NCREL's Policy Seminars

Funding Crisis Forces Action in Michigan

Winter 1994

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Michigan's History

Michigan's current school finance crisis has resulted in part from a history of school funding reform initiatives. Some efforts sought to reform the Michigan school finance system through statutes. The Spencer-Ryan plan (P.A. 100) in 1970 was developed by Republican Representative Roy Spencer and Democratic Speaker of the House William Ryan. It contained a two-year membership formula: the 1970-71 formula was a conventional deductible millage formula; but the 1971-72 formula was a power-equalizing or equal yield formula that would guarantee a local school district an equal return in state and local funds for each mill levied.

However, this provision was combined in a proposal that provided state reimbursement for a part of teacher salaries in nonpublic schools. So when voters later adopted an amendment to the Michigan Constitution prohibiting state aid to nonpublic schools, the rest of the package fell apart. After the repeal of the Spencer-Ryan plan in 1971, a traditional deductible millage formula was adopted.

A 1972 Michigan Supreme Court decision prompted the Governor and the Legislature to take action. Milliken vs. Green challenged the existing school finance system. Subsequently, the Court ruled that the system violated constitutional provisions outlining the state's responsibility for education. Then in 1973 the state adopted Public Act 101, which authorized a new membership formula based on the power equalizing concept. Because of this, the Supreme Court vacated its 1972 decision. The equal yield formula has been adjusted over the years, but today remains basically the same membership formula as in 1988-89.

Other efforts have addressed the issue of school finance through constitutional reform.

Other efforts have addressed the issue of school finance through constitutional reform. Between 1972 and 1981 the electorate voted on - and defeated - five constitutional ballot issues relevant to school finance reform. Proposal C was initiated by the Governor and the Michigan Education Association (MEA) and placed on the ballot in November of 1972. Its purpose was to require the state to assume the primary responsibility for financing elementary and secondary education and to reduce reliance on local property tax for school finance. The legislature was to determine the means for imposing taxes at the state level to finance schools. It was defeated 58 percent to 42 percent.

In 1978 Proposal H sought to establish an educational voucher system for every child attending public and nonpublic elementary schools. A general state taxation program would support the voucher system. The proposal was defeated 74 percent to 26 percent.

Two 1980 proposals would have affected school finance: Proposal A (the Smith-Bullard Proposal) and Proposal C (the Coalition Tax Plan). The Smith-Bullard Proposal attempted to equalize per-pupil revenues and reduce the reliance on the property tax over a five-year period. The proposal was defeated 79 percent to 21 percent. Proposal C's major provision was a state equalized valuation exemption of $7,100 on homesteads. The revenue loss was to be offset with increases in both sales and use taxes as well as state income taxes. This proposal was defeated 74 percent to 26 percent.

The Governor and the Legislature called a special election in the spring of 1981 to consider a tax shift proposal called Proposal A. Its primary aim was to reduce property taxes on homesteads and individuals' city income taxes. The proposal would increase state sales taxes, reduce state income tax credits, and reduce the state budget. This proposal was defeated 72 percent to 28 percent.

This pattern of proposed amendments to the Michigan Constitution on school finance reform and property taxes continued. In November 1989 a proposal to reduce property taxes, revise the school aid formula, and raise the sales tax to 6 percent was defeated along with a proposal to increase education spending and raise the sales tax to 4.5 percent. From 1972 to 1989, nine proposals to change school finance plans and to reduce property taxes were defeated. This left Michigan still operating with a permanent budget deficit and citizens with a higher tax burden than the U.S. average.

In the 1990s the problem continued as it had for some 20 years with the inequities rising. In 1992 when Governor John Engler was elected, he proposed a constitutional amendment for the November 1992 ballot. The amendment was designed to cut local property taxes and cap future increases in the assessed property valuations. It was known as Proposal C. At the same time, a Democratic proposal, Proposal A, was initiated. It strived to provide property relief by eliminating a capital gains deduction for businesses. Both proposals were defeated by large margins. Between 1972 and 1992 voters had 11 opportunities to change the means of financing schools - either statutorily or constitutionally - and they defeated every measure.

The Olmstead/Kearney Plan followed in 1992-94 while the Governor introduced S.B. 146, both aimed at solving the ongoing problem. A Bipartisan Legislative Proposal that linked property tax reform with school reform also was designed. The Governor made another attempt called the "School Taxpayer Agenda Reform" or STAR. In July 1993 Senate Bill 1 was adopted which forced some kind of change in the state's response to school reform and school finance.


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Posted on March 6, 1995

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