GF Down, SAF Up in May Revenue Estimates

Bob Kefgen's picture

The State Treasurer and directors of the House and Senate Fiscal Agencies met Wednesday to come to consensus on the revenue estimates that will be used to finalize state budgets for next year. Bottom line: the state’s chief economists now project that while the School Aid Fund will do better than initially expected general fund (GF) revenues will come in lower, likely leading to pressure for both GF cuts and more School Aid diversions.

A Few Numbers:

  • The higher than expected revenue will mean that the School Aid Fund will have a roughly $45 million structural surplus (more money coming in than going out) and a positive balance of close to $350 million (the structural surplus plus $300 million in one-time carry forward).
  • The lower than expected general fund revenue is partially offset by lower than expected costs and some one-time carry forward revenue, but is still facing a roughly $100 million shortfall.
  • Michigan is projected to lose roughly 4,000-5,000 pupils per year for the next several years (an improvement compared to the 10,000-15,000 pupils per year Michigan lost for much of the last decade or more).

Contextualizing Things

Think of the good news as being the equivalent of painting a big red target on the back of the School Aid Fund. For years the state has been using School Aid Revenue to shore up the Higher Education and Community College budgets, effectively freeing up general fund dollars that they can then spend elsewhere. So with the general fund once again facing cuts, expect that the School Aid Fund will be used as a piggy bank.

The other unknown is what, if anything, the state is going to do with regard to MPSERS reform or the state’s income tax. Lawmakers have been talking about closing the MPSERS pension system to new employees and converting them over to a 401k-style plan, but that comes at a significant cost. They have also kicked around the idea of an income tax cut or a shift in income tax revenue away from the School Aid Fund. But with the general fund facing a shortfall and the additional School Aid revenue likely needed (at least in part) to bail out the general fund, it seems less and less likely lawmakers will find the hundreds of millions of dollars needed to make any significant changes to MPSERS or the tax code.

Drawing Conclusions

Given that revenue numbers are positive (even if the legislature and Governor seem poised to raid the SAF piggy bank again), it seems certain that most, if not all, districts are going to receive more money per pupil in 2017-18 than they did in 2016-17. All three budget proposals (Governor, House, and Senate) have called for a foundation increase. What remains to be seen is exactly how much each district gets. Though with declining enrollment and increasing costs, it’s not as though Michigan’s schools are getting ahead.

MASSP will continue to keep members updated as the budget process moves forward, so stay tuned. Also, if you find yourself in need of a surfeit of detailed budget information, MSBO maintains a veritable cornucopia of budget and revenue related resources on their website.