February 8, 2017

Governor Snyder presents his 2017-18 Budget Proposal

Governor Snyder presented his budget proposal for 2017-18 today which officially begins the formal discussion on the budget. Great news if you like to follow the process, but far from the final budget, which is normally a by-product of much debate in both the House and Senate before going to the Governor for his signature.  We generally expect the process to be complete in late May or early June which would be consistent with the last five years.

Consensus Revenue Estimating Conference Recap Before We Talk Budget

If you recall, the School Aid Fund (SAF) came out of the Consensus Revenue Estimating Conference (CREC) in fair shape, with a slight increase from the May 2016 estimates. While there was no hole to fill, there wasn’t excessive funding available for a significant ongoing foundation allowance increase.  The final year-end balance as estimated by the House Fiscal Agency (HFA) shows a structural surplus of nearly $97 million for 2017-18, making the total ending balance $241 million if we include the carryover from fiscal year 2016-17. This is all based on moving the current baseline expenditure levels forward without any law changes. 

Governor’s Proposed Budget

At face value, the Governor’s budget doesn’t look too bad from a School Aid Fund perspective. In fact, a proposed foundation allowance increase of between $50 and $100 per pupil for 2017-18, distributed using the 2x formula, means the minimum foundation would move to $7,611, up 1.3% from the 2016-17 amount of $7,511. The total cost for the foundation allowance increase is $128 million. 

But wait….there’s MORE!  In addition to the foundation allowance increase, the Governor is using another $22 million to provide an additional $50 per high school student. This is the first time we’ve seen a differentiation of per student funding between grades, giving credence to the long-debated issue that educating high school students is more costly.
But wait….there’s MORE! The Governor includes an additional $150 million increase to At-Risk funding and now includes hold harmless districts! That would add approximately 131,000 more students supported by At-Risk funding statewide. The increase represents an average increase of $105 per pupil for At-Risk students. And finally, an additional $25 million is being earmarked for early/middle college programs, first robotics programs, and declining enrollment districts funding. 

The retirement rate used in the proposal is 25.56% for MIP/Basic with premium subsidy, up .62% from the prior year. This includes a proposed adjustment in the rate of return assumption for the MPSERS system, backing the current rate of 8% annual return for the non-hybrid plan to 7.5% over two years. The move is estimated to save nearly $6 billion in cost over time and attain full funding in 2038!

The impact that districts and ISDs may feel based on the rate hike is somewhat muted by an additional $48.9 million in 147a MPSERS Cost Offset funding which will total $148.9 million for 2017-18. 147c MPSERS Rate Cap funding is also maintained at $960.8 million. The total 147a and 147c benefit for K-12s and ISDs is just over $1.1 billion for fiscal year 2017-18.

So how is it possible to see a such an increase in K-12 funding when the CREC estimate only shows $241 million available? Great question!  Here is part of the answer. The CREC HFA estimated balance sheet included a reduction in overall GFGP grant transfer due to the elimination of “one-time” funding of $162 million that helped offset the loss of the HMO use tax for 2016-17. The Governor’s proposal basically maintained the 2016-17 GFGP grant for 2017-18 which eliminated any “loss” of one-time funding!  Additional changes, such as limiting the amount of funding available for foundation allowances for non-public shared time agreements at $60 million (a proration because the cost is currently estimated at $115 million) and the anticipation of fewer students in the coming year, have allowed for a larger per pupil foundation increase. The bigger question might be, are these increases sustainable in future years?

Summing It All Up

Although a very positive outlook, we should use caution because it appears that the Governor is using some one-time revenue dollars that will potentially not be there in 2018-19. The Governor did NOT include in his proposal any change in the income tax distribution calculation as was discussed in the final days of the last legislative session and hinted to be added back again this session. A move that could cost the SAF over $430 million in revenue. He did, however, propose a “rainy day fund” deposit that would bring the Budget Stabilization Fund to over $1 billion by the end of fiscal year 2017-18.

We also noticed that there is no proposed income tax cut, which the legislative Republicans have indicated they would like to see. Budget Director Al Pscholka was quoted in MIRS saying that there would be $2.1 billion in tax relief phased in over three years based on tax breaks that were included into the previous budgets, but that there would be no income tax relief in the plan. That seems to be off the table, at least from the Governor’s perspective.

As we usually say at this point in the year, you need to remember that the Governor’s proposed budget is the first indication of funding and budget priority for the coming school year. Although the intent can be clearly seen, this is just the start and the budget will change! The House and Senate will offer their budget proposals in the coming weeks, potentially using many of the Governor’s ideas, or they may be quite different. Time will tell as the process unfolds, but be assured that we will keep our eyes and ears open as we take part in the various meetings that discuss the budget in detail.

That’s it for now, but please stay tuned, as more information will be coming! Don’t forget to check our link to the School Aid Fund FY2017-18 budget page. We have posted many budget-related documents already and will update the site continuously with additional reports as we receive them!

We will be keeping our eyes on the legislature as they move the budgets through both chambers and finally, the May Consensus Revenue Estimating Conference. There are still many hurdles to get over before schools adopt budgets prior to July 1!

We are including some of the details from the proposed School Aid Bill below. There are many other changes and if you know of certain sections of funding that your district receives but is not listed, you should take a look at the full text of the bill to be sure how the language may have changed and might affect your district.

David and Bob

2017-18 Executive Budget

Sec. 3 and 4 (page 2 and 4 of full bill text)
All references to “Achievement authority” and “Education achievement system” are eliminated in the bill.

Sec. 6(4) (page 5 of full bill text)
Blended pupil membership is 90% current year fall count and 10% prior year spring count.  (Unchanged)

Sec. 8b (3) (page 20 of full bill text)
Determines which intermediate district is required to provide programs and services to students in a school of excellence that is a cyber-school.

Sec. 11(1) (page 20 of full bill text)
$72 million appropriated from the Detroit Public Schools Trust Fund (tobacco settlement money).

Slight decrease in GF transfer to SAF to $215 million (last year $218.9 million including “one-time” funding).

Sec. 11S (page 22 of full bill text)
Continues funding for services and programs for children who reside in Flint due to declaration of emergency.

Sec. 20(1) (page 32 of full bill text)
The basic foundation allowance for 2016-17 will be $8,279, an increase of $50. The minimum foundation allowance for 2016-17 will be $7,611, an increase of $100.

Sec. 20(6) (page 36 of full bill text)
Establishes a 80% limit on foundation allowance for a school of excellence that is a cyber-school.

Sec. 21H (page 45 of full bill text)
$3 million for the purpose of assisting eligible districts assigned by the State Superintendent to participate in a partnership to improve student achievement.

Sec. 22M (page 55 of full bill text)
$2.2 million for the purpose of supporting the integration of local data systems based on common standards in compliance with the Michigan Data Hub Network.

Sec. 22N (page 56 of full bill text)
$22 million for 2017-18 for additional payments to district for higher instructional costs of educating high school students.  Payments equal to $50 per pupil for all grade 9 – 12 students.

Sec. 23F (page 58 of full bill text)
$60 million for state foundation allowance payments to districts for educating non-public part-time pupils enrolled in grades K-12, commonly referred to as “shared-time” agreements. (currently estimated at $115 million if fully funded)

Sec. 29 (page 62 of full bill text)
$7 million for additional payments to districts for declining enrollment assistance.  Specific criteria identified for eligibility. (see full bill text for requirements).

Sec. 31a (page 62 of full bill text)
Increased funding by $150 million for a total of $539.7 million.  Expands number of eligible students based on definitional changes and would include hold harmless districts.  Estimated to be a $105 per At-Risk pupil increase and an expansion to serve 131,000 additional students.

Sec. 61c (page 114 of full bill text)
$20 million for eligible districts and intermediate districts for the CTE Equipment and Innovation Competitive Grant Initiative funding.

Sec. 78 (page 122 of full bill text)
$4.5 million for the reimbursement of water testing and other approved items limited to $950 per school building for public and registered non-public schools. 

Sec. 81 (page 122 of full bill text)
Intermediate districts funding maintained at $67.1 million. (Unchanged)

Sec. 147 (page 156 of full bill text)
MPSERS retirement rates have been updated. For example, Basic MIP with premium subsidy increased to 25.56% for FY2018, an increase .62 percentage points. For more rates, see page 9 of issue papers.

Sec. 147a (page 157 of full bill text)
MPSERS offset of $100 million is retained for districts, and an additional $48.9 million is added for districts AND intermediate districts for 2017-18!  Allocations of the new funding is meant to offset the cost of lowering the expected rate of return for the fund and be based on the districts payroll as a percentage of statewide payroll totals.

Sec. 147c (page 158 of full bill text)
MPSERS rate cap funding decreased to $960.1 million, a decrease of $22 million. The average MPSERS rate cap would be an estimated $640 per pupil.

Other Notes:

Section 102d funding used to reimburse districts for the purchase of school data analytical tools as approved by the department has been eliminated in the proposal.

The Community College subsidy from the SAF increased to $395.1 million, an increase of $134.7 million, or 52%.

University subsidy from the SAF decreased to $235.7 million, a decrease of $1.5 million, or 1%.

The Detroit Public Schools turnaround plan funding is proposed to come from the tobacco settlement funds of $72 million per year over 10 years to offset the loss of the 18 mills revenue in the School Aid Fund, which is being used to pay off the debts of DPS.

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