Running head: PROPOSAL A 1

Proposal A Paper

Shelly L. Schantz

Oakland University

EA 8840

March 20, 2018

PROPOSAL A 2

Abstract

This paper evaluates the effectiveness of Michigan’s school funding through Proposal A.

Proposal A became effective in 1994 as a replacement to funding after Governor John Engler

encouraged the passage of a bill that abolished property taxes as the main source of school

funding. Proposal A strengths include a reduction in property taxes, the differentiation of

homestead versus non-homestead taxes levied, provided a more equitable distribution of school

funding, increased the state’s share of school funding, and increased the state sales tax that

provided more funding for schools when the economy does well. Weaknesses of the proposal

include the loss of local control of financial situations, the equitable distribution of funding does

not adequately address the cost of educating special populations, and losses of funding due to

declining enrollment do not match the reduced costs to a district for those students who remain.

Recommendations to continue funding under Proposal A are made at the conclusion of this

paper. These recommendations address the fact that Michigan schools are underfunded.

Adjustment should include increasing school funding at least as much as the rate of inflation,

redesigning the formula to address special populations that cost more to educate, redesigning the

formula to address declining enrollment, and to consider increasing the property tax by 1 mill.
PROPOSAL A 3

Introduction

School funding in Michigan in the years prior to Proposal A rested primarily on local

property tax dollars. Prior to the 1973-74 school year, there were “high disparities” between

Michigan districts in expenditures. The inequality in funding, along with a court challenge over

the constitutionality of Michigan’s school funding system lead to changes that eliminated

unrestricted aid. The new formula, meant to address the inequity in funding, still lead to unequal

funding and spending along with high rates of local property taxes funding the majority of

individual districts (Kearney & Addonizio, 2002, p. 1).

“Governor John Engler, who was elected in 1990, made a 20 percent reduction in

property taxes one of his campaign promises.” (Cullen & Loeb, 2004, p. 3). Efforts to change

school funding were defeated in statewide elections. Then in July 1993, “in a stunning

development that drew national and international notice, the Michigan legislature eliminated

local property tax as a source of operating revenue for public schools (Kearney & Addonizio,

2002, p. 2). A task force was formed to come up with a plan to fund this new legislation. Voters

were given two options 1) increase the income tax or 2) increase sales tax from 4 percent to 6

percent. The voters of Michigan chose the latter.

Proposal A changed the funding of Michigan schools by reducing property taxes. The

reduced taxes were then combined at the state level for distribution to Michigan school districts.

Other school funding sources were approved by voters. The state’s sales tax was increased from

4% to 6% and other taxes. The purposes of this paper are: 1) to evaluate the strengths and

weaknesses of school funding under Proposal A, 2) to determine if Proposal A equalized the

wide ranges of school funding across Michigan’s school districts, and 3) to make

recommendations based on the strengths and weaknesses of Proposal A.

PROPOSAL A 4

Strengths

Prior to Proposal A, the majority of funding for a school district came from local property

taxes. A district’s ability to fund their local schools was directly linked to the taxable value

within the community. Property taxes were high with an average of 34 mils being levied (Cullen

& Loeb, 2004, p.5). Governor Engler was determined to reduce property taxes and reform

school funding, so when Debbie Stabenow proposed an amendment which eliminated the use of

property taxes as a source of school funding, Governor Engler made sure it was signed by the

house and senate (Cullen & Loeb, 2004, p. 4). Proposal A reduced the property tax burden of

Michigan residents. The burden of funding schools rests on the state with the pooling of

property taxes and funding from additional sources. Under Proposal A, a difference in levied

taxes between homestead and non-homestead taxes was created. This dramatically reduced

homeowners’ property tax while maintaining a property tax base on businesses. “The state

levies a uniform rate of 6 mills on all property- both homestead and non-homestead, with the

proceeds being deposited in the State School Aid Fund” (Kearney & Addonizio, 2002, p. 7).

Local voters can approve an additional 18 mills on non-homestead properties. Michigan

property owners definitely saw a reduction of their property taxes as a result of Proposal A.

A benefit of Proposal A was an increase in the state’s share of the funding for schools.

Prior to Proposal A, the State’s share of total funding was around 31% of districts funding, while

69% came from local revenue (Summers, 2017). After Proposal A went into effect,

approximately 80% of funding for most districts came from the state (Summers, 2017). When

the economy was growing, school funding was also growing (Izraeli, O., & Murphy, K. J., 2007,

pp. 112).
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Initially, there was a more equitable distribution on base funding per pupil in the state

both vertically and horizontally. The gap between the highest funded districts and the lowest

funded districts was decreased. There was more funding from the state available to

economically disadvantaged school districts that was not available when funding was rooted

primarily from local taxes (Outlaw, 2018).

Weaknesses

While there are strengths to Proposal A, there are also weaknesses. There has been a

decrease in local district control over financial situations. Funding is a moving target that is

based on the economy. Since a pot of funds are divided among all students in the state, and that

pot varies from year to year, consistency in adequate funding is not guaranteed from year to year.

When the economic condition of the state does not rise, students in the state receive less funding.

Districts have limited opportunity to increase funding due to the restrictions on raising local

funds. Even if a community supported an additional millage, they are limited on what they can

levy (Summers, 2017).

Equity has only partially been addressed, as “fair is not always equal”. There is still

inequality in how much funding a school district has available to them. Wealthier districts are

able to raise more funds with mills than poorer districts, in which it costs more to educate to the

same level of performance. The authors of Michigan’s Adequacy Study, Costing out the

resources needed to meet Michigan’s standards and requirements (2018), identify that the costs

associated with educating students in various size districts is not the same across the state. In

theory it should be, however, there are additional costs necessary to educate economically

disadvantaged students; English language learners, special education, and transportation costs in

rural districts. The funding differences remain an issue as the less funded districts are the districts
PROPOSAL A 6

that have a smaller property tax base to generate dollars per mill to service students with higher

needs. Many wealthier districts are still “held harmless” and have the ability to maintain higher

funding due to their higher property values, which equates to more funding. Since mills are

based on state equalized values, the communities with higher property values generate more

dollars per mill.

Districts with declining enrollment are affected by funding under Proposal A. Arsen &

Plank (2003) wrote:

Proposal A imposes a financial burden on districts where enrollment is declining, because

their revenues fall significantly more rapidly than their costs. On the other hand, the

foundation allowance that the state provides to school districts is not adjusted to reflect

differences in the cost of educating different students, which diminishes the efficiency of

Michigan’s emerging market for schooling (pp. 2).

There are various reasons for declining enrollment in Michigan such as birthrates, poor economic

conditions, and an increase in school choice. Regardless of the reasons for decline, district costs

of operations do not decrease at the same rate as funding is reduced.

Recommendations

After carefully weighing the strengths and weaknesses of Proposal A, I would

recommend continuing Proposal A funding with a couple of revisions. Michigan schools are

underfunded. School funding should, at a minimum, increase at the rate of inflation, taking into

consideration the increase in costs that all districts face; such as energy costs, fuel costs, building

maintenance costs, health care increases, retirement increases, and the average costs of living.
PROPOSAL A 7

Since education costs vary from district to district, additional funding should be allocated

for special populations that cost more to educate. As indicated in Michigan’s Adequacy Study

(2018), special education, English language learners, and economically disadvantaged students

should be provided with additional funding. Another cost that varies from district to district is

the transportation costs depending on how much area is covered in the bus routes. These are

items that must be addressed. This type of needs-based funding will help to decrease the gap

because it addresses a true cost to educating special populations.

Funding should also address the issue of declining enrollment. Funding changes should

be structured so that students within such districts are not harmed when other students move

away. A formula needs to be designed for funding that includes a base operating figure and then

an additional per pupil dollar amount, consistent also with student needs. With these changes

there is also an opportunity to provide financial incentives to smaller districts with lower funding

to consolidate districts or services. When districts are faced with declining enrollment and

skyrocketing costs, consolidation can lessen the impact on students.

To fund these increases in funding, the state should seek to raise property taxes from 6

mills to 7 mills. There should be a clause added that would allow districts additional local

revenue controls which allow them to levy an additional millage if they meet certain criteria;

such as declining enrollment, aging buildings, or a community’s desire to keep services local

(such as a community voting to raise the property tax by x mills to generate the funding

difference between local employees and outsourcing).

Conclusions

School funding under Proposal A is not perfect. It has not proven to completely

eliminate disparity in funding and spending in Michigan school districts. Districts have varying
PROPOSAL A 8

ability to levy millages based on the value of their properties. Districts with less local revenue

also educate some of our state’s neediest students, who require additional funding. Until the

formula for funding schools is adjusted to reflect the true cost needed to educate students, a gap

will remain. Equity does not always equal adequate, fair isn’t always equal.
PROPOSAL A 9

References

Arsen, D., & Plank, D. N. (2003). Michigan school finance under Proposal A: State control,

local consequences. East Lansing, MI: The Education Policy Center at Michigan State

University. Retrieved from

https://education.msu.edu/epc/forms/Arsen_et_al_2003_Proposal_A.pdf

Augenblick, Palaich and Associates, Inc. (2016). Michigan Education Finance Study.

Retrieved from https://moodle.oakland.edu/mod/folder/view.php?id=3015389

Augenblick, Palaich and Associates, Inc., & Picus, Odden and Associates (2018). Costing out

the resources needed to meet Michigan’s standards and requirements. Retrieved from

https://moodle.oakland.edu/mod/folder/view.php?id=3015388

Cullen, J. B., & Loeb, S. (2004). School finance reform in Michigan: Evaluating Proposal A.

Retrieved from

https://web.stanford.edu/~sloeb/papers/school%20finance%20reform%20in%20michigan

.pdf

Izraeli, O., & Murphy, K. J. (2007). The impact of Proposal A on school financing, equity, and

quality of public schools in the state of Michigan. Journal of Educational Finance,

33(2), 111-129. Retrieved from http://www.jstor.org/stable/40704319

Kearney, C. F., & Addonizio, M. F. (2002). A primer on Michigan school finance (4th ed.).

Detroit, MI: Wayne State University Press.

Outlaw, M. S. (2018). School finance class 3 [PowerPoint slides]. Retrieved from

https://moodle.oakland.edu/mod/folder/view.php?id=3015389.

Summers, K., (Associate Director). (2017, July). The basics of school funding. Senate Fiscal

Agency: Summers, K. Retrieved from

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http://www.senate.michigan.gov/sfa/departments/datacharts/dck12_schoolfundingbasics.

pdf.