Cut and Cap is not a school finance reform proposal. It would cut property taxes in the same proportion across the state, and reimburse school districts in the same proportion. Thus, it is primarily neutral in its distributive effects, with three redistributive effects of smaller magnitude.

Tax Cut and Reimbursement

Cut and Cap would reduce taxes, and reimburse, the largest amount in districts which levy high school millage rates. As shown previously in Table Seven, cities typically have high millage rates, and would receive heavy tax cuts and large reimbursements from the state. Many near-urban districts close to major cities also spend relatively large amounts on schools, with high millage rates and property values close to average for the region. These areas would also benefit significantly, as would affluent suburban districts that spend heavily on public schools, generally through high property values and close-to-average millage rates.

Given the economic burden of high property taxes in many Michigan cities, Cut and Cap would give a powerful stimulus to urban economies. For example, the Detroit School District would probably be the largest recipient of reimbursement dollars in the state, as well as probably receiving the largest tax cut of any city or township in the state.

Assessment Growth Cap

The assessment growth cap would cause a redistributive effect within taxing jurisdictions. This would occur as the cap limits SEV growth in areas with more rapidly growing property values. The strongest effect would be within those jurisdictions with the highest tax rates, namely schools. However, these also tend to be geographically small, and therefore would tend to have the least amount of variance in property value growth rates. Large municipalities, such as counties, would have greater variation in growth rates, but also tend to have lower millage rates.

A third redistributive effect would be caused by the lower revenue received by school districts in fast-growing areas because of the assessment growth cap, compared with less of an effect on school districts with less-rapid property value growth. This effect would be very small for three reasons: First, the assessment cap would only lower revenue on unsold properties by the difference between 3% and the inflation rate, which lately has been about 4%. Second, both the Headlee amendment and "Cut and Cap" allow new construction to pass through without limitation. Third, voters are still free to approve higher millage rates. Districts with the most rapidly growing property values tend to have lower millage rates than high-millage urban areas.

To the extent that spending growth in high-growth areas is held back by this effect, it would tend to reduce the current disparity in spending among the state's school districts. However, this effect will probably be very small.

Conclusion: Distributive Effects of Cut and Cap

Cut and Cap is primarily neutral, cutting taxes and reimbursing school districts in the same proportion statewide. To the extent that there are smaller, second-order-of-magnitude redistributive effects, they tend to favor high-tax, urban and near-urban school districts.