Practitioners Summit to Reform Michigan Public School Funding

Tom Goodwin speaks to WLNS about the Practitioners Summit solutions for the school funding crisis in Michigan.

Editorial in Lansing State Journal focuses on the broken, school funding system. It calls for solutions, not ‘same old, same old’ from legislators.

Will legislators require that MI voters decide fate of 2010/11 school funding? View Tim Skubick’s report for WLNS.

Notes from Great Lakes Bay Regional Education Summit Meeting
Saginaw, Michigan
February 8, 2010
(by: Dennis Rogoszewski, Gratiot Isabella ISD)

Robert Daddow, Oakland County Deputy Executive provided additional data that should concern all of us regarding the financial difficulties facing the State of Michigan and the School Aid Fund in the coming years.  Many discussion points will not be a surprise, but Mr. Daddow did a great job of summarizing the overall difficult financial position currently facing the State.  My notes from the session are provided below:

•    State leadership’s unwillingness over the past several year to address the State’s fiscal challenges has resulted in minimal remaining fund equity
•    Of the private sector job losses nationwide since 2000, 50% of the losses have been in Michigan.
•    Michigan’s Unemployment Trust Fund (UTF) has used up its resources.  On Sept. 30, 2001, UTF had $3.0 billion in equity.  On Sept. 30, 2008 its equity position was $90.4 million deficit, or essentially insolvent.
•    A review of the State’s Sept. 30, 2008 General Fund and School Aid Fund balance sheets shows some serious concerns.
o    GF Cash @ 9-30-08 amounted to $7.1 million.  Accounts payable amounted to $1.8 BILLION.
o    GF Equity @ 9-30-08 amounts to $1,291 billion, however the GF Receivable from SAF is $980 million.  Otherwise stated, 76% of the GF’s equity comes from a receivable from the SAF.
o    When measured on a entity-wide basis, the State failed to balance the budget in 6 of the past 8 years (FY 2000 – FY 2008) – equity has been used to balance operations.
•    State and School Retirees’ Pension plans are severely underfunded.
o    Full pension contributions were not made for State and school pensions from FY 2002 – FY 2008.  Cumulative contributions shorted amount to $1.3 billion as of 9-30-08.
o    When measured on an actuarial basis, the unfunded actuarial accrued liability amounts to $7.8 billion.
•    State and School Retirees’ Healthcare is in worse condition:
o    State is funding medical portion on a pay-as-you-go basis, resulting in unfunded liabilities as of 9-30-07 of $39.9 billion.
o    Correcting the retirees’ healthcare problem would take an additional $1.7 – $2.0 billion new revenues annually for the next 30 years.  This is over and above the current shortfalls being discussed in Lansing.
•    Continued property valuation declines will likely have a greater effect on the State’s financial position than is currently built into the revenue consensus estimates.
o    SE Michigan region (primarily Oakland, Wayne and Macomb counties) makes up roughly 65% of the State’s property valuation.
o    Oakland County projects  taxable values to decline 13.0% (2009) and 12.5% (2010).  Macomb projects declines of 10.0% (2009) and 13.0% (2010).  Wayne projections are mirroring Macomb and Oakland.
o    Taxable value declines projected in SE Michigan will have a negative impact on SET revenues.  If 65% of the State’s valuation is projecting double digit declines, how realistic is it that the remaining 35% will be able to generate taxable value growth to provide for an increase in SET revenues?  State currently receives $1.8 billion in SET revenues for SAF.
o    Declining local property taxes from schools will increase the State’s obligation to cover the difference (or require further reductions to the base foundation allowance).  Have these expected declines been fully incorporated into the SAF revenue projections for 2010-11?  Formula uses data from one year ago, meaning impact of taxable value losses will be delayed one year.
•    Delinquent tax receivables are purchased by counties from schools with “recourse”.  If taxes are determined to be uncollectible by the counties, the counties are re-paid by the original government unit which originally had the delinquency.  Have schools anticipated these potential repayments to their respective counties?  Some of these repayments may be significant, and likely unbudgeted by the school district.
•    Schools have issued unlimited general obligation debt.  Depending on a district’s debt load and the severity of taxable valuation declines, millage rates for school debt issues may need to increase to cover fixed debt service costs.  It will be difficult to explain this potential “tax increase” to the public.
•    Taxable value declines impact ISD special education millage revenues.  Many ISDs distribute a significant portion of these revenues to local districts.  LEAs may see a decline in these revenues as the lower taxable values generated less SE revenues to the ISD.
•    Many solutions exist – new taxes, service reduction, structural reforms – but State leadership has shown a lack of political will to make tough decisions in advance of the crisis.  Reforms are needed, but often take years.  We are at the point where we do not have years to act.

A Grand Rapids Press article reports on a reform bill of grave concern to many educators.  An inaccurate analysis was the cornerstone of the bill that proposes to penalize districts spending more that 28% on “administration.” The analysis is deemed inaccurate because operation/maintenance and transportation were included in “administration.” (This implies that custodians and bus drivers are administrators – and it’s noteworthy that charter schools were excluded from the study.)

According to the article, this reform bill is considered “in flux” by Senator Birkholz…time to let concerns and voices be heard.

Article in the Lansing State Journal suggests educators are developing 2010/11 school budgets with caution, regardless of Gov’s SOS address