Budget & Finance

Cutbacks Stir Debate Over Michigan Funding System

By Kathy Barks Hoffman, The Associated Press — November 09, 2009 4 min read
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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 another look at the way Michigan pays for public schools.

“The reduction in school revenues is really a product of the economy tanking,” said former state Rep. Lynn Jondahl, the Democrat who chaired the House taxation committee when Proposal A passed. He now works with a group called A Better Michigan Future to help stabilize the state’s finances.

“We’re in deep trouble a year from now without the stimulus money,” he said, referring to federal aid under the American Recovery and Reinvestment Act.

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

That’s not even counting the $52 million Gov. Jennifer Granholm, a Democrat, 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 scattered around the state. Those districts are looking at decreases of as much as $600 per student.

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

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

Worse Year Ahead

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 from 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 school aid.

A smattering of minor taxes make up the rest of the state money. Last school year, $600 million in stimulus funds and $1 billion in other federal spending rounded out the school aid budget.

Solutions Proposed

Mr. Jondahl, who thought in 1994 that income-tax revenue would be a more stable source of money for schools than the 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,” Mr. Jondahl said.

So what’s the solution? It depends on whom you ask.

The Legislative Commission on Government Efficiency has suggested giving the state superintendent power to consolidate school districts or intermediate school districts if at least 5 percent savings can be shown. Various think tanks have suggested making school employees pay more for health care, or lowering health-care benefits, possibly by including the workers in a pool covering all university, public education, and state and government workers, as Speaker of the House Andy Dillon, a Democrat, has suggested.

There’s also been talk of paying new teachers less, or switching them to a defined-contribution retirement system that includes 401(k) plans rather than pensions. Some districts have turned services such as transportation and cleaning over to private companies.

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 without action.

One idea 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.

Lou Glazer, the president of Michigan Future Inc., a nonpartisan research organization in Ann Arbor, backs a combination of approaches, from reforming how schools are run to shoring up revenues that have been falling for years. “The places with the greatest concentration of talent win,” Mr. Glazer recently told the state board of education. “You’ve got to free up money to do the public investments.”

A version of this article appeared in the November 11, 2009 edition of Education Week as Cutbacks Stir Debate Over Funding System for Michigan Schools


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