1. SCHOOL AID AND THE JANUARY 2016 CONSENSUS REVENUE ESTIMATING CONFERENCE Presented to Kent County Superintendents Kathryn Summers, Associate Director senate.michigan.gov/sfa

2. School Aid Fund Balance Sheets FY 2014-15 and FY 2015-16 FY 2014-15 (in millions)FY 2015-16 (in millions) Beginning Balance:$455.1$190.1 Consensus Rev. Est. (5/15)11,883.212,242.9 1/16 CREC Rev. Change(136.1)(111.3) Jan. 16 CREC Ongoing Rev.$11,747.1$12,131.6 GF/GP Grant to K-1233.751.3 HMO Use Tax and Other242.4210.0 Federal1,606.51,775.8 Total Revenue$14,084.8$14,358.8 Expenditures: School Aid$13,323.5$13,851.5 Community Colleges364.7256.7 Higher Education206.5205.2 Total Expenditures$13,894.7$14,313.4 Est. Year-End Balance$190.1$45.4 2

3. School Aid Fund Balance Sheet: FY 2016-17 Baseline FY 2016-17 (in millions) Beginning Balance:$45.4 Consensus Rev. Est. (5/15)12,598.8 1/16 CREC Rev. Change(112.6) Jan. 16 CREC Ongoing Rev.$12,486.2 GF/GP Grant to K-1264.4 HMO Use Tax and Other54.0 Federal1,775.8 Total Revenue$14,416.3 Expenditures: School Aid$13,876.0 Community Colleges260.4 Higher Education205.9 Total Expenditures$14,346.6 Est. Year-End Balance$69.7 3

4. Sales Tax Collections Drop in FY 2014-15 Sales Taxes Make Up 46% of the SAF (Dollars in Millions) Type of PurchaseFY 2013-14FY 2014-15Percentage Change Gasoline Tax$824.3$603.6(26.8%) Motor Vehicles906.3925.42.1 All Other Purchases5,624.35,717.41.7 Total Collected$7,354.9$7,246.4(1.5%) Compared to May 2015 CREC, actual SAF revenues in FY 2014-15: Sales Tax -$193.2 million; Income Tax +$28.6 million; Tobacco Taxes +$16.3 million; Other +$12.3, for total -$136.0 million. Source: Michigan Department of Treasury January 2016 CREC 4

5. GF/GP Balance Sheets FY 2015-16, SFA Baseline FY 2016-17 FY 2015-16 (in millions)FY 2016-17 (in millions) Beginning Balance:$694.7*$495.3 Consensus Rev. Est. (5/15)9,881.910,121.5 1/16 CREC Rev. Change(38.1)92.4 Jan. 16 CREC Ongoing Rev.$9,843.8$10,213.9 Revenue Sharing Payments(462.7)(463.1) HMO Use Tax and Other410.867.3 Total Revenue$10,486.6$10,313.4 Expenditures: Initial Ongoing$9,517.8 Initial One-Time, Supplementals, and Lapses 473.5**654.3** Total Expenditures$9,991.3$10,172.1 Est. Year-End Balance$495.3$141.3 *Reflects a positive $309.5 million FY 2014-15 Revenue Adjustment from Jan. 2016 CREC. **Includes $258.0 million for Roads, $95.0 million for BSF, and estimated supplemental needs including pharmaceuticals, caseloads, and economic adjustments. 5

6. Exploring FY 2016-17 K-12 Baseline ■The estimate for the K-12 FY 2016-17 Balance Sheet Baseline scenario assumes flat foundation allowances, incorporating pupil estimates from CREC, and adjustments in costs for special education, school bond loan fund borrowing, and MPSERS. ■State support of MPSERS retirement costs (i.e., the rate cap) grow from $893.5 million to $982.8 million, a slowdown from prior years, but still nearly $90 million. ■Baseline in FY 2016-17 assumes continued funding of items like MPSERS Cost Offset Grants ($100.0 million), GSRP at expanded level ($243.9 million), and initiatives like 3 rd grade reading, but does assume a discontinuation of technology (TRIG) grants ($23.5 million), as FY 2015-16 is supposed to be the last year of funding. ■A $69.7 million year-end balance equates to $47 per pupil. 6

7. Other Issues ■Any kind of a foundation allowance increase? Only $70.0 million SAF available… ■Inflation will cap Hold Harmless districts’ foundation allowance growth, even if money is available, to not more than 0.1% increase. ■Continued declining enrollment, although not at quite the same pace as previously – estimates assume some growth in participation rates in kindergarten (i.e., more students entering public K-12 system), shared time with nonpublic and home school students (growing 1,100 to 11,363 FTEs), and early/middle colleges (growing 1,600 to an estimated 7,480). ■Continued MPSERS issues due to actual payroll growth being negative, compared to assumed growth of 3.5%, which means not enough money is remitted each year to support UAAL and therefore a larger SAF cost is necessary to comply with the rate cap and pay for the higher resulting total MPSERS contribution rate. ■Continued use of SAF to support Community Colleges and Higher Education budgets? More than $460.0 million in FY 2015-16. ■Flint – Education/Health/Infrastructure costs? Another potential drain on GF/GP. 7

8. Detroit Public Schools ■How to address Detroit Public Schools’ debt? If use ‘old co/new co’ model, it would divert the 18-mill revenue currently offsetting the cost of DPS’ foundation allowance and instead use it to pay off debt, thereby leaving a SAF fund ‘hole’ in the foundation allowance of the ‘new’ district, costing $72 million yearly until debt is repaid. This is the $50 per pupil hit to all other districts, if the SAF is used to pay the costs and the plan is enacted. Debt is estimated at $515 million; administration is estimating another $200 million in startup and transition costs, for a total of $715 million, or 10 years of indirect SAF support (if 18-mill revenues keep raising $72 million/year). ■Bills introduced 1/14/16 (Senate Bills 710 and 711), but these only address the creation of ‘New Co’ and the inclusion of ‘Old Co’ under the Financial Review Commission (currently overseeing the City of Detroit). ■More bills likely to be introduced (news articles peg the total number of bills in the package at eight). 8

9. Declining Enrollment 9

10. MPSERS Actual Wages vs. Assumed Based on 2007 Actual, w/o Revision 10

11. MPSERS Appropriations in K-12 (Dollars in Millions) Sec. 147cSec. 147aSec. 147dK-12 Rate CapCost OffsetAdd'l LiabilityTotal by Year 2012 $ - $ 155.0 $ - $ 155.0 2013 $ 160.5 $ 155.0 $ - $ 315.5 2014 $ 405.5 $ 100.0 $ - $ 505.5 2015 $ 676.4 $ 100.0 $ 19.6 $ 796.0 2016 $ 892.9 $ 100.0 $ - $ 992.9 2017 est. $ 982.2 $ 100.0 $ - $ 1,082.9 Another nearly $80.0 million is appropriated to support MPSERS costs for Community Colleges, Universities, and Libraries. 11

12. School Aid Fund in Postsecondary 12