Districts Will Not All Experience the Same Challenges with Tightening Budgets, State School Chief Says

LANSING – While some local school districts in Michigan are facing budget challenges, State Superintendent Dr. Michael F. Rice said during today’s State Board of Education meeting, all will not be similarly affected.

School district finances are tightening, he said, but districts are working through very different issues as they finalize their budgets for next school year by the June 30 deadline.

“Michigan school districts experienced two very large financial changes in recent years,” Dr. Rice said. “Districts received an influx of federal pandemic relief dollars that are expiring. They also benefitted from two consecutive years of historic state education budgets but now are facing the likelihood of still healthy but more modest increases in state funding for next school year.”

Districts that spent nonrecurring funds – such as the pandemic dollars – on recurring expenses – such as salaries – now need to determine how to balance their budgets with tightening finances. Federal pandemic dollars including Elementary and Secondary School Emergency Relief under the American Rescue Plan Act must be obligated by Sept. 30, 2024.

Spending nonrecurring funds on recurring expenses results in what’s called a structurally imbalanced budget, Rice said, with recurring expenditures greater than recurring revenue.

“For some districts, the amount of federal pandemic relief was so high and the need to spend so relatively quick that some districts felt the need to use these nonrecurring revenues for recurring expenditures,” Dr. Rice said. “Expiration of the funding will be especially difficult for those districts that felt as if they had no other choice than to use some of the funds for recurring expenditures—and didn’t plan or plan well for this moment.”

The adverse impact of the expiration of federal pandemic relief funding will be smaller to nonexistent for districts that didn’t spend a lot of nonrecurring dollars on recurring expenses.

In addition to the expiration of federal pandemic relief funding and the slowed growth in state funding for schools, Rice said other factors that some local school districts must address are:

• Districts may have assumed that the large percentage increases in fiscal year 2023 and 2024 funding would continue and entered into longer-term labor agreements based on this assumption.
• Fund balances – or district savings – may have grown because the nonrecurring revenues allowed districts to save recurring revenues. That could result in the need to cut from the upcoming year’s budget to have a structural budget balance, which will seem paradoxical to many people.
• The complexities of structural budget balance, such as how a district could increase its fund balance and structural deficit at the same time, will present communication challenges.
• A multi-year plan to move the district from a structural deficit to structural balance will be necessary for some districts.

Dr. Rice noted the importance of the district administration working closely with its board, its labor unions, and its community relative to structural budget balance.

Also at today’s board meeting, MDE officials presented details about how Michigan school districts have spent three rounds of federal Elementary and Secondary School Emergency Relief funding to address the COVID-19 pandemic and the upcoming deadline for spending those dollars.

“Michigan school districts have prioritized spending these funds on ensuring students could continue to learn – whether it was during their time being educated at home, through a hybrid model with a mixture of in-school and at-home learning, or upon returning to school full-time,” said Dr. Diane Golzynski, MDE deputy superintendent of Business, Health, and Library Services.

The pandemic funding must be assigned for a specific spending purpose by Sept. 30, 2024, and spent by the end of 2024. To date, more than $5.1 billion of the nearly $5.2 billion in funding to Michigan districts has been budgeted and nearly $5.1 billion has been spent or approved to be spent.

In addition to ensuring students continued to learn, local districts also focused spending the funds on safety measures, particularly early on during the pandemic, said Mr. Kevin Walters, supervisor of the MDE Office of Financial Management, Grants, Contracts, and School Support.

Mrs. Stephanie Long, superintendent & education specialist at Leland Public School near Traverse City, shared with board members how her district spent the funds. “We focused on one-time expenses and scheduled the funding to last as long as possible,” said. “We also went after other grants to support the new staff we were hiring. There was a clear, proven need and our students are better now because of it.”

Note: Some of the information in this press release was included in a Detroit News Guest Editorial by Dr. Michael F. Rice. That article is behind a paywall and available only to subscribers.

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