ERIC ED373387: School Finance Reform: Analysis of the Ballot and Statutory Reform Proposals. Issue Paper.

31 Pages·1.1 MB·English

by  ERIC

DOCUMENT RESUME
EA 025 944
ED 373 387
and
Analysis of the Ballot
School Finance Reform:
TITLE
Proposals. Issue Paper.
Statutory Reform
Lansing, Senate Fiscal
Michigan State Legislature,
INSTITUTION
Agency.
10 Jan 94
PUB DATE
32p.
NOTE
General (140)
Reports
PUB TYPE
(090)
/Regulatory Materials
Legal /Legislative
MF01/PCO2 Plus Postage.
EDRS PRICE
Education;
Elementary Secondary
*Educational Finance;
DESCRIPTORS
Taxes; Public Schools;
*Finance Reform; Property
*Tax Effort
*State Legislation;
School Funds;
*Michigan
IDENTIFIERS
ABSTRACT
Legislature
1994, the Michigan State
On December 24,
package for the K-12
school finance reform
passed a comprehensive
school finance reform
document analyzes the
education system. This
by
the issues affected
comprehensive review of
package and presents a
financial
reviews the overall
The first section
the proposed reforms.
K-12
tax reform issues,
package, which include
components of the
state budget for
the impact on the
budget impact, and
revenue, state
discusses statutory and
The second section
fiscal year 1993-94.
(to
the ballot proposal
would occur under
constitutional changes that
section
proposal. The third
1994) and statutory
be voted on in March
School Aid Act of
Public Act 336, the
describes major changes to
Code, which pertain
changes in the School
1993. Section 4 discusses
diplomas,
standards, endorsed
pupil performance
to core curricula,
reform
improvement plans. The
instruction, and school
hours of pupil
academics and school-security
for public school
package also provides
(LMI)
tables are included.
measures. Twelve
be made
EDRS are the best that can
Reproductions supplied by
document.
from the original
******************************":...*************:;:************
SENATE FISCAL AGENCY
/7)
ISSUE PAPER
i
\
SCHOOL FINANCE REFORM 1
ANALYSIS OF THE
BALLOT AND STATUTORY
REFORM PROPOSALS
ti
JANUARY 10, 1994
"A Series of Papers Examining Critical Budgetary
Issues Facing the Michigan Legislature"
LANSING, MICHIGAN
GARY S. OLSON, DIRECTOR
U S DEPARTMENT OF EDUCATION
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TO THE EDUCATIONAL RESOURCES
INFORMATION CENTER (ERIC)."
BEST COPY AVAILABLE
ACKNOWLEDGEMENT
Senate
This paper was researched and written by the staff of the Senate Fiscal Agency. The
The
Fiscal Agency is fully responsible for any errors or omissions that the paper may contain.
assistance on some of the
authors wish to thank the Michigan Department of Treasury for
numbers contained in the report.
The principal authors of the paper were the following:
Gary S. Olson, Director
Ellen Jeffries, Deputy Director
Patrick Affholter, Legislative Analyst
Elizabeth Arasim, Legislative Analyst
Joe Carrasco, Jr., Fiscal Analyst
Suzanne Margules, Legislative Analysis Coordinator
Elizabeth Pratt, Fiscal Analyst
Jane Schultz, Fiscal Analyst
George Towne, Legislative Analyst
Jay Wortley, Senior Economist
Karen Hendrick, Executive Secretary, produced the report.
3
TABLE OF CONTENTS
1
INTRODUCTION
2
I. SCHOOL FINANCE OVERVIEW
12
H. SCHOOL FINANCE REFORM
12
A. BALLOT PROPOSAL
12
State Revenues
12
Local Revenues under the Ballot Proposal
13
Other Ballot Proposal Issues
14
B. STATUTORY PROPOSAL
14
State Revenues
15
Local Revenues under the Statutory Proposal
16
C. OTHER ISSUES
18
SCHOOL AID ACT
III.. PUBLIC ACT 338 OF 1993:
18
A. THE FOUNDATION GRANT
19
B. ADULT EDUCATION
19
FOR AT-RISK PUPILS
COMPENSATORY EDUCATION SUPPLEMENTAL
C.
19
READINESS
D. EARLY CHILDHOOD/SCHOOL
20
E. PROFESSIONAL DEVELOPMENT
20
INTERMEDIATE SCHOOL DISTRICTS (ISDs)
F.
20
G. RETAINED CATEGORICALS
20
H. TRANSITIONAL PAYMENTS
20
FINANCING AUTHORITY (TIFA) REVENUE
REPLACEMENT OF TAX INCREMENT
I.
21
J.
GENERAL PROVISIONS
22
N. EDUCATION REFORM
22
REFORM
A. SCHOOL CODE: EDUCATION
26
B. PUBLIC SCHOOL ACADEMIES
26
C. SCHOOL SECURITY
4
INTRODUCTION
passed and sent to the Governor a comprehensive
On December 24, 1993, the Legislature
K-12 education system within the State. The
proposal to restructure the financing of the
December 31, 1993.
Governor signed this proposal into law on
debate
reform package marks the end of the legislative
The passage of the K-12 school finance
the
of 1993 when the Legislature approved and
that has been raging since the summer
This law eliminated local property taxes as
Governor signed into law Public Act 145 of 1993.
school year. Over the
operating funding beginning in the FY 1994-95
a source of K-12 school
has debated a series of proposals to restructure K-12
past several months the Legislature
24, 1993, marks an end to the legislative
finances. The passage of the proposal on December
portion of the process.
by the Legislature does involve input from the
The school finance reform package approved
special election will be held to provide voters
State's voters. On March 15, 1994, a statewide
of the primary funding mechanisms for schools.
the choice between income and sales tax as one
special election, a comprehensive school funding
Irrespective of the outcome of the March 15
plan for the 1994-95 school year is in place.
reducing the burden of property taxes have
Reforming the financing of K-12 education and
different Governors over the past 16 years. The
been a goal of legislative members and three
fund K-12 education coupled with
perception of overreliance on local property taxes to
within school districts have resulted in
inequities among the levels of per-pupil funding
Prior to the passage of the reform package in
the system.
numerous attempts to reform
December, all previous efforts of reform had failed.
includes three major components. The first is a K-12
The K-12 school finance reform package
portion of the package are some tax reform
school funding reform portion. Included in this
funding of K-12 schools. The second part of the
items that do not have a direct impact on the
K-12 education funds are distributed to the
package involves the reform of how State and local
K-12 education reform component that does
State's K-12 school districts. The final piece is a
not deal directly with K-12 finances.
school finance reform package presents a
This Senate Fiscal Agency (SFA) analysis of the
reform. The first section reviews the overall
comprehensive review of the issues affected by the
reform issues, K-12 revenue, State budget
financial components of the package including: tax
State budget. The second section deals specifically
impact, and the impact on the FY 1993-94
of the analysis deals with K-12 spending, and
with funding reform issues. The third section
the fourth section with education reform issues.
1
5
OVERVIEW
I. SCHOOL FINANCE
series of complex changes in laws that will have
The school finance reform package contains a
expenditure policy for K-12 school
State and local tax structure, State
an impact on the
other
available for expenditure in the State budget for all
districts, and the level of resources
attempt to clarify the overall
K-12 schools. This section of the analysis
programs excluding
reform package.
financial impact of the school finance
school finance
Legislature essentially approved two different
As stated in the introduction, the
the
approval of a constitutional amendment at
reform proposals. The first hinges on voter
the second goes into effect if the
constitutional
March 15, 1994, special election and
proposal
While both the constitutional. amendment
amendment is rejected by the voters.
they
(statutory proposal) share some similarities,
(ballot proposal) and the alternative proposal
the funding of K-12 schools.
represent quite different approaches to
ballot and
of the major revenue components of the
Table 1 on page 5 provides a summary
mixture of State and local taxes to fund partially
statutory proposals. The proposals utilize a
similar
the two proposals would have an imp :ct on
the IC-12 education system. In most cases
of the
example, the ballot proposal would reduce the rate
taxes, but with different results. For
4.4% rate, while the statutory proposal would
State income tax from the current 4.6% to a
The similarity between the proposals is that they
increase the State income tax rate to 6.0%.
the
at similar levels. The difference involves
both would fund the total K-12 education system
mix of taxes that fund schools.
in
between the ballot and statutor proposals are outlined
The major differences to taxpayers
will face voters on /4. arch 15, 1994, is the choice
Table 2 on page 6. The general question that
plus
taxes, a 0.2% income tax rate reduction,
between a two-cent increase in the sales and use
1.4% increase in the State
tax on the ballot proposal, versus a
a six-mill homestead property
tax under the statutory plan. The difference
income tax rate and a 12-mill homestead property
proposals will depend on a
yer between the two
in actual impact on an individual to
and other factors.
'n patterns, property values,
combination of income levels, consu:,
be
State during fiscal year (FY) 1994-95 will
The funding of K-12 education in the
Act
provided in FY 1994-95 State School Aid
accomplished by a combination of State funds
The
levied and collected by local school districts.
(Public Act 336 of 1993) and property taxes
the
districts may levy and collect is limited pursuant to
level of property taxes that local school
overall K-12 finance reform package.
Act is
1994-95 through the State School Aid
Funding for K-12 school districts in FY
School Aid Act is funded through a combination
summarized in Table 3 on page 6. The State
School
Federal aid, a transfer from the Public
of restricted School Aid Fund revenues,
Fund
prefunded health reserve, surplus School Aid
Employees Retirement System (PSERS)
Fund/General Purpose (GF/GP)
from FY 1993-94, and a General
revenue carried forward
schools in the
earmarking of new funds raised to finance
grant. Due to inconsistencies in the
School Aid Fund
of new revenues earmarked to the
school finance reform package, the amount
the School Aid Act understates the
Therefore, the GF/GP grant contained in
was understated.
ballot proposal and
fund the bill by $568 million under the
amount of funds necessary to fully
will be covered by
is anticipated that this shortfall
$505 million under the statutory plan. It
earmarking of
Act 336 of 1993 by amending the
adjusting the GF/GP grant stated in Public
Aid Fund
package or by utilizing excess School
other taxes contained in the school finance
reserves generated in FY
1993-94.
2
6
The combination of funding from the State
School Aid Act and property
taxes levied and
collected by school districts makes
up the total of K-12 school aid. Table 4 provides
a summary
of the total revenues that will be available
for K-12 schools under the
ballot and statutory
plans. The total funding under both
plans is $10.6 billion with local
property taxes playing
a more prominent role under the statutory plan than
under the ballot plan.
The projected level of FY 1994-95 K-12
funding of $10.6 billion
compares with FY 1993-94
funding of $10.2 billion. This represents
an increase in funding of 4.0%. The FY
1993-94 total
school funding level includes supplemental
appropriations of $466 million that
were contained
in Public Act 336 of 1993, in addition
to the $9.74 billion of appropriations
originally approved
by the Legislature.
The school finance reform proposal
contains numerous tax changes both
under the ballot and
statutory proposals. In general the effective
date of the tax increases under both
proposals is
May 1, 1994. This effective date of
the tax increases leads to considerable
revenue being
generated in FY 1993-94 at the
same time that the majority of additional State
appropriations
to schools do not begin until FY 1994-95.
Table 5 provides
a summary of the FY 1993-94 State
revenue impact of the school finance
reform package. The ballot proposal
would generate $1.48 billion of
additional FY 1993-94
School Aid Fund revenue, while the
statutory plan would yield $1.42 billion
of FY 1993-94
School Aid Fund revenue. The
excess FY 1993-94 School Aid Fund
revenue is reduced by a
$466 million supplemental appropriation
to schools during FY 1993-94.
The $466 million
includes $300 million of transitional
payments and $166 million of other
supplemental items.
The end result is that the State School.
Aid Fund will
carry forward surplus revenues of $995
million under the ballot proposal and $928
million under the statutory
proposal. These funds
will be available to finance school
expenditures in future
years.
The existing level of FY 1993-94
GF/GP revenues also would be affected
under the ballot and
statutory proposals. Under the ballot
proposal, the reduction in the rate
of the State income
tax from 4.6% to 4.4% would reduce FY 1993-94
GF/GP revenues by $117 million.
This would
be partially offset by $17 million
of increased revenue resulting from
the expansion of the
use
tax to include interstate shone calls. Under
the statutory proposal, the increase
in the income
tax personal exemption would reduce FY
1993-94 GF/GP revenues by $107
million. This would
be partially offset by $25 million
of increased revenue from the
interstate phone tax.
The combination of a variety of
tax increases affecting both the School
Aid Fund and GF/GP
revenues coupled with the earmarking of
revenues leads to an overall impact of the school
finance reform proposal
on the State GF/GP budget. Table 6 provides
a summary of the FY
1994-95 GF/GP State budget impact of
the school finance reform package.
On an overall basis,
the ballot proposal would result in
a $591 million negative impact on the GF/GP budget.
The
statutory plan would result in
a $350 million negative impact.
The actual extent of
adjustments that may have to be made
to the Governor's FY 1994-95 budget
recommendation
depends on revisions in
revenue estimates that will be made at the
consensus revenue
estimating conference to be held
on January 14, 1994.
The final issue of importance
concerning the overview of the school
finance reform package
involves the amount of
revenues that are being increased to fund K-12 schools
versus the
revenues saved by taxpayers due to the enactment
of Public Act 145 of 1993. This analysis
attempts to show whether on
an aggregate taxpayer level the overall school
finance tax
7
3
package is a tax cut or tax increase for taxpayers. Table 7 provides this analysis for the ballot
proposal while a similar analysis for the statutory plan is contained in Table 8.
Under the ballot proposal, total increased State and local taxes would be $473 million less than
the projected impact of changes
the revenues saved from P.A. 145 of 1993. Taking into account
of $133
in Federal tax liabilities resulting from the ballot proposal leads to a net tax cut
million. Under the statutory proposal, the plan would result in a $212 million State and
local
after Federal tax impacts are
tax cut before Federal tax liabilities and a $91 million tax cut
relief to
factored in. Therefore, both the ballot and statutory plans would result in net tax
taxpayers.
Tables 7 and 8 also provide a breakdown between the savings that would accrue to both
individuals and business. Under the ballot proposal individuals would receive the larger tax
reduction, while businesses would fare better under the statutory proposal.
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Table 2
MAJOR TAXPAYER DIFFERENCES BETWEEN
BALLOT AND STATUTORY SCHOOL FINANCE PROF2SALF
Statutory
Ballot
Sales and Use Tax Rate
2 cents increase
Income Tax Rate
0.2% reduction
1.4% increase
Income Tax Personal Exemption
$900/dependent
ffilVO
Single Business Tax Rate
0.4% increase
Homestead Property Tax
6 mills
12 mills
24 Mai
Nonhomestead Property Tax
24 mills
Real Estate Transfer Tax
2.0%
1.0%
Cigarette Tax
50 cents/pack increase
15 cents/pack increase
Table 3
FY 1994-95 STATE FINANCED 11-12 SPENDING
REVENUES AND EXPENDITURES
(millions of dollars)
Statutory
Ballot
School Aid Fund Revenues:
Existing Sales Tax
$ 1,892
$ 1,884
Sales Tax Increase
1,489
Use Tax Increase
271
Interstate Phone Use Tax
20
Income Tax Increase
1,645
Income Tax Earmarking
813
592
Single Business Tax
335
Real Estate Transfer Tax
340
213
Homestead Property Tax
599
Nonhomeetead Property TWA
463
899
Tobacco Tax
365
164
Liquor Excise Tax
21
21
Lottery
464
464
Keno-Lottery
35
PA 198 Industrial Facilities Tax
165
132
SUBTOTAL
$ 6,937
$ 6,349
Other Revenues:
Federal Aid
92
92
PSERS Health Reserve
140
140
FY 1993-94 SAF Carryforward
300 300
General Fund/General Purpose Grant
438
387
School Aid Fund Adjustment")
568
505
TOTAL REVENUES
$ 8,475
$ 7,773
Expenditures:
School Aid Fund Appropriations
$ 8,475
$ 7,773
$
BALANCE
$
o
0
This shortfall results from different revenue earmarking assumptions in the School Aid Mt than in the revenue bills.
a)
Source: Senate Fiscal Agency estimates.
6