school aid budget briefing - fy 2015-16...fy 2015-16 total = $12,131.6 million *figures based on jan...

School Aid

Background Briefing

The fiscal information in this background briefing is based on data through January 15, 2016.

Bethany Wicksall, Associate DirectorSamuel Christensen, Fiscal Analyst

January 2016

School Aid Budget

The School Aid Budget pays for the day-to-dayoperations of local public schools, enabling theLegislature to “maintain and support a system of freepublic elementary and secondary schools as defined bylaw.”

--- The Michigan Constitution

House Fiscal Agency: January 2016 2

School Aid: Gross Appropriations

$13,008 $12,898 $13,260$12,737 $12,982 $12,747 $12,912 $13,322 $13,674 $13,901

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

Mill

ions

3

Total School Aid appropriations for FY 2015-16 grew 1.7%. Gross appropriations have grown 4.0% higher over the last decade, after adjusting for the shift in local personal property tax revenues in 2009.

NOTE: Beginning in FY 2009, state funds increased by about $350 million to replace local revenue eliminated due to personal property tax reductions.

Gross

GF/GP

House Fiscal Agency: January 2016

School Aid Share of State GF/GP

Health and Human Services

$4,143,648,200 41.9%

Corrections$1,903,948,400

19.3%

Higher Education / Community

Colleges$1,363,529,300

13.8% Other$1,236,961,800

12.5%

Debt Service / SBA Rent

$411,019,600 4.2%

State Police$376,305,600

3.8%

Transportation$400,000,000

4.0%School Aid$45,900,000

0.5%

4

The School Aid budget makes up 0.5% of the total state GF/GP budget.

FY 2015-16 GF/GP Total = $9,881,312,900


School Aid Budget Share of School Aid Fund

School Aid$12,078,985,100

96.3%Community Colleges

$256,714,800 2.0%

Higher Education$205,179,500

1.6%

5

The School Aid budget receives 96.3% of the total state School Aid Fund (SAF) appropriations.

FY 2015-16 SAF Total = $12,540,879,400


SOURCES OF FUNDING

School Aid Funding Sources

State Restricted$12,078,985,100

87%

Federal$1,775,769,200

13%

State GF/GP$45,900,000

0%

7

School Aid Fund restricted funds are the largest revenue source in the School Aid Budget.

FY 2015-16 School Aid Budget = $13,900,654,300


SCHOOL AID APPROPRIATIONS

School Aid Appropriations

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

$11

$12

$13


Bill

ions

Federal stimulus funds used to offset state funds

MPSERS UAAL Funding

$893.5 million has been added to hold districts harmless from increasing retirement liability costs. Total funding for foundation allowances and other operational costs is still below previous peaks.

School Aid Fund

NOTES: 1) Beginning in FY 2009, state funds increased by about $350 million to replace local revenue due to personal property tax reductions.2) FYs 2012 and 2013 appropriations do not include funding set aside for future MPSERS payments, which was re-appropriated for

MPSERS payments in FYs 2014 and 2015.

9

General Fund


Major School Aid AppropriationsThe School Aid Budget includes the following major spending categories :

Foundation Allowances– Provides per pupil payment for general school operations– $9.0 billion or 64.8% of the School Aid Budget

Special Education– Reimburses districts for a portion of their special education costs– $1.4 billion or 9.8% of the School Aid budget

Michigan Public School Employees’ Retirement System (MPSERS)(Includes cost offset and State share of unfunded liability payments)

– Contributes a portion of annual retirement costs– $993.5 million or 7.1% of the School Aid budget

At-Risk Programs– Additional funds to help students at risk of academic failure– $379.0 million or 2.7% of the School Aid Budget

10House Fiscal Agency: January 2016

Major School Aid Appropriations (cont.) Early Childhood Programs

– Provides preschool programs for 4-yr-olds and parenting programs forparents of children ages 0-5

– $257.3 million or 1.9% of the School Aid Budget

Intermediate School District General Operations– Provides funding to ISDs based on previous allocations– $67.1 million or 0.5% of the School Aid Budget

Career & Technical Education (CTE)– Provides reimbursements to districts and ISDs for CTE programs and

funds CTE early/middle college programs– $55.8 million or 0.4% of the School Aid Budget

Early Literacy Initiatives– Provides funding for professional development, teacher coaches, added

instructional time and other initiatives to improve reading proficiency byend of 3rd grade

– $26.4 million or 0.2% of the School Aid Budget


School Aid Appropriations

Foundation Allowances

$9,009,700,000 64.8%

Special Education$1,359,546,100

9.8% Federal Programs (non-Special Ed)$1,334,769,200

9.6%MPSERS

$993,500,000 7.1%

Other Programs$443,941,500

3.2%

At-Risk Programs$378,988,200

2.7%

Early Childhood Programs

$257,300,000 1.9%

ISDs$67,108,000

0.5%CTE

$55,801,300 0.4%

12

Foundation allowances, used for school operations, absorb almost $2 out of every $3 spent.

FY 2015-16 School Aid Budget = $13,900,654,300


MAJOR BUDGET TOPICS

Major School Aid Topics

School Aid Revenues

Foundation Allowances

Special Education Funding

MPSERS Funding

Types of Schools

Declining Enrollment

Deficit Districts


SCHOOL AID REVENUES

School Aid Fund (SAF) Revenue SAF provides the majority of state funding for schools.

Certain taxes are earmarked, or reserved, for deposit into the SAF to pay forschool operations.

State Constitution requires SAF to be used exclusively for schools, highereducation, and school employee retirement benefits.

SAF will receive approximately $12.1 billion in revenue (estimated) for FY2015-16.

Largest sources of SAF revenue are shown on next slide.


SAF Revenue Sources

Sales Tax$5,476.745.1%

Income Tax$2,606.521.5%

State Education Tax$1,890.115.6%

Lottery Transfer$820.06.8%

Use Tax$481.64.0%

Tobacco Tax$355.32.9%

Real Estate Transfer$273.02.3%

Other$228.41.9%

17

FY 2015-16 Total = $12,131.6 Million

*Figures based on Jan 2016 Revenue Estimating Conference

Sales Tax is the largest revenue source, contributing nearly half of total SAF revenue.

Millions


SAF Revenue History

$11,153$11,513

$10,922 $10,750$11,248 $10,945 $11,270 $11,521 $11,747

$12,132

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016*

Mill

ions

18

Annual School Aid Fund revenues are estimated to grow by 3.3% and to total $12.1 billion in FY 2015-16

* FY 2016 figures from Jan 2016 Revenue Estimating Conference


School Aid Budget: GF/GP as a Fund Source

$665

$587

$283

$378$421 $421

$385

$198

$249

$378

$165

$63$35 $35

$78

$30 $19

$79

$282

$150

$34 $46

FY95

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

Mill

ions

19

GF/GP will contribute $45.9 million to the School Aid Budget in FY 2015-16. Of that total $30.9 million is reimbursement to the School Aid Fund for the 2014 personal property tax (PPT) reform


School Aid FundingLocal 18-mill Levy and State Appropriations

$0

$2

$4

$6

$8

$10

$12

$14

$16


Bill

ions

Local 18-mill School Aid Fund GF/GP Federal ARRA Regular Federal

20

Excluding federal funds dedicated for specific purposes, total FY 2015-16 funding for schools is 1.9% higher than the previous FY 2006-07 peak (not adjusted for inflation). Recent increases have included

significant funding for retirement costs.

ARRA: Federal American Recovery and Reinvestment Act of 2009

$13.95 billionState/Local Funds

$14.21 billionState/Local Funds


School Aid Balance Sheet

FY 2015 FY 2016 FY 2017Beginning Balance $473.1 $190.0 $32.9

REVENUESchool Aid Fund (SAF) Revenue $11,767.1 $12,131.6 $12,486.2HMO Use Tax 204.4 204.4 50.8General Fund/General Purpose (GF/GP) 33.7 45.9 57.0Federal Funds 1,808.2 1,775.8 1,775.8

TOTAL REVENUE $13,813.5 $14,157.7 $14,369.8

EXPENDITURESYTD Appropriations $13,674.0 $13,900.7 $13,882.5Jan Consensus Cost Adjustments (148.7) (47.7) 0.0Postsecondary Expenditures 571.2 461.9 461.9

TOTAL EXPENDITURES $14,096.2 $14,314.9 $14,344.4

Current year Revenues - Expenditures ($283.0) ($157.1) $25.4

ESTIMATED ENDING BALANCE / (SHORTFALL) $190.0 $32.9 $58.3

(Dollars in Millions)


FOUNDATION ALLOWANCE

Foundation Allowance A per-pupil funding amount that pays the bulk of school operations was

created as part of the “Proposal A” school finance reforms in 1994-95.

Districts receive a foundation allowance (per pupil funding amount) initiallydetermined in 1994-95, based on what the district collected from both stateand local funds on a per-pupil bases in the prior year.

Initial 1994-95 levels:– Minimum level of funding established: $4,200– Basic level determined: $5,000– State Guaranteed Maximum (Hold-Harmless) level set: $6,500

In FY 2015-16, the foundation allowance varies for K-12 districts from a lowof $7,391 per pupil to a high of $12,004.


“Basic” Foundation Allowance The “Basic” foundation allowance was a minimum goal established in

1994 as part of the Proposal A reforms, and it is set by the Legislature eachyear as a target per-pupil funding level.

In FY 1999-2000, all school districts in Michigan reached the Basicfoundation allowance, after which point all districts received the same annualincreases except for two years in which additional “equity” payments weremade to those at the Minimum to decrease the funding gap between those atthe top and bottom.

In FY 2007-08, the legislature re-set the Basic foundation allowance to equalthe State Guaranteed Maximum foundation and reinstated the 2x formulaunder which districts at the bottom receive twice as much an increase asthose at the Basic or above. All other districts receive an increasesomewhere in between on a sliding scale determined by formula.

In FY 2015-16, the legislature used the 2x formula increasing the Basicfoundation by $70 and increasing the minimum foundation by $140.


$4,200

$7,316 $7,391

$5,000

$6,500

$8,489 $8,169

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

FY95

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

State Guaranteed Maximum

25

Basic

Minimum

Foundation Allowance HistoryGrowth Since Proposal A

The FY 2015-16 foundation allowance for schools at the Minimum level is $75 above the previous FY 2010-11 peak. For schools at the State Maximum level, it’s $320 below the FY 2010-11 peak.

The “equity gap” between the two is down to $778 per pupil.

*Does not include the foundation allowances of 37 hold harmless districts that are allowed to collect additional local millage revenue to maintain statutory foundation allowances above the State Guaranteed Maximum.


Per Pupil Foundation Allowances Increases/Decreases

$153 $155 $154 $238 $300 $300

$200 $175 $210 $48 $56 $30 $50 $70

$306 $310 $308

$46

$530

$300 $300

$400

$0 $0

$175 $210

$96 $112

$0 $0

($470)

$120 $110 $175

$140

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10*

FY11*

FY12

FY13

FY14

FY15*

FY16

Per P

upil

Cha

nge

Districts at State Maximum

Districts at Minimum(Additional $)

26

*Notes: 1. FY 2009-10 school district funding was reduced $154 per pupil, and FY 2010-11 funding was reduced an additional $16 per

pupil, but it was done in a separate categorical Section 11d. 2. FY 2014-15 foundation allowances were increased by $50 across the board, and districts below $7,251 receive up to an

additional $125 per pupil equity payment under Section 22c, intended to be rolled into their base in the following fiscal year.


Foundation AllowanceState/Local Funding Mix

Each district levies 18 mills on non-homestead property.

State calculates local revenue from the 18 mills on a per-pupil basis.

State deducts per-pupil local revenue from the lesser of the district’sfoundation allowance or state guaranteed maximum per pupil amount.

Districts above the state guaranteed maximum (hold harmless districts) areallowed by law to levy additional mills with voter approval to achieve theirstatutory foundation allowance.


Equity Among Districts

Before Proposal A, the per pupil spending difference between the highest-and lowest-funded K12 district was almost $6,900 or 3:1.

In FY 2015-16, the difference between the highest and lowest K-12 district is$4,613, is approximately 3:2.

In FY 2015-16, excluding the 37 hold harmless districts whose revenue perpupil exceeds the Basic foundation allowance, the difference between thetop and the bottom has been reduced to $778, down from a gap of $2,300when Proposal A was first implemented.


Equity Among DistrictsFY 2015-16 Pupil Distribution

62%

17%

10%

4%

3%

1%

1%

0%

1%

0%

1%

x = $7,391

$7,391 < x < $7,891

$7,891 < x < $8,391

$8,391 < x < $8,891

$8,891 < x < $9,391

$9,391 < x < $9,891

$9,891 < x < $10,391

$10,391 < x < $10,891

$10,891 < x < $11,391

$11,391 < x < $11,891

x > $11,891

29

62% of pupils are concentrated in districts with a foundation allowance at the minimum foundation $7,391. As the minimum increases relative to the Basic, that share continues to

grow, thereby increasing the cost of future equity payments.


SPECIAL EDUCATION FUNDING

Special Education Funding

Second largest School Aid appropriation in FY 2015-16

– $918.5 million state dollars– $441.0 million federal dollars

Reimburses school districts for the costs of educating special educationstudents.

Required reimbursement rates determined by the Michigan Supreme Court inDurant v. State of Michigan in 1997:

– 28.6138% of Total Special Education Costs– 70.4165% of Total Special Education Transportation Costs

Local special education millages, levied by each ISD, will generate anestimated additional $950.5 million in FY 2015-16.


Special Education Appropriations

$1,397 $1,415 $1,449 $1,486

$1,369$1,415 $1,392 $1,364 $1,346 $1,360


Mill

ions

32

Special Education costs are expected to increase for FY 2015-16 after decreasing over the last few years.


MPSERS

Michigan Public School Employees’ Retirement System (MPSERS) Appropriations

Section 147a– Provides $100.0 million to districts to offset a share of their MPSERS

costs. Distribution is based on a district’s proportionate share ofMPSERS covered payroll.

Section 147c– Appropriates $893.5 million to pay for the state share of unfunded

accrued liability (UAL) costs per PA 300 of 2012, which required the stateto pay the UAL costs that exceed the capped employer contribution rateof 20.96% of MPSERS covered payroll.


MPSERS Employer Contribution Rates History and Future Projections

14%15%15%

11%11%12%12%12%13%13%15%

16%18%17%17%17%

21%

25%

27%

32%

36%36%36%34%34%34%

24%25%26%26%26%26%26%26%

FY95

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Perc

ent o

f Pay

roll

35

The state portion of the MPSERS contribution rate is $894 million in FY 2015-16 and is expected to increase to $984 million in FY 2016-17. The employer contribution rate is

capped at 20.96% for the unfunded liability plus the normal costs for retirement benefits newly earned each year.

Employer Share Priorto PA 300 of 2012

Employer Share After PA 300 of 2012

State Share afterPA 300 of 2012


EARLY CHILDHOOD

Great Start Readiness Program (GSRP)

Funding for the GSRP preschool program for 4-year-olds has more thandoubled from $109.6 million in FY 2012-13 to $243.9 million in FY 2015-16.

The per diem allocation for each half-day preschool slot is $3,625.

A district may use two half-day slots to serve a child for a full school day, and75% of the slots are used this way.

The number of available half-day slots has increased from 32,140 inFY 2012-13 to 64,440 in FY 2015-16.

In FY 2015-16, there is $10.0 million appropriated for allocations of up to$150 per slot for preschool transportation.


TYPES OF SCHOOLS

Traditional, Locally Governed School Districts

Traditional local school districts have defined boundaries and locally electedschool boards.

540 traditional local districts

1,344,194 pupils or 89.9% of the statewide public pupil membership


Public School Academies

Public School Academies (PSAs) are independent public schools formed byindividuals or groups to provide students and parents a public alternate totraditional school districts.

PSAs are authorized to operate by public universities, community colleges,intermediate school districts, local school districts and the EducationAchievement Authority.

PA 277 of 2011 increased the limit on university-authorized PSAs from 150(reached in 1999) to 300 in 2012 and 500 in 2014, after which the cap waseliminated.

– The bill also allowed a single PSA to operate multiple school sites withthe same grade configuration.



300 Public School Academies

In FY 2015-16 there were 145,951 pupils in PSAs or 9.8% of statewide pupilmembership

Average size of a PSA is about 485 pupils per school

The statutory PSA foundation allowance is capped at the PSA maximum,which is currently $7,391 per pupil, equal to the statewide Minimumfoundation.



0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

0

50

100

150

200

250

300

350

FY95

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

Pupi

ls

PSA

s

PSAs Membership

42

Growth in PSA Numbers and Pupil Membership


Cyber Schools

Cyber schools are a type of public school academy.

FY 2010-11 was first year of operation.

PA 129 of 2012 increased limits on cyber schools:– Limit on schools authorized by statewide entities increased to 5 in 2013,

10 in 2014, and 15 starting January 2015.– Enrollment limited to 2,500 in first year, 5,000 in second year, and 10,000

in third year.

In FY 2015-16

– 10 existing cyber schools with enrollment totaling 8,807– No new cyber schools opened in FY 2015-16


Education Achievement Authority (EAA)

Created by an inter-local agreement between Detroit Public School (DPS)and Eastern Michigan University in August 2011. Agreement recentlyextended until June 2016.

EAA assumed control of 15 DPS schools in FY 2012-13– 9 elementary/middle schools– 6 high schools– EAA converted 3 schools to a PSA

Total enrollment in the EAA and its PSA dropped from 9,300 in FY 2012-13 to6,734 in FY 2015-16.

Target Population is lowest achieving 5% of schools.


DECLINING ENROLLMENT

Declining EnrollmentTotal Pupil Membership Counts

1.591.621.651.671.69 1.7 1.711.711.711.711.71 1.7 1.681.651.62 1.6 1.571.551.541.521.511.501.491.48

FY95

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17*

FY18*

46

Fewer pupils means a loss of revenue to schools. Statewide, pupil memberships are 13% lower than their peak in FY 2002-03. Nearly 2/3 of traditional districts experienced declining enrollment

from FY 2014-15 to FY 2015-16.

Fiscal Years Pupil Blend

% current fall/ % prior Feb

1998 to 1999 60/40

2000 75/25

2001 to 2004 80/20

2005 to 2011 75/25

2012 to 2013 90/10

2014 to 2015 90/10 following Feb

2016 90/10

* FY 17 and 18 figures are from Jan 2016 consensus estimatesHouse Fiscal Agency: January 2016

DISTRICT FUND BALANCES AND DEFICITS

District Fund Balances and Deficits

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

$0

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

$2,500,000,000

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

FY2012

FY2013

FY2014

FY2015

Total Statewide Fund Balances Total Balances as Percent of Total Revenues

48

Total fund balances decreased from a high of $2.0 billion in FY 2002-03 to $1.2 billion in FY 2014-15. The average statewide total fund balance as a percent of revenues declined from

13.7% in FY 2002-03 to 7.9% in FY 2014-15. The number of districts with a deficit decreased from 55 in FY 2013-14 to 40 in FY 2014-15.


For more information about the School Aid budget, contact:Bethany Wicksall, Associate Director

[email protected]

Samuel Christensen, Fiscal [email protected]

(517) 373-8080

Or visit: www.house.mi.gov/hfa

school aid budget briefing - fy 2015-16...fy 2015-16 total = $12,131.6 million *figures based on jan...

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