March 15 marked the 10th anniversary of Proposal A, the constitutional amendment that was intended to narrow the spending gap between school districts, and dramatically reduce property tax rates. To mark the date Michigan State University held a conference in Lansing assessing the school finance initiative. The retrospective brought together a prominent group of scholars, and many of the key players in Michigan government over the last 10 years, including former Gov. John Engler, U.S. Senator Debbie Stabenow, former House Speaker Paul Hillegonds, former Senate Majority Leader Dick Posthumus, and current House Speaker Rick Johnson.

Mackinac Center legislative analyst Jack McHugh served on a panel at the event that responded to a study by MSU education policy analysts David Arsen and David N. Plank. The study recommended increasing the six-mill state school property tax to eight mills. Besides McHugh, five PhD’s, the preeminent expert on the state budget, and state Superintendent of Public Instruction Tom Watkins gave presentations. No panelist besides McHugh expressed any misgivings in principle with the tax hike recommendation. Here is what McHugh said to the hundreds present, who represented Michigan’s educational and political establishments:

Thank you for the opportunity to be here today. I’m going to come at this from a different direction. While Professors Plank and Arsen’s study usefully points out some problems related to school districts with declining enrollments, and those with a high proportion of "high-cost" students, there is a huge gap between the data and the conclusion.

How can you say that a tax hike is needed when you have only looked at the revenue side, and not how the money is being spent? Here are five issues that were not addressed in the study:

1. The Expenditure Side

You can’t justify higher taxes unless current revenues are getting the maximum bang-for-the-buck. There is plenty of evidence that they are not, such as:

  • A former Michigan Education Special Services Association (MESSA) director has estimated that if schools provided health coverage common in the private sector instead of the current gold-plated plans, they could save $400 million a year.

  • Michigan’s "prevailing-wage" law prohibits awarding government construction contracts to the lowest-bidding contractor unless he also pays an artificially high wage based on union pay scales. Mackinac Center research suggests that this increases school construction costs by at least 10 percent. Without these inflated costs, schools could save $150 million a year.

  • The Mackinac Center has documented many cases in which privatizing school lunch, janitor, transportation and other support services has saved big money, but the MEA teachers’ union fights this at every turn.

  • Annual school administrative expenses increased 6 percent a year from 1998 to 2002. That’s double the inflation rate.

2. Capital Spending

Capital spending has skyrocketed and must be considered as part of the equation. School system capital revenues statewide increased from $458 million in 1994 to $1.1 billion in 2000. Local debt, building and site, and sinking fund taxes rose from 2.6 to 4.3 mills. Between 1999 and 2002, long-term school debt rose from $6,261 per student to $8,100.

Much of this is really operational spending, such as repairs and short-lived assets like computers. Only under Enron-style accounting is it not counted as operational. The study points out that capital spending is uneven across districts, but the bottom line is that, on average, statewide school millage rates have already risen at least 1.7 mills since 1994.

3. Declining Pupil Counts

Prof. Plank points out that school districts with declining enrollments need transitional help. But the issue is bigger than this. At least through 2012 there are projected to be fewer school-aged children in Michigan. Total enrollment will have dropped from 1,743,000 in 2000 to 1,616,000 in 2012. That is a decline of 127,000 students, or 7.3 percent.

This fact and the debt and capital spending numbers suggest two things:

  • Districts are building overly luxurious schools in order to compete with neighboring school districts under the cross-district schools-of-choice law.

  • Schools are not consolidating buildings and services, like a rational private sector business would, when faced with these demographics. The owner of three grocery stores in a town that just lost its major employer would consolidate, not expand and add luxury features.

4. Reorganizing and Modernizing for the 21st Century.

A former deputy state superintendent of schools recently commented in the Detroit News that Michigan’s school system needs fundamental change. He suggested:

  • Year round classes;

  • Administrators loyal to the community, not to their profession;

  • Reform of the "rule-encrusted, seat-time-based teacher preparation and credentialing system."

I would add that we should rationalize special-ed delivery. An effort to do so in 2001 was annihilated when the special-ed establishment mobilized parents of disabled children by telling them untrue scare stories. Parenthetically, they are using the same tactic now to gut ISD reform.

5. Getting the Incentives Right.

We will never achieve excellence without real competition between schools and school districts, and we’ll never achieve genuine competition without giving parents a choice when it comes to where they send their children to school. There is every reason to believe that competition would bring the same excellence and value to education that it does everywhere else. If everyone were required to shop in only one assigned grocery store, you would find mediocre products, and high prices. That describes public education today. Charters and inter-district schools-of-choice are just baby steps. The Mackinac Center believes a tuition tax credit system is the best way to bring both excellence and value to K-12 education.

This relates directly to another question that was raised today: "What is an adequate level of revenue to fund public schools?"

The answer is, no central planner can ever say how much would be adequate, because without a free market in education there is no way to perform the pricing function. Early in the 20th century economist Ludwig von Mises demonstrated how socialism could never work because of this.

With choice, however, all kinds of innovations and bright ideas will be tried, and some bad ones too. The market will quickly sort these out, sending more dollars to the former, and driving the latter out of business. Only this process can truly determine how much money is "adequate" to provide a good education.

Thank you again for the opportunity to present an alternative point of view here today.

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