February 13, 2018

Governor Snyder presents his 2018-19 Budget Proposal

Governor Snyder presented his budget proposal for 2018-19 last week, 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 completed in late May or early June which would be consistent with the last several 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 2017 estimates. While there was no hole to fill in the SAF, there appears to be 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 $334 million for 2018-19, making the total ending balance $564 million if we include the carryover from fiscal year 2017-18. This is all based on moving the current baseline expenditure levels forward without any law changes and the elimination of $200 million in funding for Section 147c2.

Governor’s Proposed Budget
The Governor’s budget looks favorable with a proposed foundation allowance increase of between $120 and $240 per pupil for 2018-19, distributed using the 2x formula. This means the basic/maximum foundation would move to $8,409, a 1.4% increase and the minimum to $7,871, a 3.1% increase! The total cost for the foundation allowance increase is $312 million.

Two areas that have been under scrutiny in the last few budgets have again been addressed in the Governor’s proposal. Recognizing the price point of operating a cyber school as compared to a physical classroom setting, the Governor recommends a foundation allowance limit of 75% for public school academies that operate a school of excellence as a cyber school. Additional limitations are found in the area of shared-time agreements where the proposal limits the number of students that can be served to 5% of the student population of the district servicing the non-public school.

In addition to the foundation allowance increase, the Governor again uses $11 million to provide $25 per high school student membership. This is the second year that we’ve seen a budget differentiation of per student funding between grades, giving credence to the long-debated issue that educating high school students is more costly.

The Governor holds At-Risk funding at nearly $500 million. Although no additional funding is proposed for 2018-19, the sweeping changes of the past few years still favor the use of the funding to assist educating the most critical-needs students.

The retirement rate used in the proposal is 26.18% for MIP/Basic with premium subsidy, up .62% from the prior year. This increase will push the total rate for this category of retirement to 38.39%. This includes a proposed adjustment in the rate of return assumption for the MPSERS system, backing the current assumed rate of 7.75% annual return for the non-hybrid plan to 7.5%. The move is estimated to save nearly $6 billion in cost over time and attain full funding in 2038, but will cost more every year until then. Additionally, the retirement rate for the new hybrid plan for members choosing the MPSERS plan that are hired after January 31, 2018 is established at 39.37% with 27.16% paid directly by the employer! This reflects the highest plan expense of all the options!

The impact of scaling back the annual rate of return assumption is made more tolerable with a proposed allocation of nearly $88 million in Section 147a2 MPSERS Cost Offset funding. The allocation of $100 million in Section 147a1 funding is also recommended for continuation in the 2018-19 budget.

As anticipated, Section 147c2 MPSERS Rate Cap funding of $200 million one-time funding to buy down the retirement incentive of several years ago was not funded in the Governor’s 2018-19 proposal. Instead, the allocation for Section 147c1 was increased $73 million to $1.03 billion for the coming year which will come “off the top” of school aid to cover the costs above the district cap of 20.96% on unfunded accrued liability payments.

Summing It All Up
The Governor mentioned his desire to revisit a change in the income tax distribution between the general fund and school aid fund which would cost the SAF upwards of $433+ million at last estimate. This change is NOT taken into consideration in this budget proposal. We haven’t seen the details of how that would specifically impact the SAF yet, but it will likely reduce revenues available to school aid.

You need to remember that the Governor’s proposed budget is just the start. 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.

That’s it for now, please stay tuned, as more information will be coming! Don’t forget to check our link to the School Aid Fund FY2018-19 budget page. We have posted many budget-related documents already and will update the site continuously with additional reports as we receive them!

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 are 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

2018-19 Executive Budget

Sec. 6(8) (page 16 of full bill text)
Updates definition of “class” to include an individual working under a valid substitute permit, authorization, or approval issued by the department. Strikes “legally qualified" and “teacher” from the substitute definition.

Sec. 11(1) (page 17)
Decreases GF transfer to SAF to $45 million (last year $215 million in funding).

Sec. 11M (page 19)
Significant increase for fiscal year cash-flow borrowing related to the SAF. Allocation of $24 million for 2018-19. 2017-18 allocation is $6.5 million.

Sec. 11S (page 20)
Reduces funding for services and programs for children who reside in Flint by $5.5 million. Total Funding proposed for the declaration of emergency totals $3.5 million for 2018-19.

Sec. 15(2) and (6) (page 23 and 24)
Strikes language that allows a district to present a case for hardship if a student membership audit requires a repayment of funds to the department. The department currently has the authority to waive all or a portion of the adjustment. The proposed language would eliminate this ability. Also disallows the department's ability to adjust pupil counts subject to other Section 6 requirements.

Sec. 18(2)b (page 25)
Changes transparency reporting language from “pie charts” to “visual displays.” This is information obtained from CEPI so its assumed to have little impact on districts.

Sec. 18(6) (page 28)
Changes district submissions of special education costs from the “department” to the “center.” This recognizes the electronic submission of the SE-4094 and SE-4096 directly to CEPI through the FID application.

Sec. 18(12) (page 29)
Adds language for the submission of financial information related to the per-pupil cost of operating a cyber school including one operated as a school of excellence, in the form and manner determined by the department.

Sec. 19(2) (page 31)
Changes due date from “June 30” to “last business day in June” for the submission of information regarding educational personnel. Forces a district to submit prior to June 30 when the date is a weekend.

Sec. 19(5) (page 32)
Describes process for developing a listing of school accountability under No Child Left Behind. Allows districts to challenge calculations after submission.

Sec. 20(1) (page 32)
The basic/maximum foundation allowance for 2018-19 is proposed to be $8,409, an increase of $120 or 1.4%. The minimum foundation allowance for 2018-19 is proposed to be $7,871, an increase of $240 or 3.1%.

Sec. 20(6) (page 36)
Establishes a 75% limit on the foundation allowance for a school of excellence that is a public school academy cyber-school.

Sec. 21F (page 43)
Requires parental consent be obtained by the primary district for students enrolling in a virtual course.

Sec. 21H (page 48)
$8 million (an increase of $2 million) for the purpose of assisting eligible districts assigned by the state superintendent to participate in a partnership to improve student achievement.

Sec. 22a(7) (page 53)
Adds language that non-public part-time pupils FTEs will not be paid under Section 22a, but rather Section 23F. Limits amounts paid to districts for non-public part time districts to $64.1 million. (Currently $125 million)

Sec. 22b(12) (page 58)
Adds language that non-public student FTEs will not be paid under Section 22b, but rather Section 23F.

Sec. 22M (page 59)
$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 60)
$11 million for 2018-19 for payments to districts for higher instructional costs of educating high school students. Payments equal to $25 per pupil membership for all grades 9 – 12 students.

Sec. 23F (page 61)
Up to $64 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. Limited to 5% of the serving district's FTE count. (Currently these payments are estimated to be $135 million)

Sec. 31a (page 70)
Maintains funding at nearly $500 million. Adds language on the use of multi-tiered system of supports and expands the allowable use of funds to grades K-8 rather than grades 4-8, which must address early literacy and numerancy. Also adds language on implementation of culturally and linguistically responsive teaching strategies. This section also includes language regarding schools where 50% of pupils are identified as At-Risk and the use of funds for schoolwide reforms. Also describes actions to be taken if pupils are below statewide levels of proficiency.

Sec. 35a (page 91)
Adds language designating early literacy staff or contracted staff funded under this section as critical shortage.

Sec. 54C (page 112)
$500,000 allocated to continue implementation of the recommendations of the Special Education Task Force published in January 2016.

Sec. 61b(12)B (page 120)
Defines the Career and Educational Advisory Council.

Sec. 61D (page 121)
$5 million proposed for additional payments to districts for pupils enrolled in Career and Technical Education programs. Payments of $25 per pupil in grades 9-12 that are included in the districts membership and are enrolled in at least one Career and Technical program. An ADDITIONAL $25 per pupil in grades 9-12 who are enrolled in at least one “Critical Skills and High Demand” career field as defined in the Section.

Sec. 81 (page 127)
Intermediate districts funding maintained at $67.1 million. (Unchanged)

Sec. 99h (page 139)
Eliminates non-public schools eligibility for funding for all programs under “FIRST Robotics” programs.

Sec. 147 (page 164)
MPSERS retirement rates have been updated. For example, Basic MIP with premium subsidy increased to 26.18% for FY2019, an increase .62 percentage points. For more rates, see rate sheets.

Sec. 147a (page 157)
MPSERS offset of $100 million is retained for districts, and a total of $88 million is included (increased from $48.9 million) for districts AND intermediate districts for 2018-19! Allocations of the new funding is meant to offset the cost of lowering the expected rate of return for the fund and will be based on the districts payroll as a percentage of statewide payroll totals. This is the second year of the allocation which lowers the assumed rate of return to 7.5%.

Sec. 147c1 (page 158)
MPSERS rate cap funding increased to $1.03 billion, an increase of $72 million. The average MPSERS rate cap would be an estimated $690 per pupil, an increase of $50 per pupil.

Sec. 147c2 (page 168)
This Section is eliminated for 2018-19. This is the $200 million that is currently being passed through the districts to buy down part of the “early out” incentive offered in FY2010.

Sec. 147e (page 169)
Allocates funds for the cost of retirement reform for districts that contribute additional employer contributions to a qualified participant’s Tier 2 account, based on the reform.

Sec. 163 (page 171)
Language changes to whom a district is prohibited to allow to be employed in certain circumstances including teachers, school counselors, superintendents, principals, or assistant principals.

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 $405 million, an increase of nearly $7 million from 2017-18.

The University subsidy from the SAF increased to $385.6, up nearly $150 million from 2017-18.