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Mich. Law Bans Property Tax Use To Fund Schools

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Michigan lawmakers have set the stage for a comprehensive overhaul of the state's education and tax systems by voting to scrap all property-tax funding for the state's schools beginning next year.

The measure, which moved through the legislature last month with breathtaking speed, creates a $5.6 billion vacuum in school funding without providing any clear idea how the money will be restored.

Backers of the legislation, which was signed into law by Gov. John Engler, praised it as a swift stroke through the Gordian knot of high property taxes and unequal school funding in which the state has been entangled for years.

"This is a tremendous opportunity to achieve true education reform,'' said John Truscott, the press secretary to the Republican Governor. "We probably have a greater opportunity than any other state in the country.''

Sen. Debbie Stabenow, the Democrat who first suggested the plan, called the change the only way for lawmakers to overcome ingrained school-finance problems.

"We did not create a crisis,'' said the Lansing lawmaker, who is planning to challenge Mr. Engler in the 1994 election. "We created a deadline for solving a crisis.''

But critics blasted the unexpected action, which unnerved state educators and raised questions about local districts' standing in the bond market.

"It is shamefully reckless,'' said David Olmstead, a school-finance analyst and former member of the Detroit school board. "While they are saying, 'Here's another promise and this time we mean it,' they are really flirting with chaos.''

Past Efforts Unsuccessful

Led by Governor Engler, Michigan officials have tried repeatedly over the past three years to win significant property-tax relief in a state with one of the highest local burdens in the nation.

The Governor's "cut and cap'' proposal, aimed at lowering tax rates and restricting increases without specifying replacement funds, was defeated last November by voters.

Michigan residents also turned back a similar property-tax-relief plan in June. That plan would have drastically cut property-tax rates while raising the state sales tax. (See Education Week, June 9, 1993.)

Thwarted by voters, lawmakers were debating their own relief plan late last month when the exemption plan was presented by Senator Stabenow. The plan passed the Senate on a 33-to-4 vote, and the House quickly followed suit, voting 69 to 35.

The law will cut residential- and business-property taxes by an estimated 65 percent.

Most observers assume the state will move to restore schools' lost local funds by raising income and sales taxes. There is a state tax-limitation provision that appears to bar a tax increase of more than $3.8 billion, but leaders have said they could find a way around that measure.

Aides to the Governor, meanwhile, suggested that taxation would be the last issue for leaders to address.

"We have to focus on kids and what we need to provide for them,'' Mr. Truscott said.

Such deliberations could range from forced consolidation to repealing teacher tenure, observers said. After a new system is agreed on, officials will determine its cost and then debate how best to pay for it.

Mr. Engler believes changes can save $1 billion while improving the schools, aides said.

Cost-Cutting Measures Eyed

For those already disturbed by the legislature's action on school funding, the Governor's stance has only added to the jitters.

"All the leverage has been given to people who think there's a free lunch in education and that education reform can be done on the backs of teachers,'' Mr. Olmstead said.

"A lot of people are wondering how we are going to get out of the mess the Governor and legislature have put us into,'' added Julius Maddox, the president of the Michigan Education Association. "This is going to make it a good deal more difficult for many of our legislators to be the supporters of public education that they ought to be.''

The issue of parental choice is expected to play a prominent role in the debate over changes in the school system. Mr. Engler has hinted that he is interested in a statewide open-enrollment system, an idea that is fervently opposed by the M.E.A.

Officials in the Governor's office also said they anticipate significant savings could be achieved by requiring competitive bidding for teachers' health-care benefits. In many districts, the Michigan Education Special Services Association, an agency created by the M.E.A., provides health-care coverage.

But Mr. Maddox said taking aim on the teachers' union is a sideshow.

"The real isssue is the inability of this state to provide a quality system of education for all of its students,'' he said.

In addition to the uncertainty expressed by many educators, bondholders have also alerted the state that they are not impressed by its unorthodox method of governance.

"Experience in other states shows that such a radical reform process can be long, arduous, and unpredictable,'' Moody's Investors Service said in a statement that pointed out that the credit quality of 60 local Michigan bond issues is in jeopardy.

"We hate to think that states have to manufacture a crisis to achieve something, but maybe that's the case,'' said Paul Devine, Moody's vice president for the Great Lakes region.

'Stop the Train'

Some Michigan leaders argued, however, that the risk of doing nothing was greater than the all-out gamble approved by lawmakers.

"What we did was to stop the train,'' said Senator Stabenow, pointing to serious financial difficulties in many Michigan school districts and the failure of local millage elections.

"We just saw this as a never-ending cycle,'' she said. "This breaks loose the gridlock, and we put ourselves in a situation where we have to produce.''

Senator Stabenow and others have argued that Michigan schools are seriously underfunded and that, while cost-cutting is appropriate, the legislature should expect to find replacement funds for the lost $5.6 billion.

"We've had 20 years of trying to solve the growing disparities in school funding and the increasing reliance on property taxes, and most of us realized we had reached a crisis point,'' Ms. Stabenow said. "We realized that, if we couldn't get to a point where everybody was trying to solve the same problem, nothing was going to get fixed.''

"Clearly the rest of the country is going to be looking to Michigan to see what we come up with,'' Mr. Truscott of the Governor's office added. "This very easily could become the model.''

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