No School Funding System Adequate to Manage Large Student Declines

Editor's note: This story has been updated with Rep. Al Pscholka's comments.

The leader of a key Michigan House budget committee said it’s time to take a look at how public schools are funded in Michigan. In a story posted on the MLive news site, Rep. Al Pscholka, R-Stevensville, was apparently pointing to Benton Harbor Area Schools as evidence of shortcomings in the Proposal A school funding system that was approved by Michigan voters in 1994.

“Take a look at Proposal A? I think that's a great question, and I think that's something we ought to look at,” said Pscholka, who is chair of the House Appropriations Committee. “ ... I've got a district with a $15 million debt.”

But Pscholka said Benton Harbor Area Schools' financial situation is not related to his views on Proposal A.

Pscholka's spokesman Steven Heikkinen said in an email: "The article in question mentioned that Pscholka thinks it’s tweaking time, but Pscholka himself said his intent in the MLive piece was a bit tweaked, itself. Though the comments about reviewing Proposal A and Benton Harbor schools’ deficit were presented in loose sequence, Pscholka said neither issue is indicative of the other, but rather the broader need for regular education reform."

 “Like any 20-year old law, it couldn’t hurt to look at how Proposal A is working and what we could do differently given the state’s needs,” Pscholka clarified. “But I wouldn’t tie the issues with Benton Harbor Area Schools specifically to Proposal A, or even use it as an example to start that conversation. When it comes to education, funding is only one piece of the puzzle. Education reform has to be big-picture.”

Benton Harbor Area Schools, which is in Pscholka’s district, had to borrow after spending $16.3 million more than provided by local, state and federal taxpayers last year and $15.1 million the year before.

Benton Harbor school district has been a fiscal mess going back to at least 2006 — despite getting 27 percent more funding per student than the average Michigan school district.

Benton Harbor may have unique problems, but inadequate funding per student is not one of them.

In 2006-07, the first year the district overspent, it received $10,632 per pupil in local, state and federal funding. In 2013-14, the most recent year data is available, that was up to $11,607 per pupil. This is 27 percent more than the average for all Michigan public school districts, which is $9,121 per pupil.

Not that the district does not face real pressures, mainly a dramatic multiyear decline in enrollment. And under the Proposal A system, in which money is attached to students, this has meant a dramatic decline in the district's total annual revenue.

But this decline is not news. For nine consecutive years, the district has spent more than it takes in, covering the difference with borrowed money. This led Benton Harbor to be cited by the state for fiscal mismanagement and required to enter a consent agreement a year ago.

The state stepped in when district officials said that Benton Harbor would not pay off until 2028 the debt it incurred to pay operational expenses. The district's announcement came after the state had given it two emergency loans of $2.0 million each, in September 2012 and December 2013. But by May 2014, the district reported again coming up short on revenue to cover regular expenses.

Loss of enrollment and failure to take the steps necessary to adjust to that reality are the source of the district’s financial problems. For example, Benton Harbor officials overestimated the district’s general fund revenue by 20 percent (about $4.5 million) in the 2011-12 school year. They did better the next year, falling short by just 3 percent.

The latest state review revealed, among other things, that the district owed vendors $1.3 million in unpaid bills, which were more than 211 days past due. District officials, the state concluded, were stretching cash flow by purposely choosing not to pay vendors on time.

Because school funding in Michigan is tied to student enrollment, Benton Harbor's biggest challenge has been falling enrollment. The district had 5,127 students in 2002-03, down more than half to just 2,468 in 2014-15.

But not every school in the city of Benton Harbor is failing. While the conventional public school district offers a subpar education and is losing students, enrollment has risen at Countryside Academy, a public charter school, from 529 students in 2007-08 to 634 last year.

Benton Harbor middle and high school received D grades from the Mackinac Center for Public Policy’s 2014 school report card, while Countryside Academy received an A. These grades factor in the socioeconomic status of each school’s student body to obtain a more valid apples-to-apples comparison.