Record $1.7B Of School Aid Fund Money Funded Colleges, Universities In New Budget

A record $1.7 billion from the School Aid Fund is going to higher education and community colleges in the newly passed FY 2026-27 “school bus” budget, furthering a decades-old budget practice that has grown substantially in recent years.

The money supports university operations, scholarships, Indian Tuition Waiver reimbursements and the state's community college budget — areas that were once funded through the General Fund, but have increasingly shifted onto the School Aid Fund.

It's this record that adds new weight to an ongoing Lansing debate about whether the School Aid Fund should be treated primarily as a K-12 funding source or as a broader

fund that can also support colleges and universities. And as this practice becomes more routine, the question now begs how much longer this can continue before it starts squeezing K-12 schools.

Under the conference report for HB 5630, the higher education budget includes a $200.1 million School Aid Fund shift for scholarships, $84.6 million for university operations and $15.4 million for Indian Tuition Waiver reimbursements. The budget also continues funding community colleges through the School Aid Fund, with the community colleges' budget listed at $496.7 million and no General Fund/General Purpose dollars.

The Senate Fiscal Agency analysis shows grants and financial aid in the higher education budget growing from $519.5 million to $770 million, including the Michigan Achievement Scholarship increasing from $300 million to $532 million. The same analysis shows School Aid Fund support for grants and financial aid growing from $200 million to $425.1 million.

The debate is uniquely Michigan, or at least close to it. Robert Schneider, a senior research associate with the Citizens Research Council of Michigan, said Michigan’s dedicated School Aid Fund structure is “somewhat unique,” especially because the state is now the primary funder of K-12 schools after Proposal A.

The 1994 proposal shifted much of the responsibility for funding K-12 schools away from local property taxes and toward state-levied taxes flowing through the School Aid Fund. Schneider said that there are still other states that rely more heavily on local property taxes, while others fund schools more directly through a state general fund.

That makes Michigan’s fight over post-secondary spending from the School Aid Fund somewhat distinct, even though the legal authority for it has existed for decades.

A February Citizens Research Council report by Craig Thiel traces that authority back to the state constitution. The School Aid Fund was created as a separate fund in 1954, and the 1963 Constitution expanded allowable uses of the fund to include “higher education.” Although for decades, School Aid dollars largely supported K-12 schools and school employee retirement costs.

That changed at the end of former Gov. Jennifer Granholm's administration, when lawmakers used $208 million in School Aid Fund dollars in the FY 2010 community college budget to offset a similar General Fund reduction during a difficult budget year, according to the CRC report.

The shift became more permanent under former Gov. Rick Snyder. His FY 2012 budget proposal called for moving $800 million in School Aid Fund dollars into higher education budgets, while the final budget included $400 million in base funding for community colleges and universities, replacing General Fund support.

More than a decade later, the FY 2026-27 budget continues that trajectory.

For critics, the math is straightforward: dollars going to higher education are dollars not going to K-12 classrooms.

Rep. Regina Weiss (D-Oak Park), a former teacher who sits on the House Education and Workforce Committee, voted against the School Aid budget, saying the "$600-plus million raid on the School Aid Fund" for expanded scholarships was a top reason.

She said higher education scholarships had traditionally been paid through the General Fund and warned that scholarship spending could grow if universities continue raising tuition, forcing School Aid dollars to stretch further.

“There's little to nothing to prevent higher education institutions from continuing to raise their tuition and requiring us to do more and more scholarships and deplete those dollars further and further, and they're sort of like a bottomless pit,” Weiss said.

"We already fully fund community college out of School Aid. There's a limit to how much operations costs for higher ed we could shift over. But by layering on scholarships, we're opening that hole up wider and wider, and making those dollars go less far, and just again continuing to balance and backfill the General Fund off of the School Aid Fund.

Robert McCann, executive director of the K-12 Alliance of Michigan, also described the shift as a raid. He said the state has reached roughly $2 billion in School Aid Fund dollars being used outside what he views as the fund’s traditional K-12 purpose.

At its simplest, McCann said, that equates to “$1,400 a little over that per pupil” that students are not receiving because lawmakers and the governor chose to prioritize other spending. He said what began around 2010 as a “bad-budget-year” move has continued under multiple administrations.

“The Legislature said we're going to take a quote unquote loan out of the School Aid Fund to pay for General Fund needs. Not surprisingly, it wasn't a loan, it was never paid back, and nor was it one time,” McCann said. “It's been done every year since. I think it’s frustrating for educators. During her time as the Senate Minority Leader, Gov. Gretchen WHITMER called out that theft from schools in a floor statement. She attacked Gov. Snyder for doing that, and now, in her eight years, it's just exploded.”

Schneider understands why K-12 advocates are frustrated. Traditionally, he said, School Aid Fund dollars went to public education purposes tied mostly to K-12, including adult education and Great Start Readiness. The use of the fund for community colleges and universities began during General Fund stress and has grown significantly over time.

“It’s absolutely true that the amount of the School Aid Fund that has been moved over to the community college and universities budget has grown,” Schneider said.

But Schneider said the “raid” framing only captures part of the story.

The Citizens Research Council describes the relationship between the School Aid Fund and the General Fund as a “two-way street,” with dollars effectively moving in both directions. While the School Aid Fund is used to pay for higher education expenses that were once General Fund responsibilities, the General Fund has also absorbed costs to hold the School Aid Fund harmless from revenue losses caused by tax policy changes.

Those “hold harmless” provisions include protections tied to income tax reductions, personal property tax exemptions and the more recent removal of gasoline from the sales tax base as part of the road funding plan. The Citizens Research Council estimated those provisions would reach $900 million in FY 2027, or about 70% of the $1.3 billion School Aid Fund appropriation for higher education purposes.

“The School Aid Fund is still a net payer,” Schneider said, while also noting that it has benefited from General Fund support through those hold harmless provisions.

In other words, the concern from K-12 advocates is real, but the budget mechanics are not as simple as a one-way drain.

The House Fiscal Agency’s February higher education briefing that Schnieder shared shows how much the practice has grown. While community colleges and higher education have always been allowable uses for School Aid Fund dollars, the fund was not actually used for those budgets until FY 2009-10. By FY 2025-26, School Aid Fund appropriations for community colleges and higher education reached $1.34 billion, an all-time high.

That same briefing shows higher education received $850.8 million in School Aid Fund dollars in FY 2025-26, making up all of the restricted funding in the higher education budget. Higher education represented 4% of School Aid Fund appropriations that year, while community colleges represented another 3%.

The concern now is whether the arrangement is sustainable.

Schneider said the shift may not have an immediate, obvious impact on K-12 schools this year because the School Aid Fund still has some balance and reserve money available. But he said that cushion is being drawn down, and the issue could become more consequential once lawmakers no longer have one-time balances to lean on.

“At that point, the fact that some of that ongoing annual revenue is being used for community colleges and universities probably gets even more significant,” Schneider said.