“School boards are faced with the possibility of running out of money or closing schools to stay afloat,” according to a recent Fox2 Detroit story.

The TV station adds that the number of school buildings in Michigan dropped from 3,255 in 2010 to 2,870 in 2020. While that sounds ominous, the facts about school district finances offer some perspective.

The worry those numbers might inspire is misplaced, according to Michael Van Beek, director of research at the Mackinac Center for Public Policy. He questions various statements made in the story, including comments by Don Wotruba, executive director of the Michigan Association of School Boards.

“When you have all of your money coming in based on the number of kids and you have fewer kids,” Wotruba said, “you have less money and most of the costs are fixed and they still went up.”

Districts get some but not all of their money from enrollment numbers, Van Beek told CapCon.

Districts also raise money for school buildings through local millages. Enrollment numbers do not determine how much a district gets from those taxes.

When asked about the statement that school boards may have to close buildings to stay afloat, Van Beek said that that would be highly unlikely.

“The costs of maintaining a building are so small compared to all the other stuff districts spend money on that they could never make or break a district’s budget,” Van Beek said.

Michigan school districts have had record-setting revenue in recent years. Most of their costs are not tied up in the fixed costs of buildings. Employee compensation is the single largest expense.

Van Beek agrees with Wotbruba that enrollment has a big effect on school finances.

Districts lose out on potential revenue when parents opt for charter schools, schools of choice, private schools and homeschooling, he said, adding that more parents are opting out of the services conventional school districts offer.

The Detroit News reported in December that Michigan public schools have lost 131,000 students in the past decade. It cited increased enrollment in private schools, as well as a smaller school-age population.

Wotruba provided a comment to CapCon:

I stand by what I said based on the context of the interview. For operating purposes, and that’s what I was talking about with the reporter, the money comes from the state and almost all of that money is on a per-pupil basis, whether that is the foundation allowance or a categorical (grant). The reporter was asking me questions about funding and declining enrollment.

My statement was relevant to schools experiencing declining enrollment. Although they may get a per-pupil increase from the state, if they see a certain decline in the number of students they may actually have less money than they had the year before. For example, if you had 1,000 kids in your district and saw a $400 per student increase, you would have an additional $400,000, but if you lost 40 kids, that would take all that money away because they are funded at roughly $10,000 per student. None of this is an absolute, and there are examples on both sides, but we do have districts, even with the additional funding they have seen over the last few years, that are concerned about their budgets over the next couple of years.

But school costs are not as fixed as they may appear, Van Beek said.

“Less than a quarter of school costs are fixed in the common use of the term. The largest part of school budgets — 70% — is for employee compensation,” Van Beek noted.

Even that amount, he said, is fixed only in the sense that school boards choose to lock themselves into multiyear contracts with unions.

Contracts can be renegotiated, he added, especially if the district is facing overspending problems.