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June 2, 2016

Michigan school funding, choice policies hurting local districts

School districts in Michigan get into financial trouble almost entirely based on factors outside their control, according to a study from Michigan State University.

Chief among those factors are declining enrollment, higher shares of special education students and drops in state funding – a matter in the hands of policymakers.

And these forces have made the hardships in Michigan’s low-income urban districts like Detroit even worse, argues David Arsen, professor of education policy in the MSU College of Education.

The research, to be published in the Journal of Education Finance, is the most comprehensive study to date to determine what causes school budget deficits in Michigan. Arsen and colleagues estimated the relative influence of multiple factors on the fund balances of all Michigan public school districts over nearly 20 years.

“Michigan has focused on policies to mostly reprimand school districts in trouble with their fund balances, assuming the problem is attributed to poor decision-making by local leaders,” said Arsen, pointing to the state’s emergency manager law and other policies that place sanctions on districts.

“In terms of local spending, some decisions matter but overall the impact is small. What does matter are changes in the school district’s per-pupil foundation allowance and their enrollment, especially where school choice and charters are most prevalent.”

Since Proposal A passed in 1994, Michigan has seen one of the nation’s most dramatic shifts in financial responsibility for public schools from local tax revenues to a centralized per-student funding system. In recent years, the state has experienced a significant increase in the number of school districts facing financial stress.

Nowhere is the impact more apparent than in Detroit Public Schools, Arsen argues, where the district faces over $500 million in debt after decades of enrollment loss and six years of emergency management. Michigan allows more far-reaching authority for state intervention than most places, Arsen says.

“We put the policy in place and it didn’t work,” he said. “If the state had a hand in creating the problem, then it has a responsibility to fix the problem.”

The three-year study was partially funded by the ACLU of Michigan and the U.S. Department of Education. Arsen’s co-authors, all graduates of MSU, are Thomas A. DeLuca of University of Kansas, Yongmei Ni of University of Utah and Michael Bates of University of California, Riverside.