Sinking Fund Chart

This graphic is part of a study by the Anderson Economic Group, entitled "Expanded School Sinking Fund Taxes," sponsored by the Michigan Chamber Foundation. The study is available at www.andersoneconomicgroup.com

Taxpayers were relieved in 1994 when Proposal A ended the constant stream of local millage elections, raising funding for school operations to record levels. But after eight years of chafing under these limitations, some public school officials are seeking ways around them.

From the state superintendent of public instruction on down, Michigan's education establishment is beating the drum for "adjustments" to Proposal A that would undermine its property tax limits. In the Legislature, there are bills to partially repeal the limits (see House Bills 4917 and 6086 on MichiganVotes.org). But a far more clever "adjustment" is House Bill 4824, sponsored by Rep. Doug Hart, R-Rockford, which would let school districts levy "sinking fund" taxes for the same purposes as regular school bonds. Some version of the idea was favored by both Michigan gubernatorial candidates Dick Posthumus and Jennifer Granholm.

Traditionally, sinking funds were a way for school districts to set aside money to repay principal on a debt, and for future capital projects - like buying real estate, or building and repairing buildings. Unlike school bonds, which can be used for everything from furniture to school buses, the legal uses of sinking fund taxes are limited. Just how limited can be seen by the fact that in 2001, according to the House Fiscal Agency, only 91 of 554 Michigan school districts levied sinking funds, and only four levied the full five mills allowed.

Because their application is limited, sinking funds haven't been regarded as a way to raise the kind of money school officials are hoping for - unless their application is expanded.

The Hart bill doesn't explicitly ask to repeal any of Proposal A's operating millage caps. Therefore, it doesn't alert the public to its likely outcome. Technically, it just lets sinking funds be used for the same purposes as school bonds. Schools are limited in how many mills they can levy for regular bonds and still qualify for favorable interest rates - but if sinking funds could be used for the same purposes, it would open a whole new 5-mill property tax opportunity.

Sinking funds allow school officials to keep on hand a pot of property-tax-generated dollars available for the permissible uses, the scope of which would expand greatly under this legislation. This is a luxury not afforded by regular bonds; schools could dip into the pot whenever they like.

If the Hart bill passes, a school board could offer higher salaries from its annual state foundation grant, since other expenses previously paid from this source might be covered by a new sinking fund pot of tax dollars - a potential shell game. School board members friendly to employee unions would seek ways to substitute sinking fund proceeds for these expenses, thereby conserving state money to boost payrolls.

Most lawmakers are fuzzy regarding the arcane terminology of school funding. They get confused, and can mistake technical-sounding changes as just that - technical, having no serious implications. Consequently, the bill whisked past the Michigan House last Dec. 21 by a vote of 95-2, before anyone really understood what it did. It is getting more scrutiny now, but only because someone finally read (and understood) the fine print.

This effort to raise taxes comes at a time when hundreds of millions of dollars in potential savings are already available. Following Ohio's example by exempting schools from "prevailing wage" rules would save at least $150 million every year. Teacher health insurance - a market dominated by the Michigan Education Association's costly "MESSA" plan - is ripe for huge savings. And millions more could be saved, as many districts have shown, through competitive contracting of support services from food to busing.

Since both gubernatorial candidates favored some version of the proposal, homeowners could potentially be socked with billions in additional property taxes (see chart). The Hart bill is clearly a "tweaking" of Proposal A, reneging on the system that has lowered Michigan property taxes, brought more money to our schools, and injected a measure of competition into the school system. It's a case of legislative sleight of hand being used to effectively thwart the intention of Michigan voters who passed Proposal A.

Changes this monumental - if they are made at all - should take place out in the open, not concealed by a technical legislative trick.

Jack McHugh is a legislative analyst for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich.