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Funding Plans Again Debated in Mich.

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Less than a month after passing two alternative plans to fund state schools and a month before the issue goes before the voters, leading Republicans in the Michigan legislature are expressing some reservations about certain tax provisions and calling for cutbacks.

After moving dramatically to abolish property taxes as a source of funding for the schools, lawmakers last year decided to give voters a choice for replacing the lost revenues: either a two-cent sales-tax increase, to be considered in a March 15 referendum, or an income-tax hike, which will go into effect automatically if the sales-tax rise is rejected. (See Education Week, Jan. 12, 1994.)

The recent maneuvering appears to be an extension of partisan politics. Republicans, including Gov. John Engler, overwhelmingly favor the ballot measure's sales-tax increase.

Most Democrats, on the other hand, would prefer to see the higher income tax go into effect.

Both measures would still call for a property tax, but at greatly reduced levels.

The Republican-controlled Senate last week appeared to be on the verge of passing a bill that would reduce the real-estate-transfer tax in both plans. Real-estate groups have opposed the tax, which is higher in the ballot measure.

Republican lawmakers claim that recent improvements in the state economy have made it possible to set the tax at 0.75 percent of the sale price, rather than the 2 percent level contained in the ballot measure. The fallback plan would set the tax at 1 percent, compared with 0.11 percent under previous law.

The Governor said he supports the reduction, since the state can afford it. But observers also suggested that Mr. Engler was trying to make the ballot option more appealing to voters, who just last summer rejected a similar constitutional amendment raising the state sales tax from 4 cents to 6 cents.

'Around Their Neck'

Perhaps from a similar motive, the Governor last week said he would not approve any effort to lower the income-tax increase imposed by the fallback plan. The income tax, currently 4.6 percent, will rise to 6 percent if the sales-tax increase is defeated. Some lawmakers have been pushing to reduce the new rate to 5.9 percent.

"I'm sure they'd love to have that income-tax-rate cut, because right now the public is wrapping it around their neck,'' the Governor said of the income-tax plan's supporters. "I think the sales tax will pass because of it.''

The Governor also has proposed delaying the deadline for homeowners to file for a homestead exemption, which is now March 1 under the backup plan. In order to allow voters to know how school funds will be collected, he asked the legislature to postpone the last day for filing until May 1.

Under the ballot plan, homeowners would pay a property tax of 6 mills. The backup plan would require 12 mills. If residents do not file for the homestead exemption, they will have to pay at the business rate, which is 24 mills in both plans.

Under Michigan law, property is assessed at half its sale price. A mill is equal to $1 for each $1,000 of assessed value.

The Governor said the early deadline was one glitch caused as lawmakers rushed to pass a plan by the end of 1993. "This should have never been an issue,'' he said in proposing the change.

All of the talk of changes has caused grumbling from some lawmakers, who said voters need to be clear on what their options are as they go to the polls. The recent talk of changes only muddies a picture that some claim is already murky enough.

The talk of changes "adds to the confusion and the skepticism of the voters,'' one Democratic representative said. "I think it's unfair to change the rules of the game in the middle of the game.''

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