Opinion: K-12 budget cuts should not hurt highest-need students

Christian Barnard and Aaron Smith

Prolonged shutdowns of large parts of Michigan’s economy due to novel coronavirus risks will likely necessitate historic cuts for Michigan schools, with some fearing it could be as high as 25%. The default option currently being proposed by most legislators is for these cuts to come out of the state’s primary per-pupil funding formula as a flat amount for every student, regardless of the district they reside in. However, while an across-the-board cut to the state’s baseline per-pupil funding level sounds fair on its face, it would end up disproportionately harming the state’s most vulnerable students. 

While there are a wide variety of local, county, state, and federal funding streams in Michigan’s K-12 system, the Foundation Allowance (FA) is the single largest funding pot for schools. In a nutshell, the FA specifies a baseline dollar amount that every student is entitled to for their public education. Then, the student’s district taxes local property at a standardized rate to raise money towards that baseline amount. Finally, the state fills in the gaps if the local share isn’t sufficient to cover each student’s funding entitlement. While there are some complexities that complicate the overall fairness of the FA, its main goal is to equalize day-to-day operations funding across districts of varying property wealth. 

When there’s a budget shortage, the automatic adjustment established by statute is that the state first makes cuts to its main formula, rather than other state grants. If the legislature can’t appropriate sufficient funds to cover each district’s FA entitlement, the cuts are delivered to each district as a flat amount per pupil. 

While this may sound fair at first, it isn’t. That’s because it doesn’t account for existing spending disparities — which already tend to shortchange higher-need districts. 

While it may sound fair at first, a flat rate, per pupil cut to all school districts would leave disadvantaged students shouldering the most severe losses, Barnard and Smith write.

Let’s look at an example of two neighboring districts in Southeastern Michigan: Ann Arbor Public Schools and Saline Area Schools. For current operations, Ann Arbor spends around $15,600 per pupil, more than 13% higher than Saline’s $13,500. Now consider the worst-case scenario of a 25% flat cut ($2,028 per pupil). Because both districts would be seeing the same amount cut per student, Saline would be losing 15% of their budget while Ann Arbor would only be losing 13%. Already, the cuts are inequitable. 

But it gets worse when we isolate just foundation funding. Making flat cuts to the Foundation Allowance also ignores that some advantaged districts are already favored by the main formula due to historical spending patterns. Because of a “hold harmless” provision that funds districts based on their past funding levels — regardless of how fair they are — Ann Arbor receives a foundation allowance that is already 15% higher than Saline’s. This comes despite the fact that Saline has almost twice the poverty rate of Ann Arbor.

Under the worst-case scenario budget cuts, Saline would be losing around 25% of its foundation allowance while Ann Arbor would be losing about 21%. These gaps may not sound dramatic, but they can equate to higher-need districts like Saline having to lay off dozens of more teachers than their already better-resourced neighbors. 

But dramatically cutting the foundation allowance isn’t the only option. Beyond the FA, about 30% of state K-12 funding comes from other grants. While some of these programs target additional dollars to higher need students — such as at-risk and special education grants — many of them are not distributed on the basis of student needs and only benefit a minority of districts. This includes tens of millions to pay down debt that the state has borrowed on behalf of districts as well as millions more in tax subsidies — both programs only benefiting select districts. 

Michigan has made some strides in funding fairness in recent decades, such as narrowing the foundation allowance gap between historically richer and poorer districts. But it’s important for this progress to continue, even during a recession.

Disadvantaged students — who are already the most vulnerable to economic uncertainty — shouldn’t also have to shoulder the most severe losses. 

Aaron Smith is Director of Education Reform at Reason Foundation. Christian Barnard is an education policy analyst at Reason Foundation.