Back to our regular impasse

*Legislators head towards budget compromise, but no new thinking in sight.* Most parts of the State budget for next fiscal year are in the final stages of negotiations, as House/Senate conference committees meet this week to hammer out versions acceptable to the Democratic House and the Republican Senate. The school aid budget bill (SB 1107), which supports K-12 education, is part of this process. The good news is that, despite the continued slide of Michigan's economy, lawmakers will probably not have to cut school funding for the current year, which they avoided last year only after some creative accounting. The bad news is that revenues earmarked for schools will be even lower next year than projected in January, making any attempt to simply keep up with inflation impossible. State government's main budget, the general fund, is in even worse shape, ruling out help from that direction as well. What this means is that rather than getting foundation allowance increases of between $108 and $216 per pupil, as the Governor's budget had proposed, school districts are likely to get about half that. For the lowest-spending districts, that works out to an increase of about 1.5%; for most districts, it would be even less than that. Some legislators are voicing the key question: do we allow our schools to decline along with the state's economy, or do we commit ourselves to investing in education even in hard times? How's that again? Constant readers will remember that local school operations are funded by a basket of taxes, some local and some state-wide. Of the taxes levied at the state level, two - the sales tax and a portion of the income tax - contribute more than half of the revenue raised by the state School Aid Fund. These two taxes are also the most sensitive to economic conditions: it was the rapid decline in sales tax revenue last year which helped trigger last summer's school aid budget crisis. (The SAF, on the whole, contributes about two-thirds of the money spent by local school districts for operations.) Most of the remainder of school operating funds come from property taxes: the state 6-mill education property tax, and local property tax levies capped by Proposal A. Preliminary state estimates show that real estate values have declined overall for the first time since 1962. However, Proposal A's limits on residential taxable value increases mean that many properties still have taxable values lower than assessed value. Taxable values can rise at the rate of inflation (or 5%, whichever is lower). Projections for school property tax collections are essentially flat next year compared to this, though lower than estimated last January. When top state economists gathered for the May revenue estimation conference, they forecast that school aid fund income for this year would be about as expected, meaning no last-minute cuts were likely. They also projected a modest 2.9% increase in SAF revenue for next year compared to this, though their May projection is over $160 million short of their January projection, which formed the basis of the Governor's budget proposal earlier this year. Help in the shape of large transfers from the general fund budget, which were substantial in the early days of the Proposal A school funding system, are very unlikely: the concensus forecast shows general fund revenue actually falling 3% for fiscal 2009. State of play As things stand now, the House version of the bill includes more than $33 million in spending not found in the Senate version. However, the House version offers lower increases in the foundation allowance than the Senate-passed bill: $55 per pupil for higher-spending districts, and $110 for lower-spending districts, compared to the Senate's $71/$142. (The Governor's original proposal was $108/$216.) The House also reinserted language from the executive's proposal that would require districts to have kindergarteners in school for a full day to receive the full per-pupil allocation for those students. Current law allows districts to count half-day kindergarten students as full-time for school aid purposes. The Senate had removed that change from their version. This provision could be very costly for districts which currently offer most students half-day kindergarten. Instead, the House version includes more spending on earmarked programs, including: increased funding for school readiness programs, early childhood education, math programs, and other targeted initiatives. Republican members of the House Appropriations subcommittee on school aid opposed this increased earmarking, and the state association of school administrators also called for more funds to be committed to the unrestricted foundation grant. Republican members of the House objected to moving a school aid budget which they said was $32 million above estimates of revenue to the School Aid Fund. (The estimates are, however, just that - estimates.) In the subcommittee hearing, Rep. Chuck Moss (R-Birmingham) asked "Are we nuts or what?... Is this a serious budget> Our revenues are falling and we're already starting in the hole." In contrast, Rep. Marsha Cheeks (D-Detroit) thought that the budget displayed a serious commitment to education: "This overage says to me that we have made a commitment to find the money to fund schools in our coffers throughout the year.... In the five-and-a-half years I've been here, we're finally coming to the realization that we must find the resources to fund education."