First of all, am I the only one out there who thinks that it's an outrage that the art program is entirely supported by soft money grants? Is your reading program on a grant, or your math program? What's next for you, a car wash or bake sale? So much for the importance of art to the development of a child!
As to your question, I was an elementary art teacher, but this budget may apply. I taught around 900 students, and had a materials budget of $4.00 per child per year. It was not adequate, but I was able to make it work by donations of materials and innovative activity development, so it was doable. For a middle school, with more specialized needs, I would say that a budget of around $5.00-$7.00 would be more appropriate. Breaking your budget down to a per student basis helps bring into perspective exactly what you are spending, and helps administrators see how much it takes to run a decent program. Your only other alternative is to teach only the basics, like drawing or basic painting classes, which I'm sure would be repugnant to most art teachers. Or you could start planning your first bake sale.