Education in Michigan: Finance and Reform

Transcription

1 Education in Michigan: Finance and Reform Michigan Association of School Administrators, Region 2 Jill N. Roof, Research Associate December 18, / jroof@crcmich.org

2 Citizens Research Council of Michigan Founded in 1916 Statewide Nonpartisan Private not-for-profit Promotes sound policy for state and local governments through factual research Relies on charitable contributions from Michigan foundations, businesses, organizations, and individuals 2

3 Overview of CRC Education Project

4 CRC Education Project Education Governance K-12 Revenues and School Finance Fiscal Realities and Spending Reforms PSAs and Non-Traditional Schools School District Service Provision and Reorganization Analysis of Educational Reforms 4

5 Education Governance Governance Structures Interstate Comparisons Implications of Current System - Complex political environment - School funding issues - Competition Education Governance Reforms - Independent versus dependent districts - State/city takeovers - Site-based management - P20 systems 5

6 K-12 Revenues and School Finance Pre-Proposal A Funding Structure Proposal A and School Revenues Foundation Allowance Formula Categorical Grants State and Districts Budgeting Processes and Timelines Interstate Comparisons of Funding Structures Analysis of School Finance Reforms - Changes to tax structure - Changes to current revenues - Changes to foundation system - School district equity 6

7 Fiscal Realities and Spending Reforms Cost Pressures Capital Expenditures Measures of Districts Fiscal Health - Indicators of fiscal stress - Deficit districts Interstate Comparison of Education Spending Analysis of Spending Reforms/Cost Reductions 7

8 Public School Academies and Non-Traditional Schools Analysis of PSAs - Academic achievement and success - Accountability - Role as models for traditional schools - Relationship between PSAs and traditional districts Public Money for Private Schools: Vouchers and tax credits Impact of Choice on All Students and Schools 8

9 School District Consolidation and Reorganization Optimal Size Economies of Scale and Other Benefits Role of the State and ISDs Barriers to Reorganization 9

10 School District Service Provision Survey of Local Districts Identify School District Collaboration - District to district - District to local government - District to PSA - District to private school - District to private company: Privatization Role of ISDs Barriers to Cooperation and Privatization 10

11 Analysis of Educational Reforms Identify Effective Schools and Programs Analyze Changes to Educational System International Comparisons Alternate Delivery Methods Pre-Kindergarten through Grade 14 or 16 Better Use of Technology 11

12 Economic Update: U.S. and Michigan

13 National Recession May Be Ending

14 GDP Increased in 3 rd Quarter Real GDP Growth 3.0% Growth 14 Figures are annualized percent change from preceding quarter in 2000 chained dollars. Source: Bureau of Economic Analysis 11/24/09. 14

15 ISM Manufacturing Index Shows Sector Growing Again 15 Figures are annualized percent change from preceding quarter in 2000 chained dollars. Source: Bureau of Economic Analysis 11/24/09. 15

16 A Good Sign: Temporary Help Employment is Growing U.S. Temporary Help Employment Change Month to Month (3 month average in thousands) Source: Bureau of Labor Statistics and CRC calculations.

17 But

18 Things Still Feel Bad Economic Activity Still Depressed - GDP was $513 billion (3.8%) smaller in 2009Q2 than in 2008Q2 (chained $, annual rate) - GDP was $88 billion bigger in 2009Q3 than in 2009Q2 but still 3.2% below 2008Q2 U.S. Has Lost Over 7 Million Jobs and Employment Still Falling Unemployment Rate Very High and Climbing People Feel Poorer - Home prices are down - Stock market is down - Access to credit diminished - Uncertainty over employment situation 18 18

19 Employment Declines Were Massive But Are Abating U.S. Employment Change Month to Month (3 month average in thousands) 19 Source: Bureau of Labor Statistics and CRC calculations. 19

20 S&P 500 Up Almost 50% From March Low But Still Down 25% from Source: Freelunch.com 20

21 Unemployment Rate is Very High By Historical Standards U.S. Unemployment Rate Source: Bureau of Labor Statistics.

22 What is Going on in Michigan? 8-Year Single State Recession : Michigan economy has shown no improvement since 2001 Employment Peaked in June Unabated job losses since peak - Losses concentrated in manufacturing (autos) Payrolls for October 2009: 263,000 below year ago levels Job Losses Accelerated by National Recession Michigan Becoming a Poorer State: Michigan Personal Income losing ground relative to US 22

23 Michigan Employment Never Recovered in Last US Expansion U.S. -0.8% Michigan -17.8% Note: Peak is calculated from Michigan s June 2000 Peak. Data through August Source: Bureau of Labor Statistics 23

24 Big 3 Losing Market Share Units in Millions % 70% 65% 60% 55% 50% 45% 40% 35% 30% U.S. Light Vehicle Sales Big 3 Share Source: Automotive News, vehicle sales and share; 2009 & 2010 are the May 09 Consensus estimates. 24

25 Michigan Has Lost Half of Its Manufacturing Jobs Jul ,000 Michigan Manufacturing Employment (thousands) Oct , Source: Bureau of Labor Statistics. 25

26 3 in 4 Auto Jobs Lost by 2010 Michigan Transportation Equipment Employment (In Thousands) Source: Bureau of Labor Statistics estimates are the average of the 3 agency forecasts for the May 2009 Consensus Conference. 26

27 U of M Forecast No Job Growth for Michigan Michigan Wage and Salary Employment Y-O-Y Change (In Thousands) 27 Avg. U of M Forecast Source: Bureau of Labor Statistics estimates are from the RSQE Forecast Nov

28 Unemployment is Very High Unemployment Location Rate U.S. 10.0% Michigan 15.1% Detroit MSA 17.3% City of Detroit 27.9% Lansing MSA 11.0% Grand Rapids MSA 11.9% 28 Source: Bureau of Labor Statistics. U.S. total for Nov. MI and Detroit MSA totals are seasonally adjusted and are for October 09. City of Detroit, Lansing MSA, and Grand Rapids MSA are not seasonally adjusted and are for September

29 Michigan Personal Income Falling Relative to U.S. Michigan per Capita Income as a Percent of U.S. Per Capita Income 122% 93% 87% 29 Source: CRC calculations from Bureau of Economic Analysis data. March 24, 2009 personal income release for years prior to October 16 th release for years after

30 State Revenues and School Finance

31 The Michigan Budget Story Has Not Changed... Dual Structural Deficits -Public K-12 education -General Fund-financed programs Structural Deficit Causes: Both spending and revenue components We Will Not Grow Out of It Significant Spending Cuts and/or Tax Increases Required Problem Exacerbated by Cyclical Deficits Caused by National Recession 31

32 Persistent Structural Deficits GF/GP and SAF Operating Deficits $400 $0 Proj. M illio n s -$400 -$800 -$1,200 -$1,600 Source: Senate Fiscal Agency F Y98 FY99 F Y00 FY01 F Y0 2 F Y03 GF/GP F Y0 4 F Y05 SAF F Y0 6 F Y07 FY08 F Y0 9 FY10 32

33 May Revenue Revisions FY 2009 FY 2010 Jan May Jan May Cons. Cons Change Cons. Cons Change GF-GP $8,306.1 $7,435.3 ($870.8) $7,934.5 $6,949.7 ($984.8) SAF $11,368.7 $10,943.7 ($425.0) $11,295.8 $10,563.0 ($732.8) Total $19,674.8 $18,379.0 ($1,295.8) $19,230.3 $17,512.7 ($1,717.6) Growth GF-GP -11.3% -20.6% -4.5% -6.5% SAF -1.3% -4.9% -0.6% -3.5% Total -5.7% -11.9% -2.3% -2.8% 33 33

34 Administration and Senate Have Been Using Different SAF Revenue Estimates SFA Treasury Estimate Estimate Difference Notes Revenue Beginning Balance $201.5 $95.3 ($106.2) Difference in 09 Est. May Consensus Est. $10,563.0 $10,563.0 $0.0 Reductions to FY 10 CREC $0.0 ($128.7) ($128.7) Difference in 10 Est. Assumed Rev. Increase $100.0 $0.0 ($100.0) Sen. Rep. Tax Plan GF/GP Grant $30.2 $30.2 $0.0 Federal Aid $1,601.8 $1,601.8 $0.0 ARRA Money Used $450.0 $450.0 $0.0 Total Estimated Revenue $12,946.5 $12,611.6 ($334.9) Expenditures Enrolled Appropriations $12,877.5 $12,877.5 $0.0 Governor's Vetoes ($54.0) ($54.0) $0.0 Total Appropriations $12,823.5 $12,823.5 $0.0 Ending Balance $123.0 ($211.9) ($334.9) 34 Source: Senate Fiscal Agency and CRC Calculations. Totals in millions of dollars. 34

35 Senate Republican Plan Adds $100 Million to FY2010 SAF FY 2010 FY 2011 SAF Revenue SAF Revenue Tax Amnesty $10.5 $0.0 Business Tax Enforcement $3.2 $3.2 Lottery Revenue Increase $15.0 $15.3 Increase MBT Earmark $71.3 $0.0 Total $100.0 $

36 Budget Balancing Measures FY2010 SAF Revenues Projected to be $1.0 Billion Below FY2008 Enacted FY2010 Cuts: - $165 per pupil ($263M) - ISD reduction ($16M) - 20j veto ($52M) - Other Cuts ($35M) Stimulus Money in Budget: - FY2009 $600M - FY2010 $450M - FY2011 $184M 36

37 Heavy Reliance on One-Timers But Declining SAF Budget: Non-Recurring Resources Used (millions) $900 $800 $700 $600 $500 $400 $300 $200 $100 $- $600 $450 $184 $247 $202 $ Proj Beginning Balance ARRA - Education 37

38 SAF is Balanced in FY2011 with 3% Growth and Senate Assumptions FY 2010 FY 2011 Estimate Estimate Beginning Balance $201.5 $123.0 Estimated SAF Baseline Revenue $10,563.0 $10,882.7 Proposed SAF Revenue Increases $100.0 $0.0 ARRA $450.0 $184.1 GF-GP Grant to Schools $30.2 $30.2 Federal Aid $1,601.8 $1,601.8 Total Estimated Revenue $12,946.5 $12,821.8 Expenditures $12,823.5 $12,810.1 Enacted Approp and CSB Estimated Year End Balance $123.0 $ Source: Senate Fiscal Agency memo October 21,

39 But The Senate numbers assume $100 million in FY2010 revenues that have not yet been enacted. U of M is predicting SAF revenues will be down 0.4% in FY2011 compared to the 3% growth state policy makers have been using. The difference between the estimates is almost $500 million

40 Sales Tax Collections Have Been Awful Year over Year Growth Rate (6 month average) FY 11 Est. FY 10 Est. Actual Growth FY 09 Est Source: CRC Calculations.

41 Sales Tax Example 40 Percent of State SAF Revenues Down 8 to 12 Percent from Year Ago FY2010 Assumes Substantial Improvement in Sales Tax Growth Rate (-2.0 Percent) - No drag from falling gasoline prices in FY Year-over-year comparisons are much more favorable FY2011 Estimate (4.0 Percent) Not Likely Without Economic Rebound in Michigan FY2010 and FY2011 Recovery Assumptions for other Taxes are Similar 41 41

42 Property Values: State Equalized Value and Taxable Value 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% SEV 9.0% 10.0% 9.8% 7.5% 6.3% 5.9% 5.0% 3.8% -1.1% -5.4% -10.7% TV 5.5% 7.1% 6.7% 4.8% 5.7% 5.6% 5.8% 5.2% 1.4% -0.8% -6.6% Source: State Tax Commission, Michigan Department of Treasury, House Fiscal Agency 2009 est 2010 est 42

43 What Does This Mean? 2007: TV up 5.2%; property values up only 3.8% 2008: TV up 1.4%; property values down 1.1% 2009: TV declined 0.8%; property values estimated to decline 5.4% 2010: TV estimated to decline 6.6%; property values estimated to decline 10.7% Local Governments Facing Revenue Challenges 43

44 Per Pupil Support for K-12 Minimum Grant: Increased $616 (9%) from FY2003 to FY2009 Maximum Grant: Increased $489 (4%) from FY2003 to FY2009 State Support Flat: Less than 1% increase Declining Enrollment Responsible - FY2003-FY2009: 98,000 fewer students (- 5.7%) - FY2008-FY2009: 36,000 students - Translates into about $717 million in state aid No New State Money Added to Grant 44

45 Declining Enrollments Continue Pupil Count 1,800,000 Pupils 1,700,000 1,600,000 1,500,000 1,400,000 1,300,000 Projections: Michigan Fiscal Future 2003 to 2017 Decline: 15% Projected 45

46 School Aid Structural Deficit Spending Pressures Outpace Revenue Growth - Retirement contributions rapid growth - Employee health insurance rapid growth - General pay raises - Other fuel, utilities, supplies Revenues Growing Slowly 46

47 Reasons for Sluggish Revenue Growth Increasing Senior Citizen Population: Retirement income not taxed and spend less on goods Consumption Taxes Goods Oriented: Economic growth is in service sector Slow or No Growth Revenues (e.g., Tobacco, Gambling, Alcohol): Drag down overall growth rate Flat Rate Income Tax Earned Income Tax Credit (GF impact only) Phase-Out of Income Tax Increase (GF impact only) 47

48 Retirement Funding Pension is Advance Funded by Districts Retiree Health Care is Cash Funded by Districts Rate for FY2009 is 16.54% of Payrolls Contribution Rate Composed of Two Parts: - Regular pension benefit (9.73%) - Health care benefits (6.81%) Both Parts Will Continue to Increase in the Future - Pension because of market in Health because of increase in retirees and cost of health care 48

49 MPSERS Projected Rates ( % of p a y roll) Pension Health Total 2008* * Actual Rates Fiscal year 49

50 School Aid Structural Deficit Projections, FY2009 FY2017 M illio ns $29,000 $27,000 $25,000 $23,000 $21,000 $19,000 $17,000 $15,000 Spending grows 4.7% Defic it = $4 B Revenues grow 3% Fiscal Year 50

51 Interstate Comparison

52 Total K-12 Revenues Per Pupil Total Revenues Per Pupil 18,000 16,000 14,000 12,000 10,000 8,000 6,000 Michigan US Average Top 10 Average 4,000 2,000 - FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 Source: US Census Bureau 52

53 Conclusion

54 Policy Options Achieving Long-Term Structural Balance Increase Revenue Growth Reduce Rate of Spending Pressure Growth Bend the Two Curves so They Meet 54

55 Tax Scenario Expand Sales and Use Taxes - Exempt business-to-business - Reduce rate to 3.6% (neutral) - Adds about 0.8% to growth rate Graduated Income Tax - Revenue-neutral starting point - Nearly doubles growth rate Combined Effects - Adds 0.8% to School Aid Fund growth - Adds 1.5% to General Fund growth - Still work to do: Spending solutions 55

56 Spending Scenario Employee and Retiree Health Care - Hold health care cost increases to 5% per year - Reduces General Fund annual spending pressure growth by 1.6% - Reduces School Aid annual spending pressure growth by 1.1% 56

57 What About Tax Reform? Tax Reform Can Have Many Different Objectives Potential Goals of Tax Reform Include: - Make tax growth more closely match economic growth - Increase progressivity - Make tax structure more conducive to encouraging economic growth - Increase (or decrease) amount of tax revenue collected 57 57

58 Questions?

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