Governor Releases His Budget - But What's In It For My District

The Governor released his budget last week and referred to his investment in education.  We know that the devil is in the details.  We also know that coming out of the Consensus Revenue Estimating Conference (CREC), the School Aid Fund (SAF) was in good shape, but the General Fund was not.  Is the Governor saying positive things about investing in education while really gutting the SAF to cover the shortfall in the General Fund?  Again the devil is in the details, so we wanted to see the numbers and we just received some interesting district-by-district details!

2014-15 Budget Supplemental and Executive Order
Along with the 2015-16 budget being released, the Governor also issued an Executive Order and proposed a Supplemental Budget bill for 2014-15.  As you take a look at the details of the Supplemental, the real budget proposal starts to take shape and it is not an investment in K-12.  Remember, based on the CREC documents, the General Fund is short by $330 million for 2014-15 and short by $383 million for 2015-16.  The SAF balance sheet reflects a $284 million surplus at the end of 2014-15 and a $495 million surplus at the end of 2015-16. Here is what is proposed for the SAF:

Reduce the General Fund transfer to the SAF           $  80.5 million
SAF covers more Community College funding           167.1
SAF covers University MPSERS UAAL costs                2.0
SAF covers library MPSERS UAAL costs                      2.2
                                                                                 ------------   
Total 2014-15 SAF funds removed from K-12         $251.8 million
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The State Budget Office released a revised SAF balance sheet reflecting the Executive Budget and showing the surplus at the end of 2014-15 drops to $120 million and the surplus at the end of 2015-16 drops to just $5 million. That’s a difference that equates to $108 per pupil for 2014-15 and $328 per pupil for 2015-16.

To complicate matters even more, the executive order also eliminates the remaining section 147d MPSERS payments for the current year.  Districts received partial funding of the categorical in their November 2014 state aid payment, but have not received additional funding since.  We are currently working with the Office of Retirement Services (ORS) and the Michigan Department of Education (MDE) to provide guidance as to the proper accounting procedures to record the funds that were received and implications on future recording of the liability, if any.  Both departments are aware of the potential administrative burden this will place on districts as well as budgetary implications. The Office of Field Services and the Office of Special Education Services will also be consulted to ascertain if the funding change will cause reason to revise other district related federal or state budgets.  We’ll get the information out to you as soon as we receive the guidance.          

2015-16 Executive Budget

The proposed budget increases the foundation allowance by $75 per pupil, increases 31a At-Risk funds by $100 million (which is close to a 30% increase!) but reduces best practice funding to $20 per pupil (down from $50 in 2014-15) for those districts that can meet the new bifurcated requirements of finance and academics.  In addition, performance funding 22j ($30/$30/$40 per pupil for 2014-15) has been eliminated for the coming school year!  At first glance, it looks like those districts that currently qualify for best practice funding that are also receiving performance funding at any level, could be in for a shock as their specific “per pupil” increase could fall quite a bit short of the $75 mark!  Here is the district-by-district details, which shows the true impact of the proposal on your district. You will notice the increased At-Risk funding and the increased MPSERS UAAL state share are included as per pupil increases, however this clouds the true per pupil funding change between the two years as these funds are restricted and are not available for “in the classroom” expenditures or to help cover district inflationary costs!

Here are some sectional highlights of interest:

Section 11r – Distressed District Rehabilitation Fund
$75 million for distressed districts rehabilitation fund.  Funds are intended to support the rehabilitation of school districts experiencing severe academic and financial stress in order to mitigate the impact on student learning. This is a separate account in the School Aid Fund with oversight by the state treasurer.  Funds remaining at year end will remain in the distressed district rehabilitation fund. 

Section 18 

• Addition of language that requires the district or intermediate district to adopt an annual budget in a manner that complies with the Uniform Budgeting and Accounting Act.
• Changes the due date for the submission of FID and the district audit to November 1 rather than the current law of October 15 for 2014-15.  (The actual language in the bill is not straightforward and we are seeking a clarification on the intent.)
• Adds language that allows the department to withhold up to 10% of State Aid for noncompliance of transparency reporting.

Section 18a
Establishes the Basic Foundation at $8,174 and the Minimum Foundation at $7,326.  This is technically an increase in the Basic Foundation of $75 and the minimum of $200 from the prior year.  This amount reflects the rolling of the 2014-15 Section 22c Equity Payment of up to $125 per pupil into the minimum foundation PLUS an additional $75 per pupil.

Establishes the Maximum Foundation for a Public School Academy at $7,326.

Section 20f – Hold Harmless Provision
Maintains the up to $5 per pupil, $6 million total allocation for districts that have received the Hold Harmless Provision funding in the prior year. 

Section 21f – Best Practice Grants
Students enrolled in on-line courses shall be counted in pupil’s resident district (primary district) membership.

Section 22f Best Practice Grants
Allocates $30 million ($20 per pupil, a decrease of $30 per pupil) for districts meeting 2 of 3 best practices in both the financial and academic categories:

2 of 3 Financial:                

• District provides dashboard or report card demonstrating the districts efforts to manage its finances responsibly. (Current Law)
• Local school board members receive department-approved training if ending fund balance is below 5%. (New)
• The district maintains an ending fund balance of greater than 5% for the prior fiscal year. (New)                

2 of 3 Academic:                              

• District administers a department-approved kindergarten entry assessment.
• District administers a department-approved diagnostic tool to monitor the development of early reading skills and support research based PD.
• District assesses the effectiveness of current college and career advising programs based on Michigan College Access Network criteria.

Section 22i - Technology Infrastructure Readiness Grants
Allocates $25 million for Technology Infrastructure Readiness Grant, a reduction of $16.5 million.

Section 22j – District Performance Funding
ELIMINATED! Repeals this section, reducing funding by $51.1 million.

31a – At-Risk
Allocates $417+ million for at-risk programming, which represents a $100 million increase over the current year funding level.

Section 35a-35g – 3rd Grade Reading Initiatives
Allocates $18.4 million for programming designed to ensure children are reading at grade level by end of grade 3.

Section 61b – Career & Tech Ed / Dual Enrollment Programs
Allocates $18.4 million for CTE Early/Middle College programs.

Section 81 – ISD General Operations
Maintains current year appropriation of $67 million for ISD operations.  No increase.

Section 102/103a/103b/103c – Fiscal Distress Early Warning System
Fiscal Distress and Early Warning system language as proposed in the Governor’s 2014-15 initial proposal.

147a – MPSERS Cost Offset
Maintains $100 million allocation.

147c – MPSERS UAAL Rate Stabilization Payment
Increases allocation to $893+ million to cover the retirement costs above the 20.96% capped rate.  Estimated rate cap equaling $601 per pupil.

147d – MPSERS One-Time Liability Payment
Allocation discontinued for 2015-16 and eliminated in 2014-15 by executive order and a supplemental funding bill.  All funds actually paid to the district will not be affected and are expected to have been remitted to the Office of Retirement Services as planned.  No further allocation will be made in FY2014-15.

Other Notes:
General Fund/General Purpose transfer to the School Aid Fund will be $45.9 million, a reduction of $100 million from current year allocation.

Community College funding through the School Aid Fund will be $256+ million, an increase of $59 million from current year allocation.

University funding through the School Aid Fund will be $205+ million, an increase of $711,000 from the current year allocation.

Final Thoughts
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 clearly be seen, the fact that this will change is likely! The Senate and House will offer their budget proposals in the coming weeks, potentially using some 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.

For those that would like more information about the Governor’s proposal and the insight of the Senate and House Fiscal Agencies, both of our committee meetings this week will have representatives presenting on the topic. The ISD Committee will be held this Thursday, February 19 at 9:30 am at our offices in the MELG Building. Bethany Wicksall from the House Fiscal Agency will lead the discussion on the budget! On Friday, February 20, 9:30 am the School Finance Committee welcomes Kathryn Summers from the Senate Fiscal Agency to discuss the Governor’s proposal and initial implications. Both of these meetings can be joined via in person or on the web. Please see the linked agenda’s for connection instructions!

That’s it for now, but please stays tuned as more information will be coming! Don’t forget to check our link to the 2015-16 budget documents as we are updating 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, the Proposal 15-1 ballot election on May 5, and finally the May Consensus Revenue Estimating Conference. There are still lots of hurdles to get over before schools adopt budgets before July 1! This is just the beginning of the long process.  

David and Bob