second phase of the early childhood expansion, creating more openings in the state's Great Start Readiness Program, is supported by $65 million in increased spending (again, out of the same School Aid bucket). At the same time, special education costs to the state are projected to fall by $41.5 million.

On the whole, inflation-adjusted state spending on K-12 is still below FY2010 levels. Funds available after meeting pension obligations are at the lowest point in more than a decade. The substantial cuts to education in FY2012 are far from being restored, and the School Aid Fund will continue to struggle as the tax revenues earmarked for it lag the growth in the broader economy.

The projected "surplus" in the state's General Fund budget has prompted a number of proposals to cut taxes, but no one is proposing that the General Fund take back responsibility for the $400 million siphoned off from the School Aid Fund to support higher education.

So while it feels good that the vise is being loosened, we have a long way to go before we can get the vise off and return to pre-recession funding levels for our schools. There is no reason why we cannot meet our pension obligations and still find more resources to operate our schools. All that it requires is a little courage, and leadership.