State Vs. Local Taxes for Education

When Proposal A went into affect in 1994 it was to provide financial equity to all Michigan schools districts. Integrated into Proposal A is a distribution formula that reduces the disparity in operating expenditures across high- and low-spending school districts, in part, by constraining the allocation of operating funds for high-spending districts. With this shift in funding came responsibility from the state level rather than the local level. The centralized funding has been successful in creating a level playing field for financial equity, but there are also studies that have shown unforeseen costs to more affluent school districts.

The article “Unintended consequence of centralized public school funding in Michigan education” by Ron Zimmer and John T. Jones from the Southern Economic Journal recently study the particular case of centralized funding for Michigan public schools. They provided valuable information on the school systems economics and also further information on Proposal A. The statistics found in the study are intriguing and raise some very interesting points on which to discuss school finance.
The best argument the authors make is that the more affluent schools have taken a spending decrease. This is an obvious hit to their wallet, however, that was the point of Proposal A – everyone gets the same amount regardless of taxes collected. Since these schools are use to a higher budget, and expenditures, they are still trying to maintain that high standard of spending, hence causing the schools to circumvent the policy by increasing the use of capital markets and debt financing. The schools that are being constrained below their determined levels of operating expenditures are looking close by to generate more funds. These high-spending districts experienced a 47% increase in the probability that a bond will pass in a local referendum after Proposal A was enacted. This statistic shows that less money is coming from the state to uphold their expenditures, so more money is coming from the districts citizens, with interest percentages.

Wealthier schools are passing higher valued bonds, just more of them. There is an insignificant increase in the amount for the bonds after Proposal A. The increased use of debt thus is precipitated by voters passing bonds more frequently. When the bond is passed by the voters, the money goes from the local tax payer’s pockets to school pockets for that specific bond. This money is paid in addition to the state tax that supports education as well.

On the contrary to affluent school districts, voters in more rural areas are less likely to vote favorably in bond referenda as compared with larger cities and suburbs. While this article proves that Proposal A has assisted the lower-spending school districts, it also proves that the higher-spending districts are spending as if unaffected by the budget cuts, and creating interest debts. The local population is taking additional responsibility, besides what the state provides, in order to issue more tax paying bonds. If that school districts populace has the means, and approves the referendum, then what is the harm with them finding additional funds? Both schools are on level ground to begin with, and if the community wants to take their schools a step farther, than they must be willing to pay for it through additional local tax. That way everyone is treated fairly, and the higher level programs are self-aided. There is nothing wrong with the state providing a certain amount of equity, and the affected districts can then seek out additional means as they see fit for local schools.

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