Recipe For School Budget Trouble: Enrollment Down, Teaching Staff Up, Pension Expense Rising

Officials at Michigan school districts often claim their local budgeting challenges are due to cuts in state funding.

Bay City Public Schools provides the most recent example.

According to the MLive news site, the school board passed a resolution authorizing some layoffs and placed the blame on “reductions in state aid, loss of student count, and other business and financial reasons.”

Bay City Public Schools, however, has not seen a decline in state aid.

From 2010-11 to 2019-20, the district’s annual state funding grew by $6.9 million, even though enrollment declines mean there are now 1,398 students fewer students than at the start of the time period.

When adjusted for inflation, Bay City Public Schools’ per-pupil funding rose from $7,644 in 2010-11 to $8,668 in 2019-20, a real increase of $1,024 per student. That includes all state funding, just not the state foundation allowance.

Bay City Public Schools is also eligible for $1.86 million in federal COVID-19 relief money that can be used until September 2021.

Bay City’s experience of declining enrollment involves ingredients that are found at most Michigan school districts that get into budget trouble. School district funding here is tied to enrollment, and it’s hard for leaders facing persistent but unpredictable annual enrollment declines to reduce their workforce to match. The result is often spending that exceeds revenue and annual budget shortfalls that generate a growing debt to the state.

Despite enrollment falling by 1,398 students from 2011 to 2020, this district actually added more teachers over that nine-year span. There were 435.15 full-time Bay City teaching positions in 2010-11, and by 2019-20 the number had grown, though modestly, to 436.65 teachers,

While the district’s spending increased, the number of students declined. But total district expenses increased from $71.76 million in 2010-11 to $83.17 million in 2019-20.

The spending increase was aggravated by the growing burden imposed by an underfunded state-run school pension system. Like all school districts, Bay City must contribute to the underfunded Michigan Public Schools Employees Retirement System, a burden that rose from $8.03 million in 2011 to $11.81 million in 2019.

When that $3.78 million increase in pension expense was added to a 16% enrollment decline, and payroll expenses that were rising rather than falling, it reproduced a formula for school budgeting failure that is not unusual at Michigan school districts.