Published Online: November 2, 2009

Debate Begins Over Paying for Mich. Public Schools

Fifteen years ago, Michigan changed the way it pays for public education, switching from local property taxes to a mix of sales and property taxes, lottery revenue and other money.

Now, with cuts of nearly $300 per student looming and some districts looking at losing as much as $600 per student, think tanks, business groups and education advocates are calling for looking again at the way Michigan pays for public schools.

"The reduction in school revenues is really a product of the economy tanking," says former state Rep. Lynn Jondahl, who was the Democratic House Taxation Committee chairman when Proposal A passed. He's now working with the group, A Better Michigan Future, to get the state's finances on a more stable footing.

"We're in deep trouble a year from now without the stimulus money," he says.

Schools are scrambling to absorb cuts being imposed on them this month. Total cuts in the public education budget total $292 per student.

That's not even counting the $52 million Democratic Gov. Jennifer Granholm vetoed for wealthier school districts that get as much as $4,000 more per pupil than schools getting the lowest per-pupil grants. Those include more than two dozen in southeast Michigan and others — such as East Lansing, Saugatuck and Detour — scattered around the state.

Those school districts are looking at decreases of as much as $600 per student.

Lawmakers could erase some of the cuts school districts face. They have until Nov. 21 to come up with more revenue that would erase the $127-per-student cut Granholm imposed last week because she says the school aid budget isn't balanced — a statement Senate Republicans dispute.

Lawmakers also could override Granholm's veto of the $52 million for the wealthier districts by then, although that's a tougher task since it takes a two-thirds vote in both the House and Senate.

The cuts would have been even worse if the state didn't have $450 million in federal stimulus money to draw on for schools. The federal dollars saved schools from another $280-per-student decrease this school year.

The size of the hole will be worse next year, when the state will have far less federal stimulus money to fill it. That has a variety of interests looking at ways to change how schools are funded.

More than a third of the nearly $13 billion school aid budget now comes from the state's 6 percent sales tax. Roughly another third comes from a state education tax assessed on property and income tax revenue. Business taxes account for 6 percent, bringing in slightly more than the lottery revenue — $677 million last school year — that goes to the school aid budget.

A smattering of minor taxes — from the real estate transfer tax to tobacco, liquor and casino wagering taxes — make up the rest of the money raised by the state to support schools. Last school year $600 million in federal stimulus funds and $1 billion in other federal spending rounded out the school aid budget.

Jondahl, who thought in 1994 that income tax revenue would be a more stable source of money for schools than sales tax, now says the decision really didn't matter. School revenues have dropped during Michigan's lengthy economic downturn, so any tax structure would have ultimately cracked.

"The key problem now is not the mechanism for funding, it's the adequacy of resources," he says.

So what's the solution? It depends on who you ask.

The Legislative Commission on Government Efficiency recently suggested giving the state superintendent the power to consolidate school districts or intermediate school districts if at least 5 percent savings can be shown.

A variety of think tanks have suggested making school employees pay more for health care, or lowering health care benefits, possibly by including them in a pool covering all university, public education and state and government workers, as Democratic House Speaker Andy Dillon has suggested.

There's also been talk of giving new teachers less pay, or switching them to a defined contribution system that includes 401(k)s rather than a monthly pension in retirement. Some districts have turned services such as transportation and cleaning over to private companies to save money.

All those approaches could hold down costs, but are sure to draw criticism from teachers and from community residents who don't want to lose their local schools through consolidation.

There's also the revenue side to be addressed, as the state's structural deficit means the funding will continue to shrink if no action is taken.

One suggestion is to place a sales tax on at least some services, possibly after lowering the overall sales tax rate from 6 percent to 5 percent. The state also could move from a fixed income tax to a graduated one, although that would have to be approved by voters.

Lou Glazer supports a combination of approaches, from reforming the way schools are run to shoring up revenues that have been declining for nearly a decade.

Speaking Monday to the State Board of Education, the president of Michigan Future Inc., a nonpartisan research organization in Ann Arbor, says Michigan needs to invest enough to educate its children if it wants to be a prosperous state in the future.

"The places with the greatest concentration of talent win," Glazer says. "You've got to free up money to do the public investments."

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