The Michigan Chamber reaffirms support for a state budget process focused on outcomes where each year there is debate in Lansing over setting the price and the priorities of government, along with the funding for each priority.

The K-16 Coalition’s plan to automatically increase annual state government spending on K-12 school districts, community colleges and state universities by the rate of inflation--regardless of outcomes or changing needs--would remove a large sum of public money from annual review and budgetary control, thus severely limiting the ability of the Legislature and Governor to set priorities. Therefore, the Michigan Chamber is strongly opposed to the K-16 proposal.

Background

The question of how to adequately fund education is an important part of the debate over the state budget. It is the responsibility of the Governor and the Legislature to ensure that available public money is allocated every year among many crucial and compelling needs. We know from experience that even in good times, responsible state government budgeting demands frequent reassessment of needs and resources and a good deal of compromise, hallmarks of the appropriations process. To achieve sound fiscal policy, decisions must be made in a framework of flexibility and open discussion. The Governor and Legislature need to actively evaluate, reassess, debate and balance governmental spending practices in light of budgetary circumstances and priorities.

In 1994, the Legislature, with encouragement and support from the Michigan Chamber, submitted Proposal A to the voters, a proposed constitutional amendment to provide for property tax relief and school finance reform. In addition to significantly reducing property taxes for school operating purposes, Proposal A raised the rate of the Sales and Use Tax from four percent to six percent to substantially increase funding for K-12 school districts. The new method of school finance established by Proposal A shifted the burden of funding from uneven local property taxes to statewide sales tax revenue, resulting in a dramatic increase in per pupil funding for school districts that were spending below the statewide average.

In July 2005, the nonpartisan and independent Michigan Senate Fiscal Agency (SFA) published an Issue Paper entitled, “The Michigan Economy and State Budget FY 1994-95 To FY 2003-04, Ten Years of Significant Changes.” This detailed and comprehensive SFA report is available over the Internet at www.senate.michigan.gov/sfa.

The introduction of the SFA report accurately and very succinctly summarizes recent trends relating to Michigan’s economy and the state budget: “Over the past ten years, the State of Michigan budget has undergone significant changes. The combination of major changes in the performance of the Michigan economy coupled with significant changes in tax policy resulted in two distinct phases of the state budget over the period fiscal year (FY) 1994-95 through FY 2003-04. The first six years of this period were marked by a growing state economy, surging tax collections, and robust growth in state appropriations. The last four years of this period were marked by a slumping state economy, falling tax collections, and restraint in the growth of state appropriations.”

In reviewing Michigan’s appropriations over the past 10 years, the SFA report provides a wealth of information about government spending patterns, including two findings especially relevant to consideration of the K-16 proposal:

1. “Over the FY 1994-95 through the FY 2003-04 period, adjusted gross appropriations increased by 42.1% while Michigan personal income increased by 42.0% and the Detroit Consumer Price Index increased by 24.8%,” and
2. “The growth in the largest appropriation program areas of K-12 education and human services support was relatively similar to the overall appropriation growth. Appropriations for K-12 education increased by 42.9% and appropriations for human services programs increased by 49.7%. Large program areas that had significantly less growth than the overall budget included higher education programs, up 18.1% and revenue sharing programs, up 11.6%. These two budget programs were significantly affected by appropriation reductions in the last several years of the 10-year period that were necessary to ensure a balanced State budget.”

A recent analysis of public school funding since Proposal A, prepared for the Michigan Chamber by the Anderson Economic Group, resulted in similar findings: from FY 1994-2003, K-12 enrollment increased 5%, while during the same period GDP price inflation increased by 17%; K-12 school operating revenue jumped up by 54%; and K-12 school infrastructure revenue skyrocketed by 196%.

Although over the past 10 years state spending on K-12 education has increased 18.1% more that the rate of inflation, many local educators feel strongly that the restraint in growth over the past four years has been harmful to public schools. In higher education, community college and university officials have been even more outspoken about the need for additional state funding. In response to this situation, 11 education organizations came together in 2004 to form the “K-16 Coalition” to lobby for a major increase in state funding for K-12 school districts, community colleges and state universities. Despite the involvement of associations representing school boards, school administrators, and university presidents, it has become obvious over the past few months that the Michigan Education Association (MEA) is the driving force behind the K-16 coalition.

At the urging of the K-16 coalition, legislation was introduced early in 2005 in the State House and Michigan Senate to establish a minimum funding level for education. In brief, the appropriations bills (House Bill 4582 and Senate Bill 246) would amend the School Aid Act to provide that the total amount spent on K-12 education, community colleges, and state universities would automatically increase each year by the rate of inflation or five percent, whichever is less. The bills also increase the level of state funding for public school employee pensions and guarantee a minimum level of funding for school districts with declining enrollment. As introduced, the bills would be retroactive to 2002 and both bills require that any year the school aid fund does not have enough revenue to meet the increased spending commitment, the amount necessary to meet the shortfall would be automatically withdrawn from the State’s General Fund, thus triggering potentially large budget cuts to other areas such as State Police, Medicaid, or prisons.

The Michigan Senate Fiscal Agency has estimated that in FY 2005-06 the total cost of Senate Bill 246 (as introduced) would be $1.9 billion. Of this amount, $1.2 billion is the retroactive funding. It is also important to note that the legislation to carry out the K-16 plan contains no cost saving reform measures and fails to even mention the words “education quality” or “student achievement.”

Soon after Senate Bill 246 and House Bill 4582 were introduced, spokesmen for the MEA indicated to the news media that, if the Legislature did not soon act favorably on the bills, supporters would launch a petition drive to force action on their proposal. Early in August 2005, the MEA sent a message to its members announcing that the K-16 coalition was launching a statewide petition drive and asking each union member to “circulate petitions to force the Legislature to vote on the proposal.” The petition drive is a statutory initiative, not a proposed amendment to the State Constitution, which means that the Legislature could be required to vote on this proposal sometime this fall or winter.

In response to questions raised by Senate Bill 246 and House Bill 4582, the K-16 Coalition modified their proposal and now describes the purpose of the petition’s education funding guarantee as follows:

• To provide annual education funding increases equal to inflation for K-12 schools, community colleges and universities.
• To reduce the per-pupil gap between the lowest spending and highest spending districts from $1,300 to $1,000 between 2007 and 2012.
• To cap retirement costs for districts at the current 14.87 percent of payroll.
• To fund school districts with declining enrollment based on the student enrollment average of the three prior fiscal years.

The revised K-16 proposal now being circulated across the state in petition form, still fails to mention education quality or student achievement and contains no cost-saving reform measures. While members of the K-16 coalition have refused to answer questions about how much the plan would cost or how to pay for it, Chamber staff has learned from a member of the State House that the non-partisan and independent House Fiscal Agency has estimated that the funding guarantee in its present form would cost approximately $1.1 billion above the FY 2005-06 Executive budget recommendation for spending on education. For comparison purposes, it is interesting to note that the current Single Business Tax generates about $1.1 billion per year.

In September 2002, the Chamber’s board of directors approved a policy statement in opposition to a proposed amendment (Proposal 4 of 2002) to the State Constitution that would have earmarked tobacco settlement revenue for health care related programs and projects. At that time, the Board took a strong position that additional earmarking of funds restricts the ability of the Legislature to make necessary decisions about the proper allocation of the state’s financial resources in response to changes in the economy and the various needs of Michigan’s citizens. It is interesting to note the many of the same individuals and groups from the education community that now support the K-16 proposal were very vocal in their opposition to Proposal 4. While early public opinion polling showed a majority of voters favored Proposal 4, it was defeated in November 2002 by a vote of 66% “No” to 34% “Yes.” The K-16 proposal is similar to Proposal 4 of 2002 whereby an interest group attempts to bypass the appropriations process involving the executive and legislative branches of state government and lessens accountability.

On August 26, 2005 the Michigan Townships Association (MTA) announced that its Board of Directors took action to oppose the K-16 proposal “due to concerns about budget pressures the school funding guarantee would place on all other areas of the budget; jeopardizing revenue sharing, PILT (payment in lieu of taxes) funding, fire protection grants and many state programs relevant to townships.”