REPORT: Flaws in GOP Fiscal Policy for Michigan’s Schools

Mere hours after Gov. Snyder’s State of the State address to Michigan, the Detroit Free Press was quick to praise his words, invoking his financial acumen and, almost affectionately, calling him a “nerd”. The editorial particularly took a shine to the governor’s pre-K school funding plan to devote another $65 million to the program.

That’s nice, but two questions: Has the editorial board no memory of the last time they lavished praises on Snyder? And, more importantly, do they have a clue as to the fiscal health of K-12 schools?

Approximately 50 districts are currently considered distressed by the state. A new DSCF3501Munetrix rating system forecasts an even more dire situation for Michigan’s Public Schools. Given the fact that no relief is in sight from the state, a good many of them will find themselves operating under the provisions of either Public Act 436 (the emergency manager law) or completely dissolved under Public Act 96, depending on the size of the district found in the crosshairs. Smaller districts that lack the revenue to justify the expense of emergency management, or even a consent agreement, are dissolved altogether, whereas larger districts are headed for state control.

The Citizens Research Council, uneasy about the impact of future use of the dissolution plan under PA 96, published a detailed analysis last month titled School District Dissolutions: Another Approach to Address Local School District Fiscal DistressIn the report, the CRC outlines several concerns about the wisdom of the law, mostly stemming from slight-of-hand tax policies that simply shift burdens and ignore underlying systemic problems. They conclude that the law is not necessarily the best policy and should be revisited, referring to its hasty enactment as an “ad hoc reaction” which “illustrates that state government lacks a uniform model that will apply when school districts fail”.

The CRC worries that this law will be invoked more frequently, especially in light of the GOP crusade for mergers and consolidations. Democracy Tree has reported numerous times on the myth of the financial benefit of that course of action. Sufficient economies of scale are rarely achieved, and the costs are significant.

The economic implications of PA 96 should not be too complex for an accomplished business tycoon to grasp, but it seems the law was slap-dash written, and signed by the “nerd” in a moment of public policy-panic when leadership realized that two school districts (Buena Vista and Inkster) were too small for the emergency management scheme — all in yet another lack of fiscal vision under Snyder’s watch.

To identify the fundamental flaw of PA 96 does not require a PhD in economics — it’s pretty much basic math. What the state does is simply shift the deficit from one column to another, and use it as a cudgel to punish the school district for factors mostly beyond their control. Then, through highlighting the district’s “failure” the state furthers their war on home rule, and augments their argument to advance their equally flawed consolidation campaign. It’s a loser’s game in which schools are the stooge.

Here’s the mechanism of PA 96, see if you can spot the flaw.

The state dissolves the district and sends its students to neighboring schools. The state also takes over the district’s deficit, then services the debt burden through money collected from taxpayers of the dissolved district using Prop A funds (18 mills). Those tax dollars would normally go straight to the state School Aid Fund, but are now diverted directly to deficit reduction, leaving the School Aid Fund short in fulfilling its purpose of per pupil funding to all other districts.

The state then allocates the amount lost, by providing the “receiving” school district, where the displaced students are sent, with per pupil funding from the School Aid Fund, plus a short-term 10 percent bonus for their trouble.

The flaw is obvious.

Naturally, the CRC is questioning the wisdom of this policy, citing that even the emergency manager law is an improvement over PA 96 (that’s a low bar):

State government, through its adoption of the new policy, is signaling that some financial problems cannot be solved without the aid of additional funds. If this is the case, then it might be appropriate to provide these resources sooner, through an emergency manager process, rather than as a last resort.

The report also points to numerous problems this law creates in terms of local property tax inequities. Among them, one stands out. Under PA 96, property taxes previously approved by district voters for sinking funds and debt levies, prior to the dissolution of their schools, would continue to be collected until their term has expired — long after the debt is settled. The funds would be rerouted to the ISD to be reallocated to the receiving district(s) for use at their discretion. It is doubtful they would be applied as the voters intended, given that the funds are typically approved for very specific applications within a district that no longer exists, with its buildings likely mothballed.

The CRC report mentions, more than once, its hope that PA 96 was enacted as a “one-off” measure, and will not become common practice. But, with so many districts in distress, and plenty of them bound to fall into the trap of being too small for emergency management, the temptation will be too great for Michigan’s myopic policy makers to resist.

DSCN0444Amy Kerr Hardin

Don’t forget: Check out your school district’s fiscal outlook through the Munetrix searchable database.

 

 

 

 

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