Thirty years ago school finance was simple for Michigan’s wealthy school districts. If you needed more money, you went to the voters and got a tax increase.
It wasn’t so easy for less wealthy districts. Property taxes were rising faster than inflation. Voters started rejecting tax increases. In 1993, one Northern Michigan school district (Kalkaska) dismissed classes for the year in March, three months ahead of schedule. They were broke.
And Michigan school finance was broken.
Proposal A Gives State Control
That changed in 1994 when state voters overwhelmingly (69% to 31%) approved Proposal A, agreeing to relinquish their local authority to set their own school operating tax rates. The state was given that power, exclusively, and ever since has set a Foundation Allowance, a per pupil dollar amount that each district would receive for school operations.
But politics, practicality, and large gaps in per pupil funding lingered. The state couldn’t afford to immediately increase lower-revenue districts to the level of the highest. It also could not force higher spending districts to reduce costs, which would have been harmful to students.
This conundrum ushered in the “Hold Harmless” millage, an additional property tax that the top 10% wealthiest districts were allowed to levy to sustain their higher spending ways.
Proposal A At Work
For 27 years the state has chipped away at the funding inequities that gave Proposal A life. Now only 7% of 540 non-charter school districts levy the Hold Harmless millage. Meanwhile the state has doubled the Foundation Allowance of the lower spending districts — 4 times the increase the top Hold Harmless districts have received.
In 2021-22 less than 20 districts spend more than 10% above the state standard Foundation Allowance of $8,700. The gap has narrowed by raising the lower levels faster and crimping growth at the high end.
For illustration, top-spending Hold Harmless districts Birmingham, Bloomfield Hills, Farmington, Grosse Pointe, and Troy had an average enrollment of 8,500 students in 2020. If enrollment held constant from 2012, the nine-year total increase in Foundation Allowance revenue would have been an average of $340,000.
In comparison, an 8,500-student district at the minimum Foundation Allowance would have received $10.7 million more revenue over the same period. If all else were equal, this would add about 10% to a district’s fund equity.
Declining Advantage
The implications for Hold Harmless districts have been subtle but persistent. Districts that may once have been able to offer more student options, a closer school, or better pupil to teacher ratios have likely seen some degradation in quantifiable advantages.