LANSING – Thanks to at least $150 million in unexpected revenues and savings, Gov. Jennifer Granholm on Thursday decided to delay implementation of a $127-per-pupil pro-ration cut that was to have taken effect with the December 21 school payment. But she and top state fiscal officials warned that a pro-ration cut will still likely be needed, though they hoped it would not be as large as anticipated.
Republicans immediately mocked the move as recognition by Granholm that her efforts to push for more revenues through increased taxes was a failed political maneuver that used school children as a weapon. Granholm spent much of November traveling the state and urging school officials to push the Senate for new revenues, but never seemed to build support.
Maybe now, said House Minority Leader Kevin Elsenheimer (R-Bellaire), the state will begin to tackle reforms to reduce the size and cost of government.
But Granholm said the decision to delay the pro-ration was based on the facts presented the state, not on any political decisions.
And State Budget Director Bob Emerson dismissed the Republican response, saying; “Only in this building is good news seen as bad news.”
She did not back off her earlier and ongoing call for revenues to be increased to lessen some cuts in human services and restore the Michigan Promise Scholarship for college students during a press conference to announce the delay.
All schools still face a $165-per-pupil cut as part of the 2009-10 budget, and schools in the so-called 20j districts still will see the loss of those revenues, she said.
Emerson also said even with the delay he anticipates the state will need to issue a pro-ration cut, but possibly one smaller than the $127 per pupil that was ordered in late October. “I’ve never told anyone it would be eliminated,” he said.
Granholm said Thursday’s announcement does nothing to minimize the need she sees to create a more stable funding source for schools.
Thursday was the day Granholm had to tell the Department of Education to move ahead with processing to issue smaller school aid checks, and she said she wanted as much information on the School Aid Fund as possible before making that decision.
As the state is preparing to close the books on 2008-09, which ended on September 30, it found two factors that meant the fund had at least $150 million more than anticipated.
Of that, $100 million comes in unanticipated non-homestead property tax revenues, Treasurer Robert Kleine said. The state had anticipated the collections from commercial and industrial property to fall because of the economy, but in fact the collections were somewhat higher that anticipated.
Kleine said that may have been due to a lag in when the lower assessments kick in and when assessment appeals are resolved. He also said the state continues to expect to see a drop in non-homestead tax collections in the 2010-11 fiscal year.
Because property taxes were higher, the state has to pay school districts less out of the School Aid Fund to meet the per-pupil allowance.
The other major factor the state discovered was an unexpectedly large lapse of at least $50 million in the School Aid Fund. The largest share of that was in special education payments, and Emerson said he has no explanation for those lapses.
There are some other factors that could affect the fund, the largest being the potential for an additional $30 million in Lottery revenues when the state starts a Powerball game. Offsetting those additional revenues is a surprising finding that total school population is as many as 5,000 more students than anticipated (which Emerson said was so far based on unaudited figures).
Even though November revenues were up (see related story), Kleine said the state’s revenues projections were essentially accurate. And Emerson said the factors affecting the pro-ration cut were not revenues, but unanticipated and unusual fiscal situations.
Granholm said there was some debate about whether the state should go ahead with the pro-ration cut, but officials felt that it would be better to release the money to the schools, which are struggling with hard budget cutting decisions.
That decision was confirmed by a Thursday meeting with school officials who said they would rather have the money than to have to go ahead at this time with layoffs of workers.
Asked what advice she would give school districts since they still face cuts, and may yet face a pro-ration cut, Granholm said those districts that might have rainy day funds should try to keep essential education programs whole for as long as they can. If they can, they should try to avoid decisions like combining classes and laying off teachers.
But further major cuts in the School Aid Fund are expected in the next fiscal year, and that could be exacerbated if the federal government does not provide additional assistance to the states to hold off teacher layoffs.
A final decision on the size of a pro-ration cut will wait on book closing for 2008-09 and the January Revenue Estimating conference on January 11, Granholm said.
Republicans accused Granholm of calling for the pro-ration cut as a political maneuver to try and force tax increases. Elsenheimer said, “Now that it is finally clear to the governor there is little popular support for higher taxes, the governor has backed off her threat to gut public school funding in the middle of the academic year.”
Senate Majority Leader Mike Bishop (R-Rochester), the target of Granholm’s campaign for more revenue, said the support never materialized for her proposals.
“The governor I think thought she would have some support for a tax increase, and she doesn’t have it,” he said. “She made the play as hard as she could and there was no support out there. … She realized just how much of a problem this was for schools right now.”
Bishop said he hoped the 20j funds could be restored, too.
But Granholm said the rhetoric ignores the fact that schools still have to deal with budget cuts.
And the state would continue to be transparent with its numbers so school officials know exactly what their status is, Granholm said.
School groups were happy to see that December payments would be more than initially expected, but still feared that even more money would be hacked from the January and later payments.
“I hope we don’t have a pro-ration this month only to get one next month,” said Don Wotruba with the Michigan Association of School Boards. “That would make it that much harder for districts to do it.”
Doug Pratt, spokesperson for the Michigan Education Association, said the reprieve will give districts and local unions more time to work out solutions to local budget cuts.
“That said, this is just delaying what is going to be a huge problem,” Pratt said. “The Legislature has to step up and fix our antiquated tax structure and broken school funding system.”
Brad Biladeau with the Michigan Association of School Administrators noted that some of the revenues that allowed the pro-ration to be held off, increased property tax collections, could dissolve if challenges particularly to commercial property assessments are successful in the coming months.
“Obviously we’re still concerned that there is a funding cliff and, while this may delay pro-ration for a month, school districts across the state are still concerned about the long term impact the economy has on education,” Biladeau said. “Schools are still being told to brace for several hundred dollars in cuts next year.”
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