A proposal to increase the state sales and use tax rates from 4% to 6%, limit annual increases in property tax assessments, exempt school operating millages from uniform taxation requirement and require 3/4 vote of Legislature to exceed statutorily established school operating millage rates. The proposed constitutional amendment would:
1. Limit annual assessment increase for each property parcel to 5% or inflation rate, whichever is less. When property is sold or transferred, adjust assessment to current value.
2. Increase the sales/use tax. Dedicate additional revenue to schools.
3. Exempt school operating millages from uniform taxation requirement.
4. Require 3/4 vote of Legislature to exceed school operating millage rates.
5. Activate laws raising additional school revenues through taxation including partial restoration of property tax.
6. Nullify alternative laws raising school revenues through taxation, including an increase income tax, personal exemption increase, and partial restoration of property taxes.
Should this proposal be adopted? Yes___ No___
PROPOSAL A – MICHIGAN Property and Sales Taxes -- Adopted March 15, 1994
Proposal A amended Title IX (Finance and Taxation) of the Michigan Constitution, Sections 3, 5, and 8
Proposal A was a landmark event in Michigan school finance. To understand the event, you must recall the setting for the 1994 ballot initiative and citizen vote.
In the 1963 State Constitutional Convention, Michigan decided to continue its tradition of local control and local financing of school operations. Power for school decisions was based in a locally elected school board and the financial support of school districts was built on local elections to set the millage rate for property tax.
The 80’s and early 90’s saw the eruption of the “Tax Revolt” and the emerging popularity of citizen initiatives to limit taxation. Citizens were reeling under high taxation levels and were joining the Reagan Revolution against “Big Government”. California led the way with “ Prop 13” which dramatically changed the level of support for their state schools.
At this same time, a number of states were seeing their school funding formulas overturned in the courts. The courts were finding that several state school funding systems were guilty of delivering dramatically different funding levels to individual districts and schools based on their location within the State and their ability to generate sufficient local resources for their schools. This resulted in systemic discrimination in educational opportunity for many children. The courts ruled these funding formulas fundamentally flawed and ordered the involved states to create new funding systems for their states.
Michigan was not under court review of their school funding structure, but Michigan’s system of locally voted millage rates and local property taxes created a system where vast differences in funding and educational program were available to children based solely on their geographic location. Michigan’s system also resulted in state property owners paying property taxes that were about 35% above the national level. At the same time, our local school districts were being funded at dramatically different levels. Some of our poorest school districts were funding their schools with only about $3,400 per child while some of the state’s richest areas were spending over $10,000 per child.
The time was right for changing Michigan’s financial structure for school funding. Both the political support and the policy need were coming together. The question was now how to design, pass and implement the necessary changes.
Before the final crafting of the ballot initiative that was to become Proposal A, legislators, school officials and private citizens had invested years in searching for the language that would win support from Michigan’s electorate. In the 25 years before Proposal A, voters had rejected 12 ballot initiatives designed to reform school funding in Michigan.
The Political climate around this issue was very volatile. In the 70’s and 80’s both Democratic and Republican governors had developed a series of ballot initiatives designed to lower the property tax burden for Michigan families and to address the inequity of our state funding system. In 1990, a new player entered the scene. Governor John Engler was elected at least in part to his pledge to reduce property taxes. In the first two years of his administration, he succeeded in placing language on the ballot to cut property taxes. Education groups and others opposed both of his proposals, and the voters defeated both of them.
In the summer of 1994, the topic was again consuming legislators’ time and efforts. State Senator Stabenow proposed that the legislature begin by abolishing local property tax as a means to fund public schools in the state. Engler urged support and both state houses approved.
Faced with the crisis of no funding for education in the state, the Legislators had to design a new funding plan for public K-12 education within the state. They finally agreed to present the voters with two options: Proposal A (see ballot language above) and a “statutory alternative” that would automatically be put into place if the voters rejected Proposal A. The voters went to the polls in March of 1994 and gave their support to the implementation of Proposal A. (69-31 percent margin)
Proposal A must be credited with at least partially achieving its goals. Property taxes in our state are now at about the national level, and the average Michigan property owner is now paying about $2,000 less than she would have been paying without Proposal A. The inequality in funding between school districts has also diminished. The gap before Proposal A was almost 3 to 1 between the highest and lowest spending district. While still significant, this spending gap has been reduced to about 2 to 1. Your political perspective will decide whether the third dramatic effect of Proposal A was intentional or coincidental. A major effect of the Proposal has been the switch from local control of policy, program and operational spending in Michigan’s schools, to a major role in the control of local school operation for state level players.
At the same time, the flaws of Proposal A are now emerging as major issues for the state. The first and most obvious problem is the inadequate level of funding to support the schools inherent in the language of Proposal A. The state has been transferring approximately $500,000 per year from the general fund to school aid funding to make up for systemic flows in revenue collection in the structure of Proposal A. Obviously, this cannot continue. “At this writing, the school aid fund is larger than the entire state General Fund, the fund that pays for the operation of nearly all of the rest of state government.” (Public Sector Consultants, 2002-02)
The structural issues of the mismatch between revenue and costs, stability and predictability of funding sources, and funding for capital expenditures go beyond the current budget crisis and must be addressed in the legislature. The legislature must take action to acknowledge the real cost differences of educating different students with different needs. A plan must also be implemented to provide transitional support for districts faced with declining enrollment.
Proposal A has addressed some of the concerns that spurred its passage, but the real issues of adequate funding, equity in funding, and predictability in funding still remain major issues for our state’s elected leaders 10 years after the passage of Proposal A.