States Fumble School-Funding Ball

LAST year, Kalkaska, Mich., became a symbol for the woes of American public education. After voters rejected property-tax increases three times in a row, school administrators said they had run out of money and closed schools for the summer in March - three months ahead of schedule.

Although it was criticized as a ``union stunt'' intended to blackmail reluctant voters into raising taxes, Kalkaska residents have voted against raising local property taxes twice more in the past year.

Now the state has stepped in and is leading the nation in a renewed debate about public-school funding. Last summer, the Michigan legislature eliminated the property tax as the main source of education funding for its 3,286 schools. That meant a loss of nearly $7 billion or 62 percent of the money used to educate Michigan's 1.6 million schoolchildren.

In a statewide referendum two weeks ago, voters approved a plan to replace those funds by increasing the sales tax and tripling the state cigarette tax. Given a choice between raising the sales tax or the income tax, Michigan residents voted overwhelming-ly to increase the sales tax from 4 percent to 6 percent. Voters had rejected five previous sales-tax increases since 1978 and had turned down seven other plans for dealing with property-tax funding for schools since 1972. But this time a vote against the sales tax was a vote for the backup plan - an automatic increase in income taxes. Republican Gov. John Engler, who faces reelection this fall, campaigned aggressively for the sales-tax option. But House Speaker Chris Hertel (D) of Detroit calls the funding mix ``risky, unstable, and cyclical.''

The Michigan Treasury Office estimates that the plan, which goes into effect May 1, will generate more than $2.1 billion a year. The 75-cent-per-pack cigarette tax is expected to raise an estimated $350 million a year, and property owners will receive about $1.9 billion in tax reductions.

The new plan promises each school district a minimum of $4,200 per pupil from the state next year. The goal is to equalize spending in rich and poor school districts. Kalkaska now spends about $3,800 per pupil while the wealthy Detroit suburb of Bloomfield Hills spends more than $10,000 per pupil.

Nationwide, property taxes have been the chief source of local school funding since the 1820s. But such funding systems have long been criticized for exacerbating financial inequities between school districts.

``If you remain dependent on the property tax you end up with larger and larger differences,'' says Alan Hickrod, director of the Center for the Study of Educational Finance at Illinois State University in Normal, Ill.

Affluent, property-rich towns take in far more revenue than property-poor communities, and that shows up in the resources and facilities available to public-school students.

Property taxes do have advantages, however. ``The property tax isn't inherently bad,'' says Mary Fulton, an education-finance expert at the Education Commission of the States in Denver. ``It's a great resource in that it's easy to collect and generates a lot of revenue.''

``The property tax is a stable, robust revenue source that's been around for many years,'' adds Allan Odden, director of the Consortium for Policy Research in Education at the University of Wisconsin in Madison.

The first challenges to property-tax funding of education came in the late 1960s. But when the United States Supreme Court turned away lawsuits challenging school funding inequities in 1973, the battle moved to the states.

Since 1989, courts have declared the financing systems in eight states inequitable and unconstitutional. ``We've seen an incredible resurgence in equity lawsuits in the last five years,'' Ms. Fulton says. Suits are still pending in 28 other states.

``When these constitutional challenges win, the result is usually to do what Michigan is doing - go away from the property tax and over to a sales or income tax,'' Mr. Hickrod says.

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