Proposal A: Michigan School Financing

Jordan Stoyek

EL 6320

Oakland University
 Proposal A: Michigan School Funding

Description of Pre-Proposal A- MI School Financing

Before Proposal A was passed in 1994, Michigan K-12 public education was primarily

funded by local property taxes. According to a report by the MI Office of Revenue and Tax

Analysis, Michigan’s property taxes were thirty-three percent higher than the national average in

the early 1990s due to the local control of education and relying heavily on property taxes as a

source of funding. Below is a chart representing the amount of funding provided from the state

fund and local fund (property taxes) prior to the passing of Proposal A in 1994:

This graph represents the significant responsibility local school districts and communities

shared to provide funding for their schools. Since local taxation accounted for sixty-nine percent

of funding, local school districts often relied on elections to increase millage rates for property

taxes to receive an increase in funding.

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The property tax funding system created a vast inequity issue among districts. Arsen and Plank

(2003) reviewed the inequity issue by noting that many of the wealthy districts were able to

benefit from the system while districts in less affluent communities were forced to raise the

property tax rate and still receive less funding. Per pupil funding in Michigan’s wealthiest

districts was three times the amount than districts in lower socioeconomic areas. The inequity of

funding among districts and the property tax rate led to Michigan residents seeking a reform in

funding for Michigan schools.

The need for a reduction in property taxes and more equitable distribution of funding

across districts led to a reform in 1994 after many failed proposals. Governor John Engler signed

into law Proposal A. According to Karen Summers of Michigan Senate Agency, “this law

exempted all real and personal property taxes for school operating purposes” (p. 5). Residents

were getting the property tax relief that they had been eagerly pursuing.

Description, Analysis, and Critique of Proposal A

Proposal A was passed in 1994 and altered the Michigan education funding system. Local

property taxes were no longer the primary source of funding. Instead, Proposal A shifted the

main source of revenue from local property tax to the state sales tax (Arsen & Plank, 2003). The

dramatic shift in funding led to eighty percent of funding being provided by the state and only

twenty percent of funding provided from local revenue, compared to approximately sixty nine

percent funding from local revenue and thirty one percent from state revenue before Proposal A

was passed. According to Pratt-Dawsey (2014), Proposal A created three main changes in the

funding system: removed the use of property taxes as the main source of funding, increased the

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state sales tax from four percent to six percent, and set a minimum foundation allowance to raise

the amount of revenue for lower funded districts (an attempt to close the equity gap).

Due to the elimination of property taxes as the main source of revenue for districts, there

was a change in the State School Aid Fund (SAF). Below is a graph that represents the

2017-2018 State School Aid Fund separated into each fiscal category:

The graph demonstrates that state education tax and sales tax make up for 60% of the

SAF under Proposal A. The main changes in Proposal A to the SAF was the sales tax increasing

from four to six percent (the two percent increase is provided to the SAF), a State Education Tax

was developed, new Real Estate Transfer Tax, and a cigarette tax that increased from 25 cents

per pack to 75 cents per pack (approximately 63.4% of the increase is dedicated to the SAF)

(Senate Fiscal Agency, 2017).

Another component of Proposal A was setting the per-pupil minimum foundation

allowance based on the number of students enrolled in each district. This was set with the

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intention to bridge the gap between the lowest funded districts in the state and the highest

districts in the state by raising the foundation allowance. The minimum foundation allowance

was set to $4,200 per pupil with the hopes of the lower funded districts hitting the target level of

$5,000 per pupil. High- revenue districts were labeled “hold harmless” districts to ensure that

they receive at least an equal amount of funding they received before the passing of Proposal A

(Arsen & Plank, 2003). Proposal A was successful in increasing the funding for lower funded

districts in the attempt of closing the funding gap. However, there are still significant disparities

in funding across Michigan in 2018. According to the Michigan Senate Agency (2017), 84% of

districts currently receive the minimum foundation allowance of $7,631. This means that districts

with different student populations and needs receive the same amount of funding. It doesn’t take

into account the unique challenges that may vary from district to district.

A report by the Michigan School Finance Collaborative (2018) recommended the base

per pupil for educating a student in Michigan is $9,950, which doesn’t include the cost of

educating students with special needs or students needing additional interventions. This is

significantly higher than a majority of the districts are receiving in Michigan. Frustration has

been voiced from many school officials with districts continuing to receive the minimum

foundation allowance. In an interview with Mary Beth Rogers, Director of Business Services of

Clarkston Community Schools, she expressed her frustration that minimum foundation

allowance does not currently reflect the true cost of education a student (personal

communication, February, 27, 2018). Since 1995, Clarkston Community Schools has only seen

an $2,000 increase in the per pupil allowance, which is similar to most districts in Michigan.

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Mary Beth Rogers argued that most districts are at 2005 level of revenue but are at 2018

expenditure levels.

There are still significant equity issues in the funding system today. Arsen and Plank

(2003) argue that “the formulas that determine district foundation allowance increases under

Proposal A take no account of community racial or ethnic characteristics” (p. 19). Districts that

have the highest number of African American students have had the lowest increases in

foundation allowance since the passing of Proposal A. For example, between 1994 and 2001, the

average increase for non-African-American students was over 60% higher compared to

African-American students. If we truly want to provide an equitable education and funding for

all students, then we must structure our funding system to support all students regardless of their

race, socioeconomic status, ethnicity, etc.

Also, since the minimum foundation allowance is tied to student enrollment, districts in

communities that have a decrease in pupil base are struggling to operate their district. There are a

number of districts in Michigan including Detroit, Flint, and Mt. Clemens that have seen

demographic trends and little increase in the foundation allowance which has created significant

budget problems for the districts (Arsen & Plank, 2003). Due to the state fiscal calendar

beginning in October and the school calendar beginning in July, districts do not know 80% of

their funding until October. According to Mary Beth Rogers, this creates a cash flow issue for

districts due to having to borrow money. For districts in financial hardship and declining

enrollment, it creates more financial burden.

One issue that is overlooked in current funding system in Michigan is the underfunding

of the population of special education students. A report by the Special Education Funding

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Subcommittee (2017) revealed that funding in Michigan for students receiving special education

of special education students has a direct impact on the general operating budget for schools. The

report discusses how the shortfall of funding of special education students is made up by

reducing the amount of spending on all students (currently taking $459 from the per-pupil

minimum allowance). It’s not an equitable system if students with special needs are significantly

underfunded.

Recommendations for MI School Financing

There are many faults in the current system under funding Proposal A. Proposal A had

good intentions of raising the minimum allowance for lower funded districts and giving property

tax relief to Michigan residents. However, as discussed in the above section, 84% of Michigan

schools currently receive the minimum foundation allowance, which has not increased with the

rate of inflation. Proposal A was implemented with the goal of closing the gap between the

lowest funded districts in the state and the highest funded districts in the state. The current gap

between the lowest and highest district is $4,493, which is still a significant gap (Senate Fiscal

Agency, 2017). There are revisions that can be made to Proposal A and Michigan school

financing in order to provide a more equitable distribution of funds.

Under Proposal A, we currently have a one size fits all approach with a majority of

districts receiving an equal amount of funding with the minimum foundation allowance. The

different needs and challenges of certain student populations are not being taken into account.

Marguerite Roza (2012) discusses the need for a weighted per-pupil allocation system based on

different student needs. She states “by weighting the pupil-based system based on student need,

the finance system can take into account student types and geographic conditions and drive funds

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proportionally” (p. 94). A weighted system based on student needs may help the districts that are

currently struggling under Proposal A due to declining enrollment and with a high population of

students that are currently underfunded. In a report by the Michigan Board of Education (2014),

the benefits of a differential funding system were discussed including an increase in funding for

at-risk, economically disadvantaged students, differences in funding based on geography, and

also an increase in funding for more learning programs that represent 21st century learning.

One recommendation that appears to be a simple fix would be to align the state

distribution cycle with the school calendar. Mary Beth Rogers expressed her frustration with this

issue as well as the Senate Fiscal Agency noting that there is a minimal amount of funding

required to operate a district, and due to the count process and distribution, 80% of the yearly

funding is not known until October. If school districts received the funding prior to the school

year beginning, it would prevent them from having to borrow money and begin the school year

with a certainty of funding for the school year.

The underfunding of certain populations of students, including special education students

needs to be addressed. Under the current system, special education students currently receive the

foundation allowance or the equivalent of special education expense (28.61%), depending on

which amount is greater (Special Education Subcommittee, 2016). The report by the

subcommittee recommends that special education students should receive the foundation

allowance as well as the current 28.61% of the special education expense. This would be a real

solution to addressing the underfunding of special education students and providing students

with higher needs more resources.

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 It was outlined in the report by the Michigan School Finance Collaborative that Michigan

schools are significantly underfunded. Therefore, it would be beneficial for schools if revenue

enhancements were made to increase funding and the raise the minimum foundation allowance

to the recommended amount of $9,950 per-pupil. An argument may be made that an increase in

funding will not necessarily raise student achievement or be used effectively. However, if

districts are required to develop clear goals and outcomes for the increase in funding, it may lead

to more accountability and effective use of funds.

It is apparent that the current system under Proposal A has major flaws. The

recommendations outlined above are possible solutions that can be enacted to create a more

equitable funding system in Michigan. We are doing a disservice to our students and parents if

we continue with the status quo and accept the current circumstances.

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 References

Arsen, D., Plank, D. N. (2003). ​Michigan school finance under proposal a: state control, local

consequences. ​Retrieved from

http://www.mipfs.org/files/Arsen%20&%20Plank%202003.pdf

Michigan State Board of Education (2014). ​Recommendations for change to michigan school

organization and finance [PDF Document]. ​Retrieved from

http://www.michigan.gov/documents/mde/SBE_School_Organization_Finance_476847_

7.pdf

Pratt-Dawsey, C. (2014). ​A brief history of proposal a, or how we got here​. ​Bridge Magazine​.

Retrieved from

http://www.mlive.com/education/index.ssf/2014/04/a_brief_history_of_proposal_a.html

Roza, M. (2012). ​Educational economics: Where do school funds go?​ Urban Institute Press.

Summers, Kathryn (2017). ​The basics of school funding [PDF Document]. ​Senate Fiscal

Agency. Retrieved from

http://www.senate.michigan.gov/sfa/departments/datacharts/dck12schoolfundingbasics.p

df

Summers, Kathryn (2017). ​Overview of k-12/school aid [PowerPoint Slides]. ​Senate Fiscal

Agency. Retrieved from

http://www.senate.michigan.gov/sfa/Departments/DataCharts/DCk12_SchoolFundingCo

mprehensive.pdf

Special Education Funding Subcommittee Report (2016). Retrieved from

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http://www.michigan.gov/documents/calley/Special_Education_Finance_Report_-_final_

2017_606751_7.pdf

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