School districts are prohibited by Michigan law from adopting a budget deficit. This restriction means that in any given budget year a district may never plan to spend — or actually spend — more than the annual revenue the district will receive from all sources. A district that spends itself into deficit cannot receive further payments from the state until the district submits a deficit elimination plan. The plan must include measures to eliminate the deficit in no more than two fiscal years after the deficit was incurred, and a district must file a monthly revenues-and-expenditures report with the state Department of Education. The only permissible deficit is one incurred as a result of a reduction of money available to the schools due to an executive order issued during the fiscal year.
In fiscal 2007, 23 conventional local school districts and charter schools are operating with deficit elimination plans.