Michigan State School Aid Act: Foundation Allowance, Grants, and Compliance

The Michigan State School Aid Act, formally Act 94 of 1979, is the annual appropriations law that funds Michigan’s K-12 public schools. It sets the per-pupil foundation allowance every district receives, creates categorical grants for students with specific needs, and spells out the counting, spending, and reporting rules districts must follow to keep the money flowing. For fiscal year 2025-2026, the Act appropriates more than $18.3 billion from the State School Aid Fund alone, making it the single largest spending bill the legislature passes each cycle.¹

Where the Money Comes From

The School Aid Fund draws from several revenue streams that the Michigan Constitution locks in so the legislature cannot redirect them casually. Article IX, Section 11 dedicates 60 percent of all sales tax revenue collected at the original 4 percent rate, plus 100 percent of the revenue from the additional 2 percent rate added under Proposal A.² In practice, most of Michigan’s 6 percent sales tax feeds schools, which makes consumer spending the single biggest driver of education revenue in the state.

A share of individual income tax collections flows in each year under a statutory formula. The state lottery contributes more than $1 billion annually and has done so for seven consecutive fiscal years, totaling nearly $8.7 billion over that span.³ The 6-mill state education tax on all non-exempt property adds another major stream,⁴ and excise taxes on cigarettes and liquor round out the constitutional basket. Smaller amounts come from the general fund, the school transportation fund, the enrollment stabilization fund, and several reserve funds.

The Foundation Allowance

The foundation allowance is the per-pupil dollar figure that forms the core of every district’s operating budget. For 2025-2026, the target foundation allowance is $10,050 per student.⁵ That money covers salaries, utilities, classroom supplies, and other day-to-day operating costs. The legislature resets the number annually based on available revenue, and it tends to rise modestly over time.

Most districts receive exactly the target amount. A handful of districts that had higher per-pupil spending before Proposal A are “held harmless” at their legacy levels, which run above the target up to roughly $17,400 for certain districts in 2025-2026.⁶ The gap between those out-of-formula districts and the rest has narrowed as the legislature has raised the target faster than the hold-harmless amounts.

How Student Counts Drive the Payment

A district’s total state aid depends on how many pupils it can claim in membership. Michigan uses a blended count that weights 90 percent on the fall count day in October and 10 percent on the supplemental count day in February.⁷ For 2025-2026, the February count day falls on February 11.⁸ The October count dominates the funding picture, while the February count keeps mid-year enrollment dips from wiping out a district’s budget.

Districts must record every full-time equated pupil present and in regular daily attendance on these days. The count data is reported to the Center for Educational Performance and Information through the Michigan Student Data System.⁹ Errors on count day can trigger painful adjustments during later audits.

Enrollment Stabilization for Declining Districts

Fewer pupils means a smaller total foundation payment, which is a direct hit for districts losing enrollment. The Act softens the blow through an enrollment stabilization fund. For 2024-2025, up to $71 million went to districts and intermediate districts whose current-year membership fell below the prior year.¹ Money in the fund does not lapse at fiscal year-end, so balances can carry forward. The payments do not fully replace lost per-pupil revenue, but they give a shrinking district time to adjust staffing instead of making abrupt cuts.

Categorical Grants on Top of the Foundation

The foundation allowance covers baseline operations. Some students cost more to educate, and the Act addresses that through categorical grants layered on top of the per-pupil payment. Each category carries its own eligibility and reporting rules.

At-Risk Students

Up to $1,336,805,000 from the School Aid Fund (plus $1.5 million from the general fund) is allocated for at-risk pupils in 2025-2026.¹⁰ The statute defines “at-risk” broadly: economically disadvantaged students, chronically absent students, English language learners, victims of abuse or neglect, pregnant or parenting teens, and students who failed to hit proficiency on state assessments, among others. A student counts as economically disadvantaged if eligible for free or reduced-price meals, receiving SNAP or TANF benefits, or classified as homeless, migrant, or in foster care.

Special Education

Special education receives the largest categorical allocation: up to $2,219,596,100 from state sources in 2025-2026, plus roughly $500 million in federal IDEA Part B funding.¹¹ The state reimburses districts for about 28.6 percent of approved special education costs and about 70.4 percent of approved special education transportation costs. Districts absorb the remainder from their general operating budgets.

Career and Technical Education

Up to $41,733,800 is allocated for 2025-2026 to reimburse districts and area vocational-technical centers for secondary CTE programs on an added-cost basis.¹² The department prioritizes funds based on the capital and program expenditures required to run the programs.

English Language Learners

Up to $62,732,600 is allocated for 2025-2026 for services for English language learners assessed with the WIDA ACCESS test.¹³ A district must agree to meet or exceed a minimum number of weekly minutes of direct English language instruction based on each student’s proficiency level.

Transportation

Student transportation runs through a separate School Transportation Fund. For 2026-2027, $125 million in one-time funding is set for distribution to districts and intermediate districts based on riders per square mile and cost per rider.¹⁴

How Charter Schools Fit In

Public school academies, Michigan’s term for charter schools, receive their foundation allowance directly from the state rather than through a local district. For 2025-2026, charter schools receive the target foundation allowance of $10,050 per pupil, the same amount as the majority of traditional districts.⁵ A charter that opens after the fall count day gets a prorated amount based on the hours of instruction it actually provides, divided by the minimum hours required under the Act. Charters do not receive the higher hold-harmless allowances that some legacy districts get, since charters were created after Proposal A and have no pre-reform spending level to grandfather.⁶

What Districts Can and Can’t Spend the Money On

State aid is not a blank check. MCL 388.1618 restricts how districts use what they receive.¹⁵ Permitted uses include teacher and employee compensation, tuition, transportation, utilities, textbooks, supplies, and other operating expenditures defined in the Act. Applying school aid money to any purpose outside that list is prohibited.

Districts can transfer up to 20 percent of their foundation allowance revenue to a capital projects fund or a debt retirement fund for debt service, but no more. New building construction and land acquisition are generally financed through voter-approved bonds rather than operating funds. The department can judge the reasonableness of expenditures and withhold future payments from any district that violates the rules. Districts remain free to contract with intermediate districts or third-party vendors for noninstructional services using funds already permitted for those purposes.

Compliance Obligations

Staying eligible for state aid requires careful recordkeeping. Districts that fall behind on any of these obligations risk delayed payments or outright deductions.

Student Data

Staff enter each student’s information into the Michigan Student Data System, where every student receives a Unique Identification Code that follows them throughout their school career.¹⁶ The system tracks enrollment, attendance, services received, and demographic data.

Teacher Certification

Every educator in a Michigan public school must hold a valid certificate or permit before their first day in the classroom. Districts verify credentials through the department’s educator look-up tool and are expected to review credentials annually. Employing an uncertified teacher triggers a state aid deduction equal to 50 percent of the salary paid to that individual during the period of violation.¹⁷ If the department notifies a district and the district fails to resolve the situation within 10 business days, the penalty escalates to 100 percent of salary paid after that deadline.

Annual Financial Audits

Each district must have its financial and pupil accounting records audited at least annually by a certified public accountant or by the intermediate district superintendent, at the district’s own expense. Audit reports are submitted electronically through the state’s reporting portal. Timely and accurate submission prevents delays in aid payments and protects a district from repayment demands during state compliance reviews.

Penalties and Overpayment Recovery

When an audit reveals that a district received more than its proper share, MCL 388.1615 requires the department to deduct the overpayment from the next available state aid payment.¹⁸ The department can audit the current fiscal year and the immediately preceding fiscal year for any program from which a district has drawn funds.

Recovery channels differ by type of overpayment:

General overpayments are recovered from any state aid payment under the Act (except special education payments), from emergency loan proceeds, or from dedicated millage proceeds.
Special education overpayments are recovered only from subsequent special education payments, emergency loan proceeds, or dedicated millage proceeds.

Districts facing severe financial strain can request a hardship extension of up to four additional years to repay. The department can also advance payments to a district while a hardship repayment plan is in effect.

Certification violations carry particularly steep consequences. Beyond the salary-based deductions, a school official who is notified of a certification violation and knowingly continues to employ the uncertified individual faces a misdemeanor charge carrying a $1,500 fine per incident.¹⁷ Limited exceptions exist for situations beyond the district’s control, like natural disasters or the sudden death or illness of an employee, but the bar is high.

How Payments Actually Arrive

State aid flows to districts in monthly installments running from October through the following August, aligned with the state fiscal year. The department transfers funds electronically and recalculates payment amounts as updated pupil count data comes in. Districts can monitor payments and view detailed breakdowns through the Michigan Department of Education’s State Aid Financial Status Reports system, which provides online access to current-year payments, nonresident reports, prior-year adjustment details, and special education hold-harmless figures.¹⁹ When discrepancies surface between initial estimates and final audited numbers, corrections for underpayments or overpayments apply to the remaining installments in the current cycle.

1
Michigan Legislature. Michigan Compiled Laws 388.1611 – Appropriations
2
Michigan Legislature. Constitution of Michigan of 1963 – Article IX 11
3
State of Michigan. Whitmer Announces Michigan Lottery Contributes More Than 1 Billion to Schools
4
Michigan Legislature. State Education Tax Act – Act 331 of 1993
5
Michigan Legislature. Michigan Compiled Laws 388.1620 – Target Foundation Allowance
6
Michigan House Fiscal Agency. School Aid Data Foundation Allowances – FY 2025-26
7
Michigan Legislature. Michigan Senate Bill 904 – State School Aid Act
8
State of Michigan. January 2026 State School Aid Update
9
Center for Educational Performance and Information. Michigan Student Data System
10
Michigan Legislature. Michigan Compiled Laws 388.1631a – At-Risk Pupils Allocation
11
Michigan Legislature. Michigan Compiled Laws 388.1651a – Special Education Programs and Services
12
Michigan Legislature. Michigan Compiled Laws 388.1661a – Career and Technical Education Programs
13
Michigan Legislature. Michigan Compiled Laws 388.1641 – English Language Learners Allocation
14
Michigan Legislature. House Fiscal Agency Bill Analysis – House Bill 5628
15
Michigan Legislature. Michigan Compiled Laws 388.1618
16
Center for Educational Performance and Information. Request for Unique Identification Code
17
Michigan Legislature. Michigan Compiled Laws 388.1763 – Uncertified Teacher Deductions
18
Michigan Legislature. Michigan Compiled Laws 388.1615 – Overpayment Recovery
19
Michigan Department of Education. State Aid Status Reports