Tax-Base-Sharing Plan Nears Approval in Michigan

By Lonnie Harp — September 25, 1991 4 min read

Michigan lawmakers last week were poised to pass a bill that would provide low-wealth school districts with a share of the new tax revenues produced by economic growth in other parts of the state.

Proponents hail the measure as a step toward reducing school-funding disparities and resolving the state’s long-running deadlock over finance-equity issues.

The House has already agreed to the tax-base-sharing plan, and recent backing from Gov. John M. Engler was expected to clear the way for the bill in the Senate, which was scheduled to vote late last week.

The legislation would force the state’s wealthiest school districts to surrender half of their property-tax growth from industrial and commercial ventures to poorer districts. The plan, which could go into effect as early as next month, is expected to provide $27.2 million to poor districts in its first year.

Education lobbyists said that while the bill would trim budget increases for many wealthy districts, the plan seemed the best way to begin chipping away at inequities that have grown since the state established its current finance-equity formula for aiding poorer districts.

The state is facing lawsuits against its school-finance system, under which per-pupil spending by districts ranges from $2,500 to $8,500.

“We’ve always said that we have got to start somewhere,” said Linda Beers, a government-relations specialist for the Michigan School Boards Association.

The bill addresses equity concerns without taking existing funding from the wealthy districts, Ms. Beers observed. “Hopefully,” she said, “they can plan for this.”

“This is not going to solve the problem, but it will help,” said W. Robert Docking, superintendent of Bloomfield Hills, a wealthy district in suburban Detroit. The bill would have a limited impact on funding in Mr. Docking’s district, which is largely residential.

$350-Million Shift Projections that the bill will add upward of $350 million to poor schools’ budgets over the next 10 years make the plan “a very major step forward,” said Senator Dan L. DeGrow, sponsor of the Senate measure.

Mr. DeGrow characterized the bill as an innovative and important move toward equity that comes without the pressure of a court order and does not impose a tax increase or loot the budgets of wealthy districts.

“We are trying to avoid what has happened in other states,” Mr. DeGrow said. “Some of the wealthy districts have been extremely hostile, but we are trying to speed the growth of the poor districts and slow the growth of the wealthy districts. That’s a fair approach to solving a real problem.”

Other lawmakers have criticized the plan for handcuffing some of the state’s top school districts.

“It’s philosophically wrong-headed, legally monstrous, educationally asinine, and politically foolhardy,” Representative William R. Bryant told a House-Senate conference committee. “There won’t be ‘lighthouse’ districts to the extent that there have been.”

Further, Mr. Bryant warned, lawmakers may see the bill as a cure for the state’s school-funding problems.

“With the extra money that will be taken in, it is, as we all know, inevitable in our appropriations process that legislators are going to notice that new money is going to schools,” he said, “and it is inevitable that they are going to give less in state money.”

‘Big-Time Out of Whack’

The tax-base-sharing concept would complement the state’s current equalization plan, which observers say has suffered mightily from inadequate funding in recent years.

The equalization formula divides districts based on their ability to meet a state-determined guaranteed funding level. Districts that cannot raise the money locally qualify to participate in the state’s formula program.

While the formula showed early signs of equalizing district funding, analysts contend, years of lean funding have rendered it obsolete.

“We’re talking big-time out of whack,” Ms. Beers said. “It has eroded to the point where no matter how good the formula is, there is not enough money to bring it up to where it ought to be.” More recently, lawmakers sought to equalize school spending by “recapturing” local funds from wealthy school districts, in effect imposing a budget ceiling on them.

The effort has been the target of consistent criticism, however, while doing little to span the gulf in school spending. The state retained $72 million from wealthy districts this year.

Districts that contribute funds under the new tax-base-sharing plan would gradually win back funds frozen by the recapture program, which would be phased out by 1993.

The Only Way Out?

While the plan offers poor districts some relief from growing inequities, educators have expressed frustration that lawmakers are reshuffling local revenues rather than providing increased aid from state coffers.

That strategy is upsetting, Mr. Docking contended, because it was the state that allowed local spending levels to grow so far apart.

“We wouldn’t have this kind of equity issue if the state had consistently funded the formula,” he argued.

Still, the tax-base-sharing approach may be the only one open to lawmakers, who have repeatedly failed to muster enough political support for the additional taxes needed to expand state support of education. Efforts to reduce schools’ reliance on property taxes by shifting more of the burden to income or sales taxes have fallen flat over the past two decades.

In 1989, state voters overwhelmingly rejected ballot initiatives to increase the sales tax for education.

“It’s too bad, but it is the state’s way out,” Ms. Beers said of the property-tax-sharing plan. “Once again, the local taxpayer is beating the burden.”

A version of this article appeared in the September 25, 1991 edition of Education Week as Tax-Base-Sharing Plan Nears Approval in Michigan