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Status report: Where do we stand today? (Budget, Part I)

It has been a busy few months at both the state and local levels, and we at MIPFS have fallen behind in our reporting on state-wide issues. In an effort to remedy that, these status reports will give brief summaries of what has happened on the school funding front over the last few months. More detailed reports on each of these issues are coming in the next weeks. In these reports, we'll cover three areas: The school aid budget cuts for 2009-10, legislation that was part of Michigan's Race to the Top application, and school funding-related issues in the current 2010-11 budget debate.

FY10 Budget - October struggles

While it did not quite have the drama of 2007's Halloween night sessions, the Legislature nevertheless found itself unable to pass a school aid budget by the start of the new fiscal year on October first. A bill did finally go to the governor by mid-month, only days before school districts were supposed to receive their first state aid checks of the new year. As it emerged from the Legislature, the budget bill (HB 4447) cut $382 million in funding for schools, primarily through a $165 per-pupil funding cut to local school districts. To limit the cuts at this amount, the Legislature used $450 million in Federal stimulus ("ARRA") funds, leaving a balance of $184 million for 2010-11. (This was controversial, as some lawmakers wanted to use the entire amount to avoid larger cuts in 2009-10; but since the 2010-11 budget would be completed in a run-up to legislative elections, most members probably wanted to soften the blow next year.) While the bill resulted in a "balanced" budget for the School Aid Fund, it did so by relying (as required) on the most recent state projections of tax revenue, generated in May.

However, state agencies had been reporting that revenues from many taxes continued to come in below projections during the fall, setting the stage for more cuts to be made after January's estimates were finalized. As a result, Governor Granholm took steps to carve more savings from the budget bill, most notably eliminating the Section 20j funding that formed part of the foundation allowance of higher-spending "hold harmless" districts. [See an explanation of 20j funds in the comments that follow this article.] The Governor also issued a letter saying she was going to make a further mid-year cut to school aid, of $127 per pupil, because of presumed revenue shortfalls. (Current law requires the Governor to make budget cuts automatically if revenues fall short of expectations, unless the Legislature can find a way to make up the difference before 30 days elapse.)

The Governor's moves were widely interpreted as a gambit to push Senate Republicans to consider new sources of revenues for schools - but in the end they were not moved, even though several prominent Republican Senators represented school districts that were hurt badly by the 20j cuts. In the end, revenue projections improved slightly, allowing the Governor to rescind the planned $127 per pupil cut. However, the original $165 per pupil cut remained, as did the other line-item vetoes Ms. Granholm made in the budget bill. For some districts, the cut in 20j funding was larger than the $165 cut which applied to all districts. These cuts, which were in flux until December, forced school districts to revamp their budgets for the 2009-10 school year mid-stream, and six months after they had been legally required to set their own budgets for the year. The cuts also set the stage for larger battles over 2010-11 budgets, which were expected to include further cuts. A growing number of school districts were pushed into deficit by the state funding cuts, forcing them to agree to often-draconian deficit reduction agreements with the State. School districts are not legally allowed to pass deficit budgets.

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