Taxpayers breathed a huge sigh of relief in 1994 when Proposal A ended the constant stream of local school operating expense millage elections. Now, after eight years under its millage caps, public school officials are maneuvering for room to raise taxes. From the state superintendent of schools on down, the drumbeat of the education establishment is that Proposal A needs to be "adjusted." On several fronts, efforts are underway to undermine limits on new school operating expense millages.
In the legislature, bills have been introduced to partially repeal the millage caps (see House Bills 4917 and 6086 on www.Michiganvotes.org). A far more insidious "adjustment" is House Bill 4824, sponsored by Rep. Doug Hart, R-Rockford, which would let school districts levy up to five-mills of "sinking fund" taxes for the same purposes as regular school bond debt.
On Dec. 13, 2001, this bill passed the House, 95-2. The bill is now before the Senate Committee on Education. Proposal A requires a three-fourths vote in each body for any bill that lifts the limit on property taxes for school operating costs.
Traditionally, sinking funds were a way to set aside money to repay principal on a debt when a lump sum comes due. Under current law, schools can maintain permanent sinking funds for future capital projects, like buying real estate, and construction or repair of school buildings. They also let schools have money on hand for emergency repairs, like replacing a leaky roof.
In contrast, regular school bond debt can be used for a much wider array of activities, including remodeling, equipping or furnishing school buildings. So broad is the list of possible uses that, under strict accounting standards, many of the allowable uses really should be considered operating expenses. Schools sometimes deliberately manage their affairs to make it possible to use bond debt for these items.
As part of Proposal A's promised property tax limitation, schools are required to pay operating expenses out of the annual foundation grants provided by the state. The size of the grants is determined by how much is in the state School Aid Fund. Local schools have no control over this amount, and Proposal A prohibits their supplementing it with new local property taxes.
Proposal A does not prohibit borrowing money with bonds for capital improvement projects, and schools are very creative about finding ways to shift operating expenses into capital budgets. HB 4824 represents an "end run" around Proposal A because it would open sinking fund taxes to the same sort of cost shifting, potentially blowing the lid off promised property tax limits. Remodeling, equipping or furnishing school buildings can cover a lot of territory. By expanding allowable sinking fund uses, the bill gives schools an incentive to levy five additional mills on all property owners.
For example, if HB 4824 passes the Senate, a school board could offer higher salaries from their annual state foundation grants, because other expenses previously paid from this source might be covered by new sinking fund tax revenue. School board members friendly to employee unions would look for ways to substitute sinking fund taxes for these expenses, thereby conserving scarce foundation grant money to boost payrolls.
Proponents argue that the bill prohibits sinking funds from being used for "other than the purpose specified in the ballot language." Based on past experience with school bond elections, however, it would be surprising if school district officials did not quickly learn ways around this. For example, they might just include the whole gamut of allowable uses in the bond language. The bill explicitly allows ballot language with more inviting language that does not include the arcane term "sinking fund."
School millage elections have notoriously low turnout. They often are scheduled for inconvenient days, are not held at polling places to which voters are accustomed, and use absentee ballot procedures that can deter all but the most stalwart voters. Members and supporters of the public school establishment are always the ones most likely to overcome these obstacles. This is common "wink-nudge" knowledge among school officials. So any potential "limitation" on new sinking fund taxes may be no limit at all.
The bottom line is this: House Bill 4824 authorizes significant new taxing power for schools. The House Fiscal Agency reports that, as of 2001, only 91 of 554 school districts levied sinking funds, and only four levy the full five mills allowed. This means most property owners do not yet have the pleasure of paying sinking fund taxes - but that will change quickly if HB 4824 becomes law.
Even without the bill, the number of school districts that levy sinking fund taxes is rising quickly, as they discover this alternative way to tax. Regular school bond debt has grown dramatically since 1994. Given this history, if HB 4824 becomes law, the number of new sinking fund taxes will most likely explode. Homestead and business property owners statewide should then plan on paying hundreds of millions of dollars in new property taxes.