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How Michigan Schools Get Their Money

This article details Michigan's school funding system, covering the pre-Proposal A crisis, the Foundation Allowance, and the remaining inequality in facilities.

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Table of Contents

The Big Picture: It Changed in 1994

School Funding: The Scale of Investment

Appendix

The Big Picture: It Changed in 1994

Understanding school funding in Michigan can feel like solving a puzzle. Let's break it down into parts that make sense. Before 1994, Michigan schools were mostly funded by local property taxes. This created huge inequalities—wealthy districts had great schools, while poor districts struggled.

Examples of Inequities

For example, in 1993-94, the wealthiest district in the state, Bloomfield Hills, was able to spend over $10,300 per pupil, while the poorest, Onaway, spent as little as $3,400 per pupil. This massive $7,000+ per-student gap was a direct consequence of the local property wealth of each community.

The Kalkaska crisis of March 1993 was the breaking point that forced state legislators to act. Located in Northern Michigan, the low-property-wealth district was facing a severe budget shortfall. After local voters repeatedly rejected a millage increase to fund operations, the school board made the unprecedented decision to close all schools 70 days early, in late March, for the remainder of the school year.

The decision garnered national media attention, effectively putting the failures of Michigan’s property-tax-reliant funding system on public display. The resulting political pressure, crystallized by the rallying cry of "No More Kalkaskas," spurred the Legislature to eliminate local school property taxes entirely, triggering the process that led directly to Proposal A's passage in 1994.

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Solution: Proposal A

Proposal A’s passage in 1994 revolutionized school financing by introducing a critical distinction in how schools are funded:

  • Operating Budget: Funds used for the day-to-day cost of running the school, including teacher salaries, utilities, textbooks, and supplies—equalized by the state.
  • Capital Projects: Funds used for long-term investments, such as building new schools, major renovations, or purchasing buses—left to local voters.

Proposal A created greater funding equality for the operating budget by introducing the Foundation Allowance, a guaranteed minimum per-pupil spending level for every student, regardless of local property wealth.

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Key Funding Shifts under Proposal A

Proposal A instituted several tax changes to replace the lost local operating revenue:

  • Homestead Properties: Homeowners living in their primary residence became exempt from the first 18 mills of school operating tax (Principal Residence Exemption).
  • Non-Homestead Properties: Businesses, rentals, and vacation homes pay an 18-mill school operating tax — the district’s local contribution to its Foundation Allowance.
  • Sales Tax: Increased from 4% to 6%, with the additional 2% dedicated to the School Aid Fund (SAF).
  • Income Tax: The share allocated to the SAF increased from 14% to approximately 23%.
  • State Education Tax: Added a new 6-mill statewide property tax for schools.
  • Local Control for Capital Projects: Communities kept the right to vote on bonds and sinking funds for school construction and infrastructure.

This reform flipped the model — before Proposal A, local taxes made up about 70% of school funding. Today, the state covers roughly 80%.

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School Funding: The Scale of Investment

How much do we spend on public education in Michigan?

The projected School Aid Fund (SAF) appropriation for FY 2025-26 totals about $18.5 billion. Michigan’s total state budget is roughly $82 billion, which means about 22% of every state dollar goes toward public education.

That’s a huge investment in our children—and still a fraction of what the wealthiest individuals control privately. To put the scale of this public commitment into stark perspective, consider that the personal wealth of just a handful of billionaires who personally hold a net worth greater than Michigan’s entire state budget (i.e., Elon Musk, Larry Ellison, Mark Zuckerberg, Jeff Bezos).

And there are at least 10 more individuals we could add to that list.

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Operating Costs: School Aid Fund (SAF) & the Foundation Allowance

The heart of Michigan’s public education system is the Foundation Allowance, a per-pupil dollar amount distributed equally from the School Aid Fund (SAF) to ensure every district receives a guaranteed baseline of funding for its day-to-day operations —about $9,600 per pupil in 2024-25.

What the SAF Covers

  • Foundation Allowance
  • Special Education
  • Early Childhood Programs
  • Career & Technical Education
  • Transportation & Small District Adjustments

What the SAF Doesn’t Cover

  • Building repairs or construction
  • Major technology infrastructure
  • Playground equipment
  • Parking lots
  • Roofs, boilers, windows

That distinction — operations vs. facilities — is at the core of Michigan’s education funding system.

Funding for the SAF comes from two sources combined:

1. Local non-homestead property tax revenue (18 mills)

  • If a district’s 18 mills generate enough local revenue to meet or exceed the foundation amount, that district keeps its local revenue and receives little or no foundation aid from the state. Example: A property-rich district raises $9,600 per pupil from its 18 mills — no extra money is needed from the SAF.
  • If a district’s 18 mills generate less than the foundation amount, the state fills in the difference with SAF funds so every district reaches at least the same minimum per-pupil level. Example: A property-poor district raises only $3,200 per pupil locally — the SAF contributes $6,400 more to bring it up to $9,600.

In effect, this local millage becomes part of the Foundation Allowance formula.

2. State School Aid Fund (SAF) money

      • Sales Tax: Proposal A raised the sales tax from 4% to 6%, with the additional 2% going entirely to the School Aid Fund.
      • State Income Tax: The percentage of revenue from the state income tax dedicated to the SAF has been significantly increased (currently about 23% of gross individual income tax collections).
      • State Education Tax: Added a new 6-mill statewide property tax for schools on all property.
      • Lottery Proceeds: 100% of the Michigan Lottery’s net proceeds go to the School Aid Fund, after paying prizes and operating costs. Despite the marketing, only about 7% of school funding.
      • Other State Taxes and Fees

This “equalization” system is what Proposal A created in 1994 — it dramatically reduced the funding gap for operational costs between wealthy and low-wealth districts by using state taxes (such as sales, income, and others) to balance what local taxes can’t cover.

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Capital Project Costs: The Local Community

While Proposal A successfully narrowed the gap in day-to-day operating funds, this preservation of local control over capital projects means the local community has full responsibility over the quality and condition of the school buildings and facilities.

Research consistently shows that school infrastructure affects learning. Temperature control, air quality, lighting, noise, and overall building safety all influence attendance, concentration, and test outcomes. Studies link upgrades in HVAC systems, classroom space, and lighting to measurable gains in student performance and reduced learning gaps. When funding operates differently across districts, the environment in which students learn can amplify or dampen instructional effectiveness.

The only mechanism school districts have to secure funding to ensure infrastructure meets the needs of students for maximal learning outcomes is through sinking funds and bond millages approved by the community.

Sinking Fund Millage

        • Voters can approve up to 5 mills for 20 years
        • Can ONLY be used for repairs and specific improvements
        • Cannot be used for regular operations

Bond Millage

        • Voters can approve borrowing money for major construction
        • Paid back over time through property taxes
        • Can ONLY be used for what's specified in the ballot language
        • Cannot be used for salaries or operations

Bonds cannot legally be used for teacher salaries, textbooks, utilities, or everyday maintenance.

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The Inequality That Remains

This system ensures operational equity but leaves infrastructure equity entirely to local wealth and voter approval.

Wealthier districts with strong property values can easily pass large bonds; poorer districts often struggle to gain voter support or generate equivalent revenue, leaving students in aging facilities. Two communities may receive the same per-pupil funding from the state — yet one has a new STEM wing and air-conditioned classrooms, while the other deals with leaking roofs and outdated labs.

Legislators defend this structure as local control — allowing voters to shape their own community’s facilities. But in practice, it also means the quality of a child’s learning environment still depends heavily on where they live.

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Federal Funding

Federal funds account for approximately 10-15% of the total educational budget and come with strict rules regarding their use. There is no specific federal education tax — meaning, unlike Michigan’s School Aid Fund (which has dedicated revenue sources like sales and property taxes), the federal government funds education from its general revenue, which is largely made up of:

      • Individual income taxes (~50%)
      • Payroll taxes (Social Security and Medicare) (~30%)
      • Corporate income taxes (~10%)
      • Excise and other taxes (~10%)

Congress decides annually through the appropriations process how much goes to the U.S. Department of Education and its specific programs. Federal education dollars are categorical grants, meaning they must be spent on defined programs. Examples include:

      • Title I – Extra support for schools with high percentages of low-income students
      • IDEA – Special education programs and services
      • Title II – Teacher training and professional development
      • Title III – English language learner programs
      • School Nutrition Programs – Free/reduced lunch and breakfast
      • Perkins Grants – Career and technical education

These funds cannot be used to pay general teacher salaries, fund construction, or cover day-to-day district operating costs.

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The Bottom Line

Michigan’s school funding model balances statewide equality in education with local control over infrastructure. The state ensures every child has access to teachers, textbooks, and essential programs — but the community decides whether those classrooms are bright, safe, and modern.

Every bond vote, every sinking fund proposal, is more than a financial decision — it’s a statement of what each community has the capacity, knowledge, and will to provide for its children. Over time, those choices shape not just buildings, but opportunity itself.

Appendix of Sources

Note on Content Creation: This article was developed with assistance from AI tools to help organize research and refine language. All facts were independently verified, and the structure, analysis, and conclusions reflect the author’s own work.

The following sources were used to develop this report:

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