The repeated theme in this year's Consensus Revenue Estimating Conference (CREC) is that the economy seems to be (on the whole) stabilizing in the wake of the pandemic. Current year revenue isn't declining as fast as expected and next year's revenue is expected to increase a bit. The combination of higher than anticipated revenue and future growth will mean that the state has a positive balance on the books heading into the 2024-25 fiscal year. That said, our total revenue increase is vastly smaller than what we've seen in the last several years.

Bottom line in plain language: we once again have more money than we were planning on (yay!), but nowhere near as new much money as we've been looking at over the last couple of budget cycles (boo!).

In other news, student enrollment declines continue apace. Back in May 2023, the estimates initially projected that student enrollment declines were slowing. Those projections appear to have been a bit too rosy and Michigan continues to lose students at a steady pace.

With that, let's look at…

The Numbers

  • $1.1 billion: If you want a single number that sums up the projected budget picture, look to the balance sheet (i.e. add up all the money in the bank, the new money coming in, and subtract what it would cost to just keep last year's budget in place). $1.1 billion is how much additional money the School Aid Fund the Governor and legislature will likely have available to spend in the 2024-25 budget. About $433 million of it is ongoing revenue (i.e. revenue that can be spent on things like foundation increases). By comparison, the foundation increase  for the 2023-24 school year cost $650 million, so there's no way schools should anticipate a foundation increase on par with that. Put a different way, $433 million roughly equates to 2% of the total current spending (including the foundation, At Risk, special education, and all the other ongoing line items). A 2% foundation increase comes out to about $190 per pupil.
  • $1.8 billion: That's the state's projected general fund balance for the 2024-25 fiscal year. Just over $900 million of that is ongoing revenue with the remaining $840 million in one time revenue. Since the state has a history of raiding School Aid to shore up general fund spending, it's worth keeping an eye on this number. Since it's nice a big, we are hopeful this means they will spend their own money and leave schools' money alone. We would love to think that lawmakers would use some of these funds to replace the roughly $900 million in K-12 funding currently being spent in the higher education and community college budgets, but while we should continue to advocate for this with lawmakers, we shouldn't plan on it when budgeting.
  • -5,800 pupils: This is the total projected pupil count decline for the 2024-25 school year. That is a net figure. For the traditional public school system, the picture is worse since traditional public schools are actually projected to lose 6,500 FTEs while the state's charter schools are projected to gain 700 FTEs worth of enrollment. These numbers are worse than what we saw last spring when projections showed the rate of enrollment decline slowing statewide. Unfortunately, that slowing never materialized and the ongoing loss of pupils continues at roughly the same rate we've seen for the last decade. Pupil counts matter for two major reasons, one local and one statewide. Locally, the obvious impact for schools is that fewer students means less money since Michigan allocates school funding based on enrollment. Statewide, pupil count determines how much it will cost to do things like increase the foundation allowance and at risk funding (i.e. fewer pupils means that a per pupil increase costs less).

What Does This Mean for the Budget?

We have $1.1 billion more School Aid total funding available to spend for the 2024-25 budget than what the legislature had available for the FY 2023-24 budget. About $680 million of that is one-time revenue, which will not be available for things like foundation or At Risk funding increases. By comparison, we went into last year's budget looking at a $5.5 billion fund balance of which $4.2 billion was one-time revenue. So while we shouldn't look a gift horse in the mouth, we should also be realistic about what this will mean for increases next school year.

We only have one budget under our belts with the current Democratic majority and that budget was rife with one-time spending and special projects, so we can only guess at what sorts of new priorities legislators are going to bring to the table given these revenue estimates. Still, there have been some consistent themes over the last several budget that seem likely to continue: increases to the foundation, At Risk, and special education funding along with continued investments in the areas of educator recruitment and retention, student mental health and wellness, and school safety and security. The Governor also has a shiny new report from her population council that calls for revisioning public education as a K-14 system that guarantees all students at least two years of college education, so that may factor into the mix as well.

Per usual, the budget process will likely play itself out over the next several months starting with the Governor's Executive Budget Recommendation coming out (likely) in the first week of February with a final K-12 budget for 2024-25 passed by the end of June. While the current debacle with the Democrats temporarily losing the majority in the House may have some marginal impact on legislation overall, we don't anticipate it will significantly impact the overall budget timeline unless Democrats somehow manage to lose seats (unlikely given the large Democratic bases in the two vacant districts).

If you want to indulge your inner economics nerd, you can browse the extensive repository of state revenue resources maintained by the Michigan School Business Officials for LOTS more detail about today's revenue forecasts...or don't and just watch for MASSP's ongoing updates.