The Knell Sounds for School Property Taxes

March 28, 1994|By NEAL R. PEIRCE

A rush to negative judgment washed over Michigan's legislature and governor last summer when they moved to repeal all property taxes used to finance the public schools.

No one disagreed that property taxes are a highly visible, controversial levy -- and when only one in four voters has a child in school, it's a weak reed for public education to depend on. But separating schools from property taxes, without naming an alternative, scared people -- especially, the educational establishment.

''They're playing Russian Roulette with our children -- this is heading right to the dissolution of public education,'' said the vice president of Michigan's state teachers union.

''Brinksmanship,'' said many. A national school-financing expert likened the state to a diver who leaps from a high board without being sure there's water in the pool below.

But after Michigan citizens agreed March 15 -- by an overwhelming 70 percent vote -- to increase their sales tax from 4 to 6 percent and use all the money to pay for the schools, Michigan was quickly hailed for the most constructive school-financing innovation in memory.

''It's a constructive decision to unglue our rigid, dysfunctional, anachronistic property-tax based school finance structure,'' said Michael Usdan of the Washington-based Institute for Educational Leadership.

One moral of the story may be that when a state's politics ends up in legislative gridlock, then a little brinksmanship may not be a bad thing.

Michigan's situation was serious enough. Tax-weary homeowners were voting down property-tax hikes for schools in one community after another. Rural Kalkaska school district closed its doors 10 weeks before the end of the 1992-93 school year, and some 40 other districts faced early bankruptcy.

With the legislature unable to agree on any kind of relief plan, Democratic State Sen. Debbie Stabenow proposed -- and Republican Gov. John Engler subsequently signed -- a bill to choke off, by July 1994, the entire $6.5 billion yearly flow of property taxes to the public schools.

''We did not create a crisis, we created a deadline for solving the crisis,'' Ms. Stabenow claimed.

The legislature and Governor Engler then went to work on an alternative. The measure they sent to the voters ended the state's 100-year-old reliance on property taxes for schools and replaced it with a 2 percent sales-tax increase, coupled with tripling cigarette taxes to 75 cents a pack. The new revenues will let Michigan give each school district a minimum of $4,200 per student, to rise to $5,000 within three years. The gap between rich and poor districts, a critical issue across the country, is sure to narrow rapidly.

Wisconsin is already moving on a parallel track, to declare the property tax off-limits for school finance. And other states may follow. Twenty-eight states are being sued to even out gross disparities in school funding. Ten are under court order to give poor districts a fairer shake. Everywhere, unequal property-tax bases are the villain.

''If we're reinventing government, maybe we need these kinds of shock treatments to produce movement,'' says Mr. Usdan. ''A sales tax to finance schools is not a panacea. But it broadens the support base and underscores our collective responsibility for educating the young in a time when a shrinking percentage of people have kids in school.''

Michigan offers another moral: Don't give the voters a choice between school taxes and no school taxes. Make them choose between reasonable alternatives.

Before March 15, Michigan voters had repeatedly turned down broad school-finance reform measures, including two sales-tax measures. But on March 15 they knew if they voted down the sales tax for schools, an alternative, legislatively approved plan to use income taxes to finance the schools would go into effect. Arguably they picked incorrectly: An income tax would be less regressive and fairer than a sales tax, which often hits the poor hard. But at least the voters couldn't, for once, avoid the issue.

And there is a chance that sales tax will eventually be made much less regressive by extending it to the fast-growing service sector of the economy -- legal, accounting, commercial real estate, computer servicing, even advertising.

Meanwhile, Michigan's blow to school property taxes means the rich and politically influential will no longer be able, through exclusive ''public'' systems, to create the equivalent of posh private schools for their children. State governments may allow a little tax leeway for wealthy areas to enrich their schools, so that they don't withdraw their kids and put them in private schools. But the worst disparities should start to fade.

Finally, local school systems can now shake the fiscal albatross that's been around their necks for years -- having to fight all the time to increase a highly unpopular local tax. Now they should be free to focus on their real job: creating a quality educational system for all our children.

Neal R. Peirce writes a column on state and urban affairs.

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