Property Tax Reform/School Finance Reform Michigan s Experience

Transcription

1 Property Tax Reform/School Finance Reform Michigan s Experience Douglas B. Roberts, PhD Director, Institute for Public Policy & Social Research Michigan State University October 1, 2004

2 Presentation Overview March 1994 Voters Approval (Proposal A) : Prelude Proposal A Results Conclusions

3 Michigan School Districts

4 Connecticut School District Classification Source: Metropolitan Area Research Corporation

5 School Spending Disparity 1972 Average 15 $1,500 Spending Per Pupil $1,000 $500 $0 $703 Lowest $1,440 Highest Source: Michigan Dept. of Education

6 Reasons for School Spending Disparity School taxes subject to a vote of the people Property wealth Ability to pay Willingness to pay

7 Statewide Vote on Constitutional Amendments 1972 Yes No Cut Property Tax 42% 58% Graduated Income Tax 31% 69%

8 1973 Legislative Solutions Power equalization formula (wealth per student issue) Homestead property tax credit (ability to pay issue)

9 Power Equalization Formula State Guarantee = $100 Per Mill Per Student If local taxes collected $25 $1 Then State Aid $75 $3 School Guaranteed $100 $4 Taxpayer Votes $1, Schools Get $4

10 Homestead Property Tax Credit (Circuit Breaker) Taxpayer Votes for Increase in Taxes $1.00 Less State Property Tax Credit $0.60 Less Federal Income Tax Deductibility $0.12 Taxpayer Pays $0.28 Taxpayer Votes $1, Only Pays 28 Cents

11 Two More Attempts Statewide Vote on Constitutional Amendments Yes No November % 76% May % 73% Both cut property taxes and increased sales tax Reasons for failure to secure passage: Voters like local control Wealthier districts opposed Voters believe property taxes will increase again

12 Further Attempts at Reform Statewide Vote on Constitutional Amendments Yes No November 1989 Property tax/sales tax 24% 76% Sales tax increase only 28% 72% November 1992 Cut & Cap 41% 59% June 1993 Bipartisan Proposal 46% 54%

13 Michigan Situation, Property taxes 34% above national average School funding inequities 1992 property values assessment freeze No court order One school district closed early

14 Elimination of Local Property Tax In July 1993, the Michigan Legislature eliminated $7 billion of local property taxes for schools

15 Proposal A Funding Alternatives for Local School Operating Levies 1994 Voter Options Revenue Source 1993 Law Prop. A (Yes) Stat. Plan (No) Sales & Use Tax 4.0% 6.0% 4.0% Income Tax 4.6% 4.4% 6.0% Single Business Tax 2.35% 2.35% 2.75% Cigarette Tax $0.25/pack $0.75/pack $0.40/pack Other Tobacco None 16% 16% Real Est. Transfer Tax None 0.75% 1.00% Personal Exemption $2,100 $2,100 $3,000

16 Proposal A Funding Alternatives (Cont.) 1994 Voter Options Revenue Source 1993 Law Prop. A (Yes) Stat. Plan (No) State Education Tax Homestead None 6 mills None Nonhomestead None 6 mills 12 mills Local School Oper. Homestead Statewide Avg. None 12 mills Nonhomestead equals 34 mills 18 mills 12 mills Annual Cap on None Lesser of None Property Value 5% or inflation Local Enhancement Up to 3 mills Up to 3 mills Mills only 3 years permanent

17 Statewide Votes on Constitutional Amendments, March 1994 Yes No Proposal A 69% 31% Because Status Quo Was Not An Option

18 Local School Operating Millage Rates Cut Significantly Source: Michigan Dept. of Treasury

19 More State Support for Education More State Support for Education Percent K-12 General Funding 100% 50% 0% 5% 67% 78% 29% 5% 17% FY FY Federal Local State Source: Michigan Dept. of Treasury

20 Highest Spending Districts Outspent Lowest Spending Districts Nearly 3 Times Per Pupil in Highest Spending Districts Outspent Lowest Spending Districts Spending Per Pupil $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 $3,476 $9,726 Lowest 10 Highest 10 Source: Michigan Dept. of Education

21 School Spending More Equitable Between Districts Difference Less Than Twice Per Pupil in School Spending More Equitable Between Districts Spending Per Pupil $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 $6,700 $11,389 Lowest 10 Highest 10 Source: Michigan Dept. of Education

22 Applicable Inflation Limit on Taxable Value Growth % % % % % % % % % Source: Michigan Dept. of Treasury

23 Estimated State Average Millage Rates All Property Homestead NA Non - NA Homestead Source: State Tax Commission: All Property Rates, 1993, Office of Revenue and Tax Analysis: 1994 all property rate and homestead and nonhomestead rate estimates

24 SEV and Property Tax Value Gap Grows Source: Michigan State Tax Commission

25 Results: Property Taxes Per $1,000 in Personal Income 1992 Rank %Over 2002 Rank %Over National Avg. National Avg. Michigan $ % $ % Connecticut $ % $ % U.S. Average $35.59 $32.07

26 Property Taxes Per Capita 1992 Rank %Over 2002 Rank %Over National Avg. National Avg. Michigan $ % $ % Connecticut $1, % $1, % U.S. Average $698 $969

27 Property Tax Relief Results in Increased School Construction School Debt Up Dramatically Millions of Dollars $1,500 $1,000 $500 $0 $1,104 $963 $865 $724 $781 $645 $553 $428 $ Est. Debt Millage Revenue Source: Michigan Dept. of Treasury

28 Increase in Cigarette Smuggling An unintended consequence was the dramatic increase in cigarette smuggling

29 Proposal A: Concerns Stability of revenue Mismatch between revenue and cost Districts with declining student populations

30 Conclusions I do not recommend repealing the system before you have a solution (But it did work for us) The School Finance System is more equitable Property taxes are clearly reduced School infrastructure was not addressed Cigarette smuggling Proposal A did not repeal the Business Cycle Michigan voters supported Proposal A: property tax relief with as much protection as possible

31 For More Information Douglas B. Roberts, Ph.D. Phone: (517) Web: Opinions expressed herein are those of the author and are not necessarily those of Michigan State University.