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Original article URL: http://bridgemi.com/2014/02/lies-damn-lies-and-education-funding/

Guest commentary

Lies, damn lies and education funding

Mitch Bean was the long-time director of the Michigan House Fiscal Agency which provides non-partisan information and analysis for members of the Michigan House of Representatives. He is one of the most knowledgeable financial and policy figures in Lansing and serves on the Bridge Board of Advisers.

Mitch Bean was the long-time director of the Michigan House Fiscal Agency which provides non-partisan information and analysis for members of the Michigan House of Representatives. He is one of the most knowledgeable financial and policy figures in Lansing and serves on the Bridge Board of Advisers.

In his State of the State address, Gov. Rick Snyder noted that total state spending in all categories in the School Aid budget has increased from about $10.8 billion of actual expenditures in FY 2010-11 to almost $11.5 billion in appropriations in FY 2013-14 – and that, on a per-pupil basis, the increase equates to about $660 per pupil.

If schools got that much of an increase, why has there been so much rhetoric in the school community about cuts to education, and underfunding of education, and why are so many school officials asking, “Where’s all this money, because I don’t see it?”

Is more money actually getting to the classroom or not?

School finance is a complicated issue. In order to sort through these issues I reviewed detailed Michigan Department of Education budget files provided to me by the Senate Fiscal Agency. The administration’s $660 calculation is correct – but in my opinion doesn’t reflect what actually goes to schools. And it’s further complicated due to declining enrollment.

Let’s decompose the $660 calculation. Total state spending in all categories includes payments made directly to districts; items that do not show up in direct payments to districts; and other items funded with General Fund/General Purpose (GF/GP) that are included in total state spending but are not paid directly or indirectly to districts.

Payments to districts included 64 items between actual fiscal year (FY) 2010-11 expenditures and FY 2013-14 appropriations. However, the School Aid budget has changed significantly since FY 2010-11.

Forty-eight items have been changed or eliminated since 2011 and 41 new items have been added. After adjusting for those changes, total spending has increased about $321.6 million, or 3.03% in three years. And per-student spending on direct payments to districts has increased $416 in per student in three years.

What does that mean? Average yearly growth in spending going to the classroom is about 1.03%. That’s below inflation as measured by Detroit (Consumer Price Index) CPI-U which the Senate Fiscal Agency was 2.6% in FY 2010-11, 2.4% in FY 2011-12, and 1.9% in FY 2012-13. And average growth in per-pupil spending going to districts over three years is $138.7 per year.

It’s also important to note that state spending on the foundation allowance which includes three items in FY 2013-14: the Proposal A Obligation, the Discretionary Payment, and the Discretionary Payment Adjustment – declined since FY 2010-11. It was about $543 million higher in FY 2010-11 ($9.27 billion compared with $8.72 in FY 2013-14).

That means state spending on the foundation allowance declined 5.87% since FY 2010-11. Total state spending on the foundation allowance is down, while per-pupil spending increased because enrollment is down 41,136 since FY 2010-11. That’s why some school districts are receiving less money.

The second category of total state spending is items that do not show up in direct payments to districts. This category includes nine items and has increased $121.9 million since FY 2010-11. However the item that dominates this category is debt service for the school bond loan fund which has increased $128.8 million since FY 2010-11.

This money doesn’t go directly to districts and hardly seems appropriate to include in a per-pupil calculation for schools.

The third category is other items funded with GF/GP that are included in total state spending but are not paid directly or indirectly to districts. This category includes money for the state Center for Educational Performance and Information (CEPI), Michigan Virtual University, and the Michigan Public School Employee Retirement System (MPSERS) rate cap for libraries. Clearly this category does not belong in the $660 calculation either.

Neither my $416 estimate nor the administration’s $660 estimate includes new line-items (new since FY 2011-12) for MPSERS. The FY 2013-14 School Aid budget includes Sections 147a, which is a one-time cost offset of $100 million, and 147b, which is the state share of MPSERS unfunded liability – which total $503 million in FY 2013-14. The three-year total for MPSERS cost offset and unfunded liability is approximately $1 billion – which the administration refers to as new money that offsets MPSERS costs for schools.

These are new line-items that were not included in the FY 2010-11 budget – but is it new money or existing School Aid Fund money reassigned to a new line-item? I pose this question because the $543 million reduction in state funding for foundations when I compare FY 2013-14 with FY 2010-11 is so similar to the $503 million of “new money” for MPSERS in the FY 2013-14 School Aid budget. I’ll let readers decide what to call it.

In order to be consistent with the Administration’s calculations, I used actual expenditures for FY 2010-11 and FY 2013-14 appropriations. However, appropriations change during the year and are seldom equal to actual expenditures.

In FY 2010-11 state appropriations to districts were about $100 million higher than actual expenditures. I expect actual expenditures in FY 2013-14 to be somewhat higher than current appropriations because more money is available, staff consensus is that some programs are a bit underfunded, and it’s an election year. That means most of these calculations will need to be redone when final expenditure numbers are available.

Depending on what you want to count and how you count it, an argument can be made that funding has increased, decreased, or is flat.

The case for an increase

Total state spending per pupil and divided it by the number of pupils gives you what the administration wants to count. In FY ’11 it comes out to $6,884, and in FY ’14 it comes out to $7,545. The difference between those two numbers is $661.

But dig a little deeper, and only $439 of that is due to state spending. The other $222 is due to a decrease in the total number of students.

But there’s an important point here: the foundation allowance and “per pupil” funding are no longer synonymous.

Now, instead of just the foundation allowance being sent to schools, people, including the Governor’s number crunchers, are rolling in spending on things like the Michigan Public School Employee Retirement System, MPSERS.

The Governor pointed to $1 billion invested into MPSERS, saying “It’s the right answer and we need to keep it up.” A rate cap on districts was instituted for FY 13 and FY 14 of $160 million and $403.3 million respectively. In addition, grants in FY 12, FY 13, and FY 14 of $155 million, $155million, and $100 million helped fund MPSERS.

So the $1 billion (actually $973.3 million) was over a three-year period, and it should be noted that the impact varied by district depending on how much of their payroll represented employees subject to MPSERS.

The Legislature has included MPSERS cost offsets for local districts, created a MPSERS Reserve Fund, and capped employer contribution rates for unfunded accrued liabilities at 20.96 percent of payroll.

That last part is the largest – it means that school districts know they have to pay up to that amount, but after that the state will cover the costs directly through the School Aid Fund.

So if you roll MPSERS in to that total per-pupil number, the total amount of money going to schools divided by the total number of students going to schools has indisputably increased from FY ’11 to FY ’14.

The case for a decrease

If you just look at the foundation allowance, that is lower than it was in FY ’11. There was a significant cut in FY ’12, and then a little bit of that has been restored.

According to a chart produced by the SFA in August, the minimum effective foundation allowance was $7,146 in FY ’11 — when Snyder was in office, but hadn’t set that budget. In FY ’14 it is $7,026, a $120 decrease.

FY ’12, Snyder’s first budget, saw the only drop in minimum effective foundation allowance under his tenure, but it was a big one. It went from $7,146 in FY ’11 to $6,846, a total of $300.

But the drop was due at least in part to a drop-off in American Recovery and Reinvestment Act (ARRA) funds, which had previously been infused into the state’s education system.

When those funds disappeared, the state couldn’t completely make up for them. But the reason they couldn’t be made up was a net tax cut of about $500 million and a BSF deposit of about $258 million – so that took about $750 million off the table that could have reduced or eliminated the cuts to education.

The case for flat funding

The House Fiscal Agency (HFA) in a background briefing released earlier this month pointed out that in terms of gross School Aid Fund (SAF) appropriations, there’s not been a ton of movement.

“Total School Aid appropriations have remained fairly flat over the last ten years,” notes the document.

In FY ’14, gross appropriations were at $13,367 million. The lowest they’ve been in the past 10 years was in FY ’05, at $12,467 million. In FY ’14, gross appropriations were 7.2 percent higher than in FY ’05. There was some fluctuation between those times, but it stayed right between those two numbers.

“Excluding federal funds dedicated for specific purposes, total FY 2013-14 funding for schools is at the same level as FY 2005-2006 (not adjusted for inflation),” notes the House report.

In other words, when you pull back to look at a decade-long trend, education funding may not be trending much of anywhere.

Mitch Bean served as the Director of the Michigan House Fiscal Agency, a nonpartisan agency within the Michigan House of Representatives. Agency personnel provide confidential, nonpartisan assistance to the House Appropriations Committee and all other members of the House on legislative fiscal matters.

Bridge welcomes guest columns from a diverse range of people on issues relating to Michigan and its future. The views and assertions of these writers do not necessarily reflect those of Bridge or The Center for Michigan.

22 comments from Bridge readers.Add mine!

  1. Tom

    It is naive to attempt to count educational expenditures as only “classroom” costs. There are simply too many ancillary expectations for education and attendant costs that are a legitimate part of the educational system as it is currently configured. It is expensive and increasing. Maybe the answer is fewer bloated public school districts and more charter schools; elimination of pensions and more 403b retirement funds, fewer agrarian-based school calendars and more year-round schools, and fewer union sponsored health care programs and more conflict-free bids among purchasers?

    We may actually be able to deliver a better product for less money and move away from the insanity of debating how much more is enough for a broken system.

    1. Gary G. Naeyaert

      Tom, you are SPOT ON!! Please run for public office!

    2. Tom

      Tom Vander Ark?

      1. Tommy

        This totally sounds like Tom Vander Ark from the Mackinac Center. Tom, we know you folks monitor and bombard these comment boards hoping to persuade anyone you can of Mitt Romney’s campaign about education last year (and your own group)- parents should be able to send their children to the best education they can afford. Which means if they can’t send their kids to school it’s the “oh well, too bad” mantra many of you neo-conservatives have had since the late 1800’s. Just come out and say you want public education abolished because you don’t want to pay for it. Say you think teachers should be paid like fast food workers. Say that parents can send their kids to schools if they can afford them or stay uneducated. The reality is you can’t and you know it. So you slowly try to chip away at the system and starve it hoping parents turn on it since you know parents will not vote with you (voucher proposal a decade ago that failed- miserably). Eventually the public will catch on and turn against you regardless of how much money you throw out during campaigns.

  2. dlb333

    Thank you for a thorough and balanced review of the education budget numbers. Nothing is ever black and white in politics no matter how much the pundits try to portray it.
    The large suburban district where I work has seen significant cuts in the amount we receive from the State, this has resulted in larger classes, elimination of programs and, for staff dramatic pay cuts. My salary has been cut $12,000 (plus a significant increase in the amount I have to contribute to health care and pension) compared to what I was making before Snyder and the Republican dominated legislature came into office.

  3. dlb333

    It is hard for me to imagine that charter schools can be less expensive in the long run. How can increasing the number of charter school “districts” with all their connected layers of administration (plus the routing of education dollars to corporate profits) be more efficient compared to a single large public school district? The extent to which charter schools are able to educate students on a cheaper per student basis is because they do not have the costs of maintaining an established physical infrastructure and they are not providing services to high need students with severe disabilities.

    1. Tim

      @dlb333, I agree that I do not believe that charters are the answer to everything. Yes, they might be cheaper to operate, but they do not serve students with disabilities with significant needs (parents are often told that they would receive better services “in their local school district”) and, let’s not forget here, the public schools are responsible for all transportation costs, whereas charters do not pay one penny to transportation costs. In addition, many (most?) charters are K-8, and do not have high schools, which are much more expensive to operate on a per-pupil basis (think band, sports, transportation of teams, sports facilities, lab equipment, etc.). Charters seem to be able to pick and choose what they want to offer, to whom they want to offer those selected items, and then be able to brag about still being able to make a profit! Oh, and numerous researchers have found no significant and/or consistent benefit to student achievement between charters and public schools.

  4. J. Strate

    Thank you for this detailed and very informative analysis. It’s complicated! It would be nice if the elected public officials would stop using numbers that they are only vaguely familiar with to take credit for their own actions or place blame on their opponents. It deflects public discourse from where it should be targeted–what needs to be done to improve the academic performance of public school students in Michigan. More money may be part of the answer, but at best it’s only a small part. Research by Ken Meier on Texas schools is interesting. What matters? capable and experienced school administrators who have been on the job for awhile; high standards; hard work (homework); stable curriculum; parental involvement. It’s not that complicated.

  5. TJA, California attorney

    Snyder is doing a wonderful, but tough job saving all of your jobs! So, let’s be clear- the point is that the teachers’ union sucked up the bulk of the new money for its pensions, in effect robbing our kids today of money otherwise devoted to their public education. Who is shocked that this is happening in Michigan, the most union-centric spot on earth? And when will America figure it out- public employees only care about their own interests and vote in large blocks! It used to be illegal in most states for them to unionize and strike. Then our politicians figured out that they could “buy” large blocks of votes pandering to these public unions. Figure it out, Michigan! Money sent to MSPERS must count as money spent on education even though it doesn’t teach Little Jilly even one of the three R’s!

    1. Mike R

      So, your premises are (1) money spent on teachers does not benefit students, and (2) unions are inherently the root of all of Michigan’s problems? How does one even comprehend, let alone address, such nonsense?

  6. Brendan

    I agree, a very thorough and informed analysis. Of the scenarios described here, the one that resonates the most as a former school board member is the one that counts MPSERS.

    I stated repeatedly on my time in service that MPSERS was the beginning, middle and end of local school district budget problems. MPSERS payments (along with health care) eroded nearly everything it could. It was like a forest fire in the local budget.

    The problem was it was a complicated topic. It was not controlled locally. The rate would change from year to year, sometime dramatically higher. It made multi-year budget planning nearly impossible.

    If the state budget goes to stabilize that issue, then that is real money that had to be invested – albeit the MPSERS contribution rate remains very high, a 25% charge of all direct staff salary payments (any district’s largest expense). That is why districts resorted to outsourcing, which ultimately only made the unfunded liability worse. Or districts cut staff, which also exacerbated the unfunded liability.

    MPSERS caused a huge mess. That money counts.

    1. Roger

      Well put! Also causing upward pressure on MPSERS is the “outsourcing” of jobs to Charter School employees who are not participating in the program. This leaves the participating districts with a significant expense and puts locally governed school districts at a comparative disadvantage. Its not right that local school districts have their hands tied the way they do.

      1. Gary G. Naeyaert

        Roger, You conveniently ignore the fact that there are far more “traditional” public school employees who are not in MPSERS than there are charter school employees not in the system. Also, the Office of Retirement Services has confirmed that adding a few thousand charter school employees into MPSERS will have no financial impact on the system, and that’s why Rep. Meadows (sponsor of MPSERS reform bill in 2012) dropped the charter witch hunt here. I would urge you to do the same.

    2. Gary G. Naeyaert

      At an estimated total cost of $3.0 billion per year, or $2,000 per pupil, the unfunded accrued liability in MPSERS is the ZOMBIE that is eating the School Aid Fund. The legislature capped the district liability here at 20.96% of payroll (~$2.0 billion, or $1,350 per pupil), meaning the other $1.0 billion is coming “off the top” of the SAF (or $650 per pupil). So now the 30% of districts that don’t participate in MPSERS are “paying” $650 per pupil per year for a system in which they have NO employees or retirees. Ridiculous.

  7. Leon L. Hulett, PE

    I laughed at your choice of title, ‘Lies, damn lies and education funding,’ it reminds my of my wife’s favorite quote from her favorite author, Mark Twain. You may have done some justice to the ‘lies’ part, but I don’t you think you have addressed the ‘damn lies’ part, nearly enough. I present three as examples:

    1) Per ‘pupil funding’ is represented in your article in FY ’14 as $7,545, as if this represents an equal portion of state funds, from taxes on everyone in Michigan, all of us, freely available to each student in the state. What portion of such funding actually goes to the 120,000 (http://www.michigan.gov/documents/NPSHS_numbers_05_131608_7.pdf) or so students in non-public and home schools? Damn! (Excuse my French/Political Correctness.) That looks a lot like $11.5 Billion in taxation without representation, without representing these 120,000 students and their families, with a directed suppression of this sector of education in Michigan, doesn’t it?

    2) I found a quote, back in 1994, from the people that wrote and conducted the NAEP testing, that said, ‘Half of the students in America drop out of Math each year, and only 5 percent of high school graduates are at grade level.’ I asked my local school board to publish to the community 4 graphs; one for Math, one for Reading, one for Science and one for Writing, showing what grade levels our K-12 students had actually achieved. Please note that MEAP and ACT scores do not say what grade levels students have been achieved. So what grade levels does the $11.5 Billion per year actually achieve? The answer is we don’t know. But i think i do. My local school board would not say and would not publish the four graphs, I asked for. I know this, when I went from high school to college I went from Salutatorian to remedial classes in college. I was in Mechanical Engineering, a tough curriculum. To start college in a tough curriculum, like that, one needs an ACT Score of 30, according to the Out Reach Coordinator of the local Community College, and their website. According to ACT data for Michigan, which now tests 100% of students, that would mean less than 5 percent of Michigan students are at this grade level. This achievement level. This level of quality. And that brings me to my third example. What Standards are being applied when this $11.5 Billion is being spent?

    3) I believe the root of this problem is in the Michigan Educational Standards, which are based on a poor, very poor definition of ‘standard.’ In industry, I use a definition like this: ‘A Standard is a definite level of quality suitable for a specific purpose.’ For example, a pound of sugar, is expected to weigh a pound. This is a definite level of quality, suitable to compare sugar products one to the other for many purposes. In education one definition I found goes like this; ‘A standard is a statement about quality.’ See, there is no definite level. There is no purpose intended. Any level of quality, for any purpose could satisfy such a requirement. (The minds of students could be being shaped by Stalin’s educational guru, S. L. Vygotsky, and meet this expectation.) The other definitions of standards, I found used within the Educational Standards are similar. I feel the purpose of education is ‘Work.’ To prepare students for their life’s work, citizenship, military, marriage, what industry expects, and this includes what colleges expect. What standards do industry need and expect and what Educational Standards are being applied?

    By focusing ones attention while reading the article on dollars and cents only, one loses the overall intention of what Education is supposed to do for all the kids, and all of us industry and the world.

    1. Howard Wetters

      Public Education has a goal of educating but it also has a goal of creating a shared experience and understanding of other groups, philosophies, races, religions and a dozens of other things. You may choose to home school to avoid having your children subjected to other ideas and views that differ from your own. But please do not ask me to support that activity with my tax dollars. We have enough xenophobia in our society. There is more than enough certainty of belief and not enough examination and comparison of ideas, beliefs, and philosophies. To paraphrase Socrates, The unexamined belief or idea is not worth holding.” Your choice to limit your children’s capacity to freely examine beliefs other than those you hold is a disservice to them and to society at large.

      1. Leon L. Hulett, PE

        Howard, I have not made the two choices you suggest: ‘You may choose to home school to avoid having your children subjected to other ideas and views that differ from your own.’ and ‘Your choice to limit your children’s capacity to freely examine beliefs other than those you hold is a disservice to them and to society at large.’

        I have no idea how you came to these two conclusions about me or from what I wrote. But perhaps you suffer from the same unwillingness to honestly examine the views of others that you accuse me of here? You may have more than a little of that ‘Xenophobia’ you speak about, in your own thinking. Or perhaps you have simply adopted a certain political view of home schoolers.

        You do point out two facts that are worth mentioning: I am an advocate for business and their needs from Education in America, and yes, also for Home Schools. The second fact is ‘please do not ask me to support that activity with my tax dollars.’ I do not believe Michigan has a goal of ‘educating’ as you say, but if it did, it would be general enough to include Home Schools, which you have specifically asked not to have your tax dollars applied to. So you also have a more narrow definition of ‘educating’ than you say here, and you do not have the tolerance you suggest when you say ‘not enough examination and comparison of ideas, beliefs, and philosophies. To paraphrase Socrates, The unexamined belief or idea is not worth holding.” My basic point was that a refusal to fund education in Michigan for such students is an obvious suppression of them, to the tune of at least $100,000 each over 14 years. You have clearly made my point, I believe.

        I once had the opportunity to substitute teach on the last day of school for the largest high school in our area. I love working with kids, but they also tell you quite revealingly just how things are. I invite you to talk to a number of kids near the end of their K-12 education and see if they embody the broadly high minded ‘Socratic’ view you optimistically present here. Let me know how you do with real public school kids on the topics you mentioned?

      2. Joshua

        Wow, Howard! So your public education taught you to view religious and non-public school philosophies as xenophobic and unexamining of ideas, beliefs, and philosophies? I really don’t believe we need more people thinking like you, so under your own guidelines, we should stop funding public education as well.

        You want every child to get the same beliefset you were taught at public school and not be subjected to the ‘other ideas and views’ taught at non-public and home schools. You are the one who wants to restrict what beliefs children are being taught and you are choosing to remove belief choices from the parents and give it to the state. I don’t see how your philosophy improves our society at all!

        Unfortunately, you also sound completely ignorant of non-public schools. Having attended both parochial and public schools, I can tell you that my instructional exposure to other beliefs, ideas, and philosophies was much greater at the non-public schools. We aren’t a bunch of backwater flat-earthers chanting ‘Death to Muslims’, but I guess that education they gave you in public schools about our philosophies must not have been that accurate and informed. You should take that Socrates quote to heart and examine your ideas.

  8. Howard Wetters

    Mitch: Thank you for shining the light of day on all the misinformation and backroom budget calculations that go on in Lansing. The bottom line take away is from the House Fiscal agency, The House Fiscal Agency (HFA) in a background briefing released earlier this month pointed out that in terms of gross School Aid Fund (SAF) appropriations, there’s not been a ton of movement. “Total School Aid appropriations have remained fairly flat over the last ten years,” notes the document.

    We either value education or we do not value it both at the K-12 and higher education levels. You can manipulate the numbers all you want but the bottom line is that we, based on where we invest, do not value education as much as other governmental activities like cutting business tax rates. As one wise person once said “Always follow the money.” I applaud Snyder for finally funding education priorities in his proposed budget but it took him three years and an imminent election to do so. It may not be “enough” but Dems should embrace his budget. It reflects their and working class priorities. The Republican legislative leadership will move to establish their own priorities like their proposed 44 cent per day tax cut. If you save it up you can buy a small latte at Starbucks once a week. Dems should look at Snyder’s budget proposal as the best they can get to support working class priorities and they should not only support it but stump for its inaction into law.

  9. Dave Smethurst

    Are all kids equal? One that sticks in my craw is the per pupil funding difference between school districts. Shouldn’t it be the same in every district. And shouldn’t all schools that get State funding offer a complete program with special needs and have to keep “trouble makers” not boot them out?

  10. Duane

    Mr. Bean’s focus is on the money and he shows no interest in what that money is expected to provide since he makes no reference to learning or education or to some change in what is delivered. Mr. Bean seems to not to be writing this article to help inform the general public, rather to a select audience that is privy to his terms and references and manipulations.

    Mr. Bean says, “…in my opinion doesn’t reflect what actually goes to schools.” That would suggest that the he sees no value to education in any spending other than what the schools do. That would suggest that all State educational function should be eliminated, that all administrative service other than in the schools should be eliminated.
    He talks about, “debt service for the school bond loan fund” and doesn’t mention what that includes. Could it be for school construction, building maintenance, electronics for the schools, he must feel we know what all is included.
    It doesn’t appear that teacher compensation is something Mr. Bean feels shouldn’t be considered as going to the schools/classrooms, I wonder if teachers agree. Maybe it is just an inconvenience for Mr. Bean’ point about spending on the schools. Maybe Mr. Bean believes that after a certain period of time when a bill (such as retirement) has not been paid that it should be disregarded even though what was purchase was applied in the classroom.

    Mr. Bean seems to feel, “…due to a decrease in the total number of students.”, that a reduction in student population should not be considered when calculating the spending per pupil. That suggests that Mr. Bean feels that funding should be based on a historic student population rather than current population. I wonder if he believes that the teacher and support staff population should be based on that historic student population rather than adjusted to the current population. Would Mr. Bean want that historic population even if there were a growth in student population?

    “In other words, when you pull back to look at a decade-long trend, education funding may not be trending much of anywhere.” Mr. Bean’s focus is on spending, but with all the rhetoric we hear from Lansing and in our communities his remark could be encouraging about student learning if he was interested in such things.

  11. Chuck Jordan

    Thank you Mr. Bean for an informative explanation of the education budget over time. It gives everyone someone to blame: the unions, republicans, democrats, state and local government and their mismanagement, charter schools, etc. Does the education budget have to be this complicated? Could it be simplified? Could it be planned so that we don’t go through times of feast and famine? Could it be worked out so that there are not so many winners and losers, especially high-poverty, urban minority districts? Can we afford to educate everyone, even those with parents who don’t care and students with disabilities? Can we get to a time when teachers aren’t blamed for conditions they have no control over? Can we decide how much a teacher is worth including benefits and move on? Can we improve education for everyone without further blaming everyone one else?

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