The State of Michigan has published public schools' audited financial results to the 2022-23 fiscal year. Here's ten things that caught our attention.
When combining the 2022-23 audit results from the state's 529 traditional school districts, the 274 charter school districts, and the 62 intermediate school districts (ISDs), aggregate revenue of $23 billion exceeded the $22.2 billion in aggregate expenditure by $800 million.
This $800 million annual operating surplus contributes to an increase in Michigan public schools' statewide unassigned general fund balance (or general fund equity) to $3.1 billion - an 80% increase from 2020's $1.7 billion.
Operating margin percentage divides operating results (revenues minus expenses) by total revenues. It normalizes data to make useful comparisons across organizations (including school districts) of different sizes. The aggregate operating margin in 2022-23 for all public schools (traditional, PSAs, and ISDs) was 3.5%. But not all districts ran a surplus!
The majority did. 629 out of 865 districts (73%) had revenues that exceeded expenses. This means that over one out of four Michigan school districts (27% or 233) operated at an annual deficit in 2022-23. We can see a pattern of haves and have nots emerging.
For districts and charter schools that ran a surplus, the aggregate of their surplus was $939 million. This translates to an operating margin of 5.4%
For the 27% of districts that operated in a deficits in 2022-23, their combined expenses surpassed revenues by $131 million which resulted in an operating margin of -2.4%. This results in an average operating loss of over $550 million for districts in which annual expenses exceeded annual revenues.
The intensity of operating losses among districts that operated at an annual deficit was greater for charter schools (-3.7%) than traditional public schools (-2.2%).
While Wayne Westland Schools have received most of the headline coverage, 14 other Michigan school districts operated at a higher annual losses when normalized as a proportion of annual revenue. Wayne Westland's operating loss was -10%. Their losses were surpassed four other traditional districts and ten charter schools.
Large urban districts contribute significantly to statewide aggregate operating surpluses. Federal ESSERS grants helped Detroit, Flint, Saginaw, Pontiac, and Benton Harbor schools account for over half of the statewide surplus of $800 million.
Over the past 2-3 years, healthy state tax revenues yielded large Foundation Allowance increases for all Michigan public schools which, combined with the ESSERS windfall, has resulted in some of the best financial conditions that Michigan public schools have seen. As both sources cool down, ESSERS funds expire, and enrollment continues to drop margins will tighten and many more districts are likely to operate at a deficit in the coming years.
Some commentary.
For most Michigan public schools, the environment has never been better to plan for rainy days which are bound to come in the coming years. The increasing fund balances are indication of the planning.
But trouble lurks, as usual, in both its common forms (such as declining enrollment most widely) and the whammy that will hit so many districts in 2023-24, the expiration of ESSERS funds.
How can Michigan Benchmark help? Three ways:
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Districts can learn from the skills and the struggles befalling districts just like them. Comparing key financial and operational data points can surface the directions that school districts should take. This is our Michigan Benchmark Report (retailing at $1,995 per year).
Districts can manage and balance all the variables affecting their budget development by consolidating their view and creating ranges of possibilities in their forecasts over a five year horizon. This is our Budget Modeling Service offering (retailing at $2,995 per year).
Contact us at info@MichiganBenchmark.com to learn more.