Michigan’s K-12 funding rebounds, yet buying power, classroom dollars lag

The Education Policy Innovation Collaborative, or EPIC, at Michigan State University has released a new report that tracked more than three decades of Michigan school finance. The report reveals a complex picture: Michigan saw a decades-long decline in inflation-adjusted funding, which has begun to rebound in recent years, thanks in part to educational investments in response to the COVID-19 pandemic. At the same time, the report shows that a smaller share of dollars reaches classrooms now than in the past and shifts in demographics have driven up the cost of providing an adequate education.

“Families feel funding choices in class sizes, course offerings and student supports,” said Jason Burns, research specialist at EPIC and lead author of the report. “When needs rise and dollars don’t reach classrooms, opportunities narrow.”

Demographic changes include a decline in the student population and growth in student groups that require additional resources. Michigan now serves over 350,000 fewer students than in the early 2000s. Additionally, the shares of students with disabilities, students considered at-risk (a state-defined category encompassing several groups with heightened need) and English learners have grown. In recent years, more than half of Michigan’s students have been considered at-risk. These shifts mean that more resources are required to maintain student outcomes.

Fewer students mean that districts are now much smaller than in the past, which translates into lower revenues as funding is tied to student counts. Declining enrollment also means higher per-pupil fixed costs in areas such as administration, transportation and facilities, which further strains district budgets.

Per-pupil revenues peaked in the early 2000s before declining more than 20% over the following two decades in inflation-adjusted terms. Recent years have seen some of this gap restored, though funding remains below the peak of the early 2000s. Additionally, a portion of the recent increase has been driven by time-limited federal COVID-19 relief, which raises questions about its sustainability. At the same time, the foundation allowance, the baseline level of per-pupil funding that forms the backbone of district budgets, has declined in both real terms and as a share of revenues, leaving districts with fewer flexible dollars for day-to-day costs and long-term planning.

“Michigan has seen a rebound in education funding, but districts’ purchasing power still hasn’t recovered to where it was in the early 2000s,” said Matthew Guzman, research assistant at EPIC and co-author of the report. “At the same time, districts are serving fewer students, and students now have greater needs, which means they often need more dollars to sustain a given level of services.”

Instructional expenditures declined less than revenues after adjusting for inflation. However, that masks a significant change in the balance of spending between salaries and benefits. Growth in the cost of legally mandated benefits has crowded out spending on salaries, a trend that accelerated over the last decade. Importantly, this does not mean that benefits have become more generous for educators — the driver of this increase has been higher required payments toward unfunded liabilities in the state retirement system. Since 2000, spending on these mandatory benefits has increased by more than $1,900 per pupil (adjusted for inflation).

“While instructional spending has held steadier than revenues, what’s changed isn’t just how much is being spent but what that money buys. Legacy costs in the retirement system now consume more resources, leaving fewer dollars to support teaching and learning,” Burns said.

With student achievement in the spotlight, what matters is both the level of funding and how it is used. Demographic shifts mean schools require more resources today. Despite recent gains, over the long-term, real funding has generally trended downward, especially the dollars reaching classrooms. These patterns reflect policy decisions. To inform the discussion around K-12 finance in Michigan, the report outlines several steps policymakers could consider increasing funding, make funding more predictable over time, and enable a more informed public conversation about how well schools are resourced.