In 1994, voters adopted the state school finance initiative known as "Proposal A" because it promised to cap their property taxes, lift spending in poor districts and end the constant stream of local elections seeking higher taxes for school operating expenses. Since then, public schools have relied on generous per-pupil foundation grants from the state to pay for day-today operations.
Nevertheless, they have diligently searched for loopholes in Proposal A’s prohibition on new local taxes for operating expenses. With recreation millages, they appear to have found another one.
Originally, the most common loophole was disguising operating expenses as "capital improvements," since Proposal A did not prohibit higher property taxes for new school buildings or major physical plant upgrades. As a result, there has been an explosion in school debt millages. Statewide, local school building, site and sinking fund taxes have risen from 2.6 to 4.3 mills — a 65 percent increase.
Some of this "capital borrowing" pays for expenses that are clearly operational, such as repairs and short-lived assets like computers or school buses. Only under Enron-style accounting are such items considered "long-term capital assets" that justify increased borrowing.
But in addition to this "capital asset" loophole, there has recently been a rash of school millage votes to raise taxes for "recreation." These invoke a previously obscure 1917 law that allows schools to levy unlimited property tax millage for the operation of a "public recreation system and playgrounds." This old law is the newest Proposal A loophole.
In these elections, and also in a Michigan House Tax Policy committee hearing on repealing the 1917 law ( www.michiganvotes.org/2004-HB-5929), schools have been frank about using recreation millages to get around Proposal A. One superintendent recited for the committee a laundry list of school operations now supported by his district’s recreation tax revenue. In adopting such tactics, schools are breaking not just the promise of Proposal A, but at the very least bending the law that allows these taxes only for "public recreation and playgrounds."
According to top Engler administration officials who helped craft Proposal A, the continued existence of this early 20th century law is a mistake. They have admitted that when Proposal A’s enabling legislation was drafted, they completely overlooked the recreation law, which otherwise would have been repealed at the time. This makes sense, because the law is an obvious opportunity to subvert Proposal A’s promise of no new local taxes for operating schools.
In addition to getting around Proposal A’s tax limits, schools have another incentive to seek higher recreation taxes. Many knowledgeable observers suspect that an ongoing school building boom is a response to Michigan’s limited inter-district "schools-of-choice" program. Schools get state money based on how many pupils they serve, so they have an incentive to attract students from neighboring districts. The suspicion is that some are competing with new gold-plated school buildings, instead of better academic programs.
Top-flight recreation programs funded by this tax may be another way to outshine neighboring school districts in the competition for a finite pool of students and the state money that accompanies them. Schools also justify their recreation taxes on broader grounds: In the state House committee hearing, one superintendent reported that an elderly man who swims for free in a pool funded by this tax "told me he would be dead without it."
That’s unlikely. Even granting his view about the health benefits, this individual would suffer only if school-funded recreational facilities were the only ones in existence. This is not the case, and this elderly gentleman could join a private health club or a YMCA, rather than asking his neighbors to pay for his recreation with higher taxes.
Defenders of the tax will claim that the elderly swimmer might not be able to afford a health club. Still, golf is a healthy activity, yet that doesn’t mean schools should raise taxes to build golf courses.
The mission of public schools is to educate children, not compete with private health clubs by offering free or subsidized recreational facilities. Unnecessary taxes like these recreation millages break faith with Proposal A and remove resources from private individuals and businesses, reducing their ability to provide for their own needs and develop the economy. In the long run, such taxes make us all poorer.
Jack McHugh is a legislative analyst for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. This commentary is adapted from his invited testimony at hearings by the Michigan House Tax Policy Committee on House Bill 5929, which would repeal the 1917 law that allows school districts to levy unlimited property tax millage for the operation of a public recreation system and playgrounds.