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What can we do to change school funding?

Fri, 06/15/2007 - 4:23pm — Steven Norton

At our 12 June meeting, there were a number of questions raised about what we all can do to change how schools are funded - at the state and local level. (Questions about private giving will be in a separate discussion.) Here are some the key questions raised:

"What can the public, and especially parents, do right now to address the funding crisis we face? What are the Board of Education, the AAEA, and the district administration currently doing?"

"What is Ann Arbor specifically doing to fight back at the state level? As perhaps the signature district in the state, do we not have a 'bully pulpit' to speak out?"

"What is the best (most effective) way for us (private citizens) to put pressure on our legislators to support education?"

"What can we do on a state-wide basis to increase tax revenue in order to restore the school aid fund?"

"Was not the purpose of Proposal A to better equalize per student funding? What makes a student in Ann Arbor more important than a student in Marquette?... Can Proposal A be repealed? Who might be lobbying for this?"

Let's hear some ideas!

Disclaimer: Comments posted here represent the informed personal opinion of the author. Postings by individuals who otherwise serve in an official capacity with the AAPS, Board of Education, the AAEA, or other organizations, do not necessarily represent the official position of those organizations unless otherwise noted.

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Mon, 06/18/2007 - 5:30pm — Steven Norton

What Proposal A was all about

We didn't really get to address these questions during our meeting, so I'd like to invite everyone to jump in on this. Let me kick this off with some comments about Proposal A.

There are a couple important things to remember about Proposal A. It had two purposes: first and foremost, it was intended to lower property taxes on Michigan homeowners; second, it was constructed to narrow - though not eliminate - per pupil spending differences across districts.

Proposal A and the laws which implemented it accomplished these aims in several ways. To reduce property taxes to homeowners (but not slash school spending), the new system:

  • Prohibited local districts from raising their own taxes to support school operations, with some limited exceptions. (Capital expenses are not included in this ban, and are still funded locally).
  • Replaced most local taxes for schools with a statewide Education Property Tax, set at 6 mills ($6 per $1000) on all property.
  • Instructed local districts to collect 18 mills on commercial property, as part of the local contribution.
  • Limited the increase of a property's taxable value to 5% or the rate of inflation, whichever was less. (When sold, the taxable value reverted to the SEV, which has come to be called the "pop-up tax.")
  • Increased the state sales tax, so that now 75% of sales tax proceeds go to education.
  • Earmarked a portion of state income tax proceeds for education.
  • Created and earmarked a number of other, smaller, taxes to fund education.

To reduce spending differences across districts, the funding system works this way:

  • Sets each school district's allowed per pupil spending according to a formula.
  • The Legislature decides how much the per pupil funding, or "foundation allowance" will go up each year.
  • In the early years after proposal A, low-spending districts had their per pupil spending increased twice as fast as higher-spending districts.
  • Since then, the Legislature has made several "equity payments" to lower-spending districts, to bring them up closer to the higher-spending districts.

Why isn't funding equal across the state? Mainly because what districts get now is connected to how much they were spending right before proposal A took effect for the 1994-5 school year. No district was forced to cut its spending in that first year, though a number of districts received a big bump to bring them up to the new funding "floor." From 1994-2000, districts which had started out with less money got double the increase that other districts got. In 2000, all districts were at or above the "basic" funding level, so that from then on everyone got the same increase, if any. (Not including equity payments.)

  • To make per pupil funding equal, without forcing some districts to make drastic cuts to their schools, the state School Aid Fund would have needed a lot more money. Remember, the main purpose of all this was to cut property taxes.
  • Some districts, like Ann Arbor, which were already spending more in 1994 than the new state formula would have given them, were allowed to keep some local taxes on private homes to make up the difference. In Ann Arbor, this was $1234 per pupil. AAPS has been allowed to levy extra taxes to raise exactly that amount per pupil since 1994. This is called the "hold harmless" millage. But we never get to adjust it for inflation.
  • We also have to remember that costs are not the same around the state, so that while I believe every child should get a quality education, I know that it will not always cost the same in different parts of Michigan.

Does the state "give" Ann Arbor and other wealthy districts more money? NO.

  • Ann Arbor's per pupil funding, the foundation allowance, is made up of a combination of money from local taxes and money from the state School Aid Fund (right now, it's about half and half). Ann Arbor takes the commercial property tax, and the extra tax it was allowed to levy since 1994, and applies that to our foundation allowance. The state makes up the difference.
  • Don't forget that money from the state comes from another property tax, the sales tax, the income tax, and some other smaller taxes. These are collected all across the state. While it's hard to get exact numbers, there is no question that Ann Arbor pays more in those taxes than it gets back from the School Aid Fund. So we actually contribute to funding schools across Michigan.

To get a good view of what has been happening with school funding, it helps to see how per pupil funding has changed over time. Even more important is to see what it is worth after you take inflation into account. This chart shows the foundation allowance for Ann Arbor and Marquette (which was in the question at the beginning) in both regular (nominal) dollars and in inflation-adjusted (real) dollars. Marquette started out at the lower end of funding, so that it benefited from the faster increases in the 1990s. Things have been flat since 2000, for just about everybody. Ann Arbor has lagged inflation, partly because increases for high-spending districts have not kept up, and partly because the extra, "hold harmless," millage is never adjusted for inflation.

Tue, 06/19/2007 - 10:34am — Steven Norton

Repeal Proposal A? Which part?

If you're still reading this after the long comment above, I applaud your interest and patience!

My point above is that Prop A had a number of different components, and each part has supporters and detractors. So, if we want to get rid of Prop A, which part(s)?

  • The part which cut property taxes on homestead property, and shifted the burden to the sales tax? This gave a major break to property owners, but everyone pays more in sales and other taxes. Most economists say that the sales tax is regressive (hits poor people harder), and it is definitely less stable (revenues drop fast when the economy slows, as we've seen this year). Property taxes have their issues as well (see below). Would people accept higher income taxes instead?
  • The part which gave the Legislature control over how much school funding increases? Property taxes are usually local, but when we shifted to relying more on the sales tax and other state taxes, we put Lansing in charge.
  • The part where per pupil funding is being made more equal? There is a lot of support for this, especially in districts with lower property values who had trouble raising enough money before Prop A. And every child does deserve a quality education. But making things more equal without just cutting the high-spending districts requires money. See the first bullet point.
  • The part which limits the increases in taxable value of property until it changes ownership? This was meant to address one of the drawbacks of the property tax, where people with limited incomes could face rapidly increasing taxes because their neighborhood was getting more pricey. But now a lot of people in real estate dislike this system, because the taxable value "pops up" to the full SEV when a property is sold. This makes people reluctant to sell their houses (with capped taxable values) and move into a new house with much higher taxes. There are proposals in Lansing to stop the pop-ups temporarily to help the housing market recover, but cities and towns (which rely on those taxes for their budgets) are screaming bloody murder. So if you repeal this, does everything go back to SEV? Or does the value never "pop up"?

Another thing to consider is that most of Proposal A's provisions are written into the state Constitution, and would require a state-wide referendum to change. Even changing the maximum property tax rates (the State Education Prop. Tax and the 18 mills on commercial property) requires a three-quarters vote of both houses of the Legislature. We've really painted ourselves into a corner, and enshrined low taxes at the cost of making sure our schools are working. It's time for a change!