How schools get their money is confusing and misunderstandings often lead to unnecessary contention.

Public school funding in Michigan is complex and draws from multiple sources. Reliable funding directly affects the quality of education, the availability of resources, and the equity of opportunities for all students so having a clear grasp of how it works is crucial to advocating effectively. 

In Michigan, public school funding comes primarily from three sources: taxes collected by the State of Michigan, taxes collected by the federal government, and local and county property taxes. The state is the largest contributor, providing roughly 60-70% of every public school district’s overall budget through its School Aid Fund (SAF). The next 20-30% of a district’s budget comes from the local property taxes generated through district-wide or sometimes county-wide, voter-approved millages. Federal funds make up the remaining 5-10%.

State of Michigan School Aid Fund
The state organizes and distributes SAF dollars in two ways. The most substantial way is through something called the “per pupil foundation allowance.” Every year, school districts receive an amount of state money based on the number of students enrolled in their district. This is why school administrators often stress the importance of attendance on “school count days.” The amount per student varies each year and is determined by the Michigan Legislature during its annual budget process. Though some districts may sometimes receive a slightly different amount based on their specific financial positions, the Chelsea School District, Dexter Community Schools, Saline Area Schools, and Milan Community Schools all received a per pupil rate of $9,608 during the 2023-2024 school year. 

The per-pupil funds are generally intended to be used for regular operating costs like faculty and staff compensation, school supplies, utilities, and administrative costs. Though they can be used for a pretty wide range of expenses, there are some limitations. For example, they cannot be used on capital expenditures like major infrastructure upgrades or new construction.  

The other way SAF dollars are distributed is through “categorical grants” that are awarded to districts for specific purposes like transportation costs or programs for at-risk students. Most categorical grants are automatically distributed to districts based on enrollment data and other distinct characteristics–another reason “school count days” are important–but others are awarded through an application process. 

The money distributed through the SAF comes from multiple sources including Michigan’s 6% sales and use taxes, personal and corporate state income taxes, tobacco taxes, real estate transfer taxes, and the property ownership-based State Educational Tax. Additionally, net proceeds from the Michigan Lottery are transferred directly to the SAF, as is a portion of the revenue from casino gaming in the state. 

Local Property Taxes
The second largest chunk of a school district’s funding comes from local and county property taxes. Every parcel of land in Michigan is assigned to a local school district, meaning that the school district is responsible for providing a public education to residents of that property. To fund that education, school districts are authorized to collect taxes from people and businesses that own property located within their district. 

Until 1993, public schools in Michigan were funded almost entirely through these property taxes. That changed in 1994 when Michigan voters approved a statewide school finance reform package that reduced the overall tax burden on property owners but increased, among other things, Michigan’s sales tax rate, taking it from 4% to 6%. And while the property tax burden was reduced, it wasn’t eliminated entirely and school districts still collect property tax revenue in a few different ways.  

First, each school district collects a tax from district property owners to contribute to the district’s operating costs, called an operating millage. This amount must be approved by voters in the district and is intended to supplement what the state provides through the SAF. It’s important to note that this tax is not assessed on every property owner in a school district though. If the property is the owner’s primary residence, it qualifies for a Primary Residence Exemption and the owner is not required to pay the district operating millage. This tax applies only to business properties, rental properties, second homes, and vacant land. 

Another way school districts can generate tax revenue is through voter-approved measures to create sinking funds or issue bonds. These kinds of funds are usually time-limited and may not be used to pay for daily operational expenses. Instead, they are intended to fund major renovations, new construction, or other capital improvements. These taxes are assessed on all properties within the district, even if they serve as the owner’s primary residence.

Federal Funding
Federal funds comprise the smallest portion of public school funding. Similar to the “categorical grants” allocated from the SAF, federal funds are often allocated for very specific purposes like special education programs and school nutrition. Use of federal funds usually requires strict adherence to requirements and guidelines set by the relevant federal agency.