FY 2020 Budget Resource Center

Contents

• Summary
• Revenue Projections
• Balance Sheet
• Pupil Estimates

Summary

The final January 2019 revenue estimate made slight adjustments to the May 2018 Consensus Revenue Estimating Conference (CREC) totals. Estimates were lowered for School Aid Fund (SAF) revenue by $23.9 million for 2018-19, but increased by $25.9 million for 2019-20. The 2020-21 estimate was shown for the first time and grew $337.7 million over the prior year’s revenue estimate! Overall, this is good news for school funding.

MASA would like to caution that these numbers are preliminary and represent the first step in a very long process. Members are encouraged to take these numbers with a grain of salt, and not commit funds that have not been appropriated.

Read the full agreement.

Revenue Projections

In the final CREC agreement for January 2019, the GF/GP estimate from May 2018 was increased $288.6 million for FY 2018-19 and was increased by $199.1 million for FY 2019-20. Revenue for the FY 2020-21 was unveiled showing a 1.3 percent growth or $134.8 million above the estimated FY2019-20 level.

The SAF estimate for FY 2018-19 was decreased by $23.9 million from the May 2018 estimate, totaling a $210.6 million increase over prior year revenues. FY 2019-20 estimate was increased by $25.9 million, totaling $376.2 million over FY 2018-19, and FY 2020-21 is slated to increase $337.7 million above the FY 2019-20 level! This represents overall growth year after year at 1.6 percent, 2.8 percent and 2.4 percent for the three fiscal years, respectively.

The reasons for the growth in both funds relate to elevated income tax revenue, which could be a risk in the future years due to higher than usual 2018 revenue. The refunds for 2018 will be better known in May. As a result, revenues could be adjusted then. On the plus side, the SAF will benefit from online sales tax revenues that are now being collected, as well as sales tax on recreational marijuana. The pressure on the GF/GP expenditure side could be an issue with road expenditures and other tax reductions kicking in over the next few years. Although the SAF seems to have more funding, the pressure to push more expenditures through SAF is always a concern. The interaction between the GF/GP and the SAF is something we watch closely as the transfer of revenue from the GF/GP to the SAF has been a significant source of ongoing support for SAF programming.

Balance Sheet

The HFA estimated balance sheet shows the impact of the revenue agreement on the funds available for school aid. Some key areas to note include:

• The GF/GP transfer to school aid is reduced for FY 2019-20 by $42.9 million, leaving a transfer in of $45 million. This is an estimate based on the prior Administration, so this is something that could change with the new Governor. The HFA balance sheet includes no revenue from the MPSERS retirement obligation reform reserve fund, which was $31.9 million in the prior year.
• The ongoing baseline expenditures include all categorical payments and foundation allowances for the budget under which you’re currently operating. The forecast includes moving forward current law with adjustments for student projections, the effect of lowered assumptions in the MPSERS system for both payroll and investment return, and the impact of implementing the dedicated gains policy to lower the unfunded liability. Total expenditures are expected to increase $20.9 million for FY 2019-20.
• FY 2017-18 final figures leave $362.5 million in the coffers to carryover to FY 2018-19. Although positive, there is still a current year structural deficit of $174.9 million.
• The estimate for FY 2019-20 shows a structural surplus of $75.6 million, leaving a final ending balance of $263.2 million at the end of FY 2019-20.

The balance sheet represents the best high-level estimate of revenues and ending balances based on the consensus agreement. Depending on policy decisions, it appears that there are funds available to increase foundation allowances or possibly increase other categorical funding in FY 2019-20. Caution is needed because spending more than $75.6 million of the $263.2 million projected ending balance will create a structural problem for FY 2020-21. Long-story-short, we do not recommend spending those dollars yet. We are very early in the budget process.

The figures represented in the estimated SAF balance sheet incorporate all of the changes that occurred in the “lame duck” session. This includes changes in the income tax split, the sales tax revenues for online sales, and revenues from the legalization of recreational marijuana. We also heard that the GF/GP estimates include road funding and the impact of the tax changes, and like the SAF, have an ending surplus. The big unknown is what are the priorities of the new Administration and Legislature and how that will impact the bottom line and final budget.

Pupil Estimates

Overall, the pupil estimates continue to decline annually.

FY 2018-19

• Local district pupils were adjusted to 1,323,700 which is a 7,800 decrease from May estimates
• PSA pupils were adjusted to 146,700 which is a 1,800 student decrease from the May estimates
• Compared to FY2017-18, local districts are down 13,200 students, and Public School Academy (PSA) students are up 100 students
• Grand total for all pupils is estimated to be 1,470,400 for FY 2018-19

Several factors attributed to forecast a decline in students. There was a reduction in final audited student numbers of 1,500 for 2018, which was not anticipated and therefore will be included in the forecast coming forward. The cohort of students entering kindergarten was down 3,000 from the graduating grade 12 cohort. There is a flat forecast for the number of non-public school students taking classes in public schools (shared time) and enrollment in PSAs is down even with nine new charter schools last year, although eight others closed. The overall trend that declining birth rates are anticipated also accounted for a reduction in the overall student forecast. After a few years of only slight overall declines, this estimate shows a somewhat significant reduction of students in the near future.

FY 2019-20

• Local district pupils were adjusted to 1,314,200 which is an 11,800 decrease from May estimates
• PSA pupils were adjusted to 146,600 which is a 4,000 student decrease from the May estimates
• Compared to FY 2018-19, local districts are down 9,500 students and PSA students are down 700
• Grand total for all pupils is 1,460,200 for FY 2019-20

FY 2020-21

• Local district pupils are estimated to total 1,306,000
• PSA pupils are estimated to total 146,000
• Compared to FY 2019-20, local districts are down 8,200 students and PSA students are unchanged
• Grand total for all pupils is 1,452,000 for FY 2020-21

 

**Thanks to MSBO for their assistance in compiling this summary.

Contents

• Summary
• Senate Fiscal Analysis

The Senate K12 Appropriations Subcommittee (ASC) has released its recommendation for the FY19-20 budget.

As expected, it’s quite a bit smaller in total, compared to Gov. Whitmer’s recommendation. The main difference is between the foundation allowance recommendations. The governor has proposed a smaller base foundation increase of between $120 and $180 per pupil (1.5x) with much larger premiums for economically disadvantaged students, special education students and CTE students. The Senate did not include the weighted foundation allowances and instead put more money in the base foundation using the 2X formula. Under the Senate plan, districts would receive between $135 and $270 per pupil.

Other noticeable differences between the two include the cyber foundation allowance, special education, at-risk and high school funding. The governor proposed a 20 percent reduction in cyber school foundation allowances, the Senate restores that cut. The governor recommended an increase in reimbursement by 4 percent for special education costs. The Senate did not make that recommendation and instead included a one-time boost of $30 million for special education capital expenditures. Under the governor’s proposal, at risk funding would see a $102 million increase to provide for a weighted foundation allowance for at-risk pupils. The Senate instead increased funding by $3 million and included $35 million for capital expenditures related to at-risk students. The high school premium first proposed by Gov. Snyder was retained in the proposal from Gov. Whitmer, but the Senate has removed that item.

Intermediate School District funding in Sec. 81 was increased by 1 percent in the Senate budget, compared to the governor’s proposal of 3.5 percent. As far as literacy coaches are concerned, the governor proposed tripling the number of literacy coaches funded by the state and eliminating a local match requirement. The Senate has also proposed a tripling of the number of coaches but has retained the local match requirement.

Several other line items that the governor eliminated have been resurrected in the Senate proposal including: Imagine learning; CTE equipment upgrades; strict discipline academies; online algebra tool; financial data tools; culinary instruction grant; year-round schools; summer reading; DAPCEP; Teach for America; non-public school funding; conductive learning; Pipeline-2-Promise; Dana Center; 10 cents per meal; MI Bright Future; Panic Button App.

The overall budget is $131 million below the governor’s recommendation and maintains School Aid Fund funding for University funding. While we look more deeply at the budget, it’s important to note that this is just another step in the process. MASA has come out strongly in favor of the governor’s recommendation because it begins to implement the findings of the SFRC and we encourage lawmakers on both sides of the aisle to support Gov. Whitmer’s school funding plan, which embraces funding equity, defines real solutions for protecting the School Aid Fund and reflects the removal of higher education from the fund.

For the most recent budget information from the Senate Fiscal Agency, click here.

The May Consensus Revenue Estimating Conference (CREC) took take place on May 17. Recall that CREC is when state officials come together to determine how much money the state has to spend in the fiscal year. In January we learned that state revenues showed some growth, but that trend is slowing and is definitely not favoring the School Aid Fund.

The good news, the legislature will have a slight buffer of revenue to complete budget work in the weeks ahead for the current fiscal year and fiscal year 2019-20 under the Revenue Estimating Conference agreement reached.

For the remainder of the 2018-19 budget year, estimates show a total General Fund and School Aid Fund revenue of $24.334 billion, up $14.9 million from the $24.25 billion decided upon at the January Revenue Estimating Conference. General Fund revenue is expected to be $10.871 billion, an increase of $151.5 million from the $10.7 billion in January while School Aid Fund was at $13.482 billion, a decrease of $68.2 million from the $13.55 billion set in January.

The CREC estimates for fiscal year 2019-20 show that General Fund and School Aid Fund revenue will total $24.617 billion, an increase of 1.2 percent over the current fiscal year, or $282.7 million.

General Fund for the fiscal year 2019-20 is projected to be $10.777 billion, down $74.8 million from the January projection of $10.717 billion and the School Aid Fund revenue is expected to be at $13.840 billion, an increase of $357.5 million from the January estimate of $13.926 billion.

These numbers will be used to draw the final budget numbers in the legislature, but that timeline is very much up in the air as lawmakers and the governor continue to differ on approach for road funding.

You can find a summary from CREC here.

Contents

• Summary
• House Fiscal Analysis

The House released their version of the budget on June 12. This recommendation does not include the weighted allocations for special ed, CTE, or at-risk that the governor proposed and is significantly less than the governor’s proposal and the Senate proposal. Part of that reduction is due to the fact that this budget was put together after the May revenue numbers were confirmed, so it is a more realistic reflection of current revenue projections. The House proposal also includes many millions of dollars in line items targeted at vendor projects. Several amendments were proposed and adopted during committee.

Both the House and Senate proposals included hundreds of millions of dollars in funding for community colleges, and many other pet projects for vendors that should not be funded using School Aid dollars. The House version does remove the $500 million of SAF used for Higher Education, but it appears to be accomplished by eliminating the first four cents of sales tax on fuel. This move results in a revenue cut for SAF dollars, but it appears to come all from university funding. There is more to learn on this item. We will continue to advocate against these types of diversions and vehemently push for a budget that is inclusive of true equity in terms of costs of educating every child based upon their needs.

In certain items, you will note that if they are not funded with School Aid Fund dollars, they noted as being funded with General Fund/General Purpose (GFGP) dollars, or Talent Investment Fund (TIF) dollars. GFGP is the State’s General Fund with which you are familiar, however, the TIF is a bit new and reflects money that was dedicated to Gov. Snyder’s so-called Marshall Plan. These dollars are not ongoing, so each item proposed to be funded with TIF money is assumed to be a one-time expenditure, or at least not sustainable if revenues in the SAF and GFGP do not grow next year.

To see how your district bottom line compares in all three budgets, click here.

The final budget is not expected until summer of 2019.

Budget Documents

Check back for the most recent documents for the FY 2020 budget.

January CREC

• Consensus Revenue Agreement, Final Summary
• Consensus Revenue Agreement, Executive Summary
• RSQE 2019-2021 U.S. and Michigan Outlook
• Comparison of Proposed Pupil Membership Estimates FY 2018-19, FY 2019-20, and FY 2020-21
• Economic and Revenue Forecasts
• Anticipating the Next Recession: A Probabilistic Approach
• Economic Outlook and Revenue Estimates for Michigan FY 2018-19 Through FY 2020-21