26
administrative spending) increase district fund balances and thereby reduce fiscal stress. We do
not, however, attempt to assess the impact of such measures on the quality of education services.
By failing to account for the budgetary consequences of rapid enrollment loss and local
cost differences, Michigan’s school finance and choice policies reinforce a fierce downward
spiral in the state’s urban districts. Indeed rather than rectify the mismatch between state
revenues and local costs in declining-enrollment districts, state policy changes have made them
worse. In 1994, district pupil counts for state funding were a 50-50 weighted average of district
enrollment in the previous spring and fall of the current academic year. Since then, the state has
progressively decreased the weight of past enrollment, so that by 2015 previous-year enrollment
is weighted only 10%.
22
By comparison to their counterparts in more affluent districts, school boards and
administrators in urban districts have been forced to enact more substantial cuts to programs,
services and employee compensation. These budgetary changes, in turn, influence households’
perceptions of local school conditions. In settings with high levels of school choice
participation, school closures and teacher layoffs can create negative perceptions that enhance
the prospect that additional families will leave, creating a self-reinforcing cycle. This process
has triggered financial emergencies in a small but vital subset of Michigan districts and
established grounds for state intervention, but state policies were in large part responsible for the
underlying financial problems.
We recognize the limits to the external validity of these results. They are conditional on
specific features of state policy design in Michigan. By the same token, changes in state policy
could improve matters and help stabilize district finances.
22
The current pupil-count weighting means that districts must establish their budgets each year based on enrollment
estimates, but do not know their actual funding until over a month after the start of the academic year. It also
dramatically heightens the stakes of school choice competition.
27
One indication that state policies are implicated in the precarious finances of hard-pressed
Michigan districts is that emergency managers with complete powers to determine all aspects of
district operations have thus far--after six years in Detroit and three years in Muskegon Heights
and Highland Park—been unable to eliminate budget deficits. Although they have reduced
staffing and employee compensation, closed schools and privatized service delivery, they have
been unable to increase student enrollment (and thus revenues) sufficiently to balance district
budgets. The analysis of why emergency state-appointed financial management is apparently
less successful in Michigan than elsewhere remains a subject for future research.
28
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29
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