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Mich. Voters Back 2 Cent Sales-Tax Hike To Pay for Schools

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Michigan voters last week overwhelmingly approved a 2 cent sales-tax increase, ending a school-finance saga that began last summer when state lawmakers abolished local property taxes for education.

Unofficial tallies last week showed Proposal A carrying 69 percent of the vote.

The vote could add new momentum to the growing national movement to drop property taxes as the mainstay of local school funding, instead shifting more of the burden to state revenue sources. (See Education Week, March 2, 1994.)

In Michigan, the victory was also seen as a political boon to the re-election campaign of the state's Republican Governor, John Engler, who backed the ballot measure.

"The victory of Proposal A marks the end of a generation of debate on property taxes and school-finance reform,'' Mr. Engler said.

The vote was a setback, however, for the Michigan Education Association and many of the state's Democrats, who had favored an alternative financing plan passed by the legislature late last year. If Proposal A had been rejected, the state income tax would have been automatically increased to help make up for the property-tax cut. (See Education Week, March 9, 1994.)

In addition to the sales-tax increase, Proposal A will reduce the state income-tax rate from 4.6 percent to 4.4 percent and tax residential property at 6 mills--down from the previous average of 37 mills--and business property at 24 mills. Property-assessment increases will be capped under the plan at 5 percent or the rate of inflation.

The measure also raises the state cigarette tax and fees for interstate phone calls and real-estate transfers.

Income-Tax Impact Feared

Observers said voters clearly saw increasing the sales tax to 6 cents from a relatively low 4 cents as a more attractive option than boosting income taxes. They also were persuaded by Mr. Engler's argument that the ballot measure would be less likely to hinder the state's rebound from the recession.

"The voters recognized that in cities such as Detroit, the prospect of an added income tax would be devastating for economic growth,'' said April Howard Coleman, the president of the Detroit school board.

"Hopefully, the issue is settled,'' said Gerard Keidel, the executive director of the Michigan Association of School Administrators, which like several other state education groups did not take a position in the campaign.

Yet, just as education officials basked in the end of the roller-coaster ride that began when lawmakers abolished local school property taxes, they also signaled that a host of issues lie ahead.

The M.E.A. said the voters' choice gives education officials a harder job in the months ahead.

"Our whole reason for being in the debate was to find a fair funding source for the schools,'' said Kim Brennen Root, a spokeswoman for the teachers' union. "Now it's time to move on and make sure that what the legislature promised on Christmas Eve will come true.''

The M.E.A. and other opponents of Proposal A argued that the income-tax plan was the most stable and promising long-term revenue source, and that sales taxes are unfair to the poor.

No More Kalkaskas?

Mr. Keidel of the administrators' group said the debate should now shift to questions of equity in school funding. The finance plan passed by the legislature last year will reduce, but not eliminate, the spending gap between rich and poor districts. (See Education Week, Jan. 12, 1994.)

Detroit officials also said the finance-equity issue now becomes a front-burner issue.

"This has been a long, difficult road of uncertainty for our schools,'' Ms. Coleman said. "Now we can begin to pursue in earnest a statewide drive for a constitutional amendment which would provide the basis for equity, adequacy, and stability of education funding.''

The greater state role in school funding could avert a number of local school-finance crises that loomed as voters refused any increases in local property taxes.

State officials estimate that the new finance law will cause school spending in the state to rise from $9.6 billion to $10.2 billion a year.

But officials in Kalkaska, a small district in northern Michigan that won national attention last spring when it closed 10 weeks early after running out of money, said the state is still a long way from providing enough school aid for struggling districts.

"The chances of another Kalkaska situation have been greatly reduced, but not eliminated,'' said Mr. Keidel. "We are pleased the voters approved a funding mechanism. This sets in motion the opportunity to begin looking at a lot of other things.''

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