The Foundation Allowance: Only The Beginning of School Funding

Most people in Michigan attended a public school, but few are familiar with how they are financed.

“People may not realize that Michigan's school funding system is really several overlapping systems with lots of moving parts.” That’s the summary offered by Ben DeGrow, director of education policy at the Mackinac Center for Public Policy.

His new study, “How School Funding Works in Michigan,” describes the ways that taxpayer dollars reach public schools.

School districts receive money from many sources, but the state foundation allowance is the most important source. Before reforms put in place in 1994, school districts received most of their funding from local property taxes. Districts in areas with low property values could not raise as much per student through property taxes as districts in more affluent areas.

The 1994 reform included a new six-mill state property tax for education alongside other tax cuts and changes. It created a system in which state and local tax revenues are combined in a complex formula to determine the per student foundation allowance. This is designed to decrease per pupil funding disparities across different school districts. The foundation allowance is the primary source of revenue for teacher salaries, textbooks and resource materials, and other basic operational expenses.

In 2017 the minimum foundation allowance is $7,511 per student, with some of the money coming from state and some from local property tax collections. Under the system, if a local tax base can only provide $3,000 per student in local tax revenue, the state will provide $4,511 to bring the district up to the minimum.

The total amount each district receives from the allowance is the per pupil amount multiplied by the number of enrolled students.

Schools get other funding too, and on average they received $14,307 from all sources for every full-time student enrolled in 2016. Almost twice the minimum funding amount, this figure included separate local, state, and federal sources of revenue.

Some of this comes from state categorical grants for specific purposes, such as buying local fresh produce for the cafeteria. Other grants are given to school districts on a competitive basis, such as a program to promote the sciences and new technologies.

Intermediate school districts are another area of Michigan education about which less is known by the general public. The main focus of each ISD is special education. While enrollment in ISD programs increased by 2.6 percent over the past 10 years, funding is up 39 percent. Like the conventional school districts, ISDs receive money from a variety of sources, including local, state and federal taxpayers.

Some 13 percent of all public school students, more than 197,000 individuals, are classified as having special needs. The needs vary from mild to severe and from hidden to obvious. Many students with special needs remain in a traditional classroom. Funding for special-needs students has its own complex set of rules for funding.

Aside from charter schools, most public schools use long term tax-supported debt to pay for buildings and facilities. (Charter schools must find money for buildings in their foundation allowance.) In 2014, school districts owed a collective total of $17.8 billion. As of 2016, more than 85 percent of school districts had some sort of tax for outstanding debt, which is paid by local taxpayers.

Michigan receives an estimated $1.8 billion for K-12 education from the federal government each year. Over half a billion dollars is given to fund the National School Lunch Program, providing students of low-income background with free meals. Nearly $500 million goes to school districts, in the form of the Title I program, to help students in poverty. The third-largest area of federal funding, $370 million in 2017, is for complying with the Individuals with Disabilities Education Act.

“Over time, Proposal A has made the playing field a lot more level when it comes to general education funding,” said DeGrow. “But Michigan still has work to do to ensure its education dollars are fairly and effectively focused on reaching all students where they are — regardless of what school they’ve chosen to attend or what special learning needs they bring with them.”