Proposal 5 Could Aggravate School Finance Problems and Reduce Schools’ Incentives To Improve

Taxpayers likely to confront “unexpected consequences” from the proposal’s costs, especially during recessions

For Immediate Release

Contact:
Kenneth M. Braun, Policy Analyst
Phone: 517-482-7108 or 989-631-0900

MIDLAND — Commenting on Proposal 5, the education spending mandate on the November statewide ballot, Mackinac Center Policy Analyst Kenneth M. Braun said today, "Voters should be aware of the likely unexpected consequences of this proposal." Braun, author of a Center study released today on Proposal 5, added, "This is true not just of the proposal’s mandated annual increases in state government’s primary, secondary and higher education spending, but of the lesser-known and most expensive part of the proposal, which would shift financial responsibility for the growth in education employee pension costs from school districts to state government."

In the study, "An Analysis of Proposal 5: The ‘K-16’ Michigan Ballot Measure," Braun calculates that from 1995 to 2005, state spending on primary and secondary education rose by 40 percent, leaving it about $1 billion above the 27 percent total inflationary growth for that period. Michigan ranked in the top 10 states in per-pupil primary and secondary education spending in 2004 and in per-capita spending by state community colleges and universities in 2002. "Given that education was generally guarded from the larger budget cuts that followed the recessionary decline in state revenues after 2001," Braun observed, "the proponents’ goal of high education spending is already being met.

"The real issue," Braun added, "is Proposal 5’s requirement that state government cover the rapid cost increases in state education employee pension payments. These pension costs in the past three years have actually consumed every additional dollar provided to school districts through the state’s per-pupil foundation allowance. Proposal 5 does not address this growing problem in the education employees’ unusually generous public pension; the proposal simply shifts which part of the government would be making the payments. Unfortunately, the shift could make the problem worse by providing a subsidy that would encourage school boards to increase their payroll, intensifying the retirement system’s long-term liabilities."

In the study, Braun also observes that the proposal’s less-heralded provision to increase payments to districts with declining enrollment would artificially bolster their budgets and soften the incentives to reform, even if students were leaving because of flaws in the school system. "This could delay important reform, a risk that is also present in the proposal’s basic guarantee of increased education spending regardless of schools’ academic performance," said Braun.

The study notes that the proposal could have unexpected consequences. Although the proposal mandates overall annual education spending increases, it is likely to lead next year to cuts of as much as $141.7 million in certain state education spending programs, such as adult education and vocational education. In addition, during lean budget times, the proposal’s annual spending increases could lead to cuts in noneducation areas such as corrections, human services or community health. "While the Mackinac Center has advocated spending reductions in many of these budget areas, voters should be aware that spending cuts are a likely result of Proposal 5," noted Braun.

Colorado’s experience with a similar spending initiative reinforces the likelihood of noneducation spending cuts and further tax increases. "Higher taxes would be unwise during a state recession that sets Michigan apart from the growing national economy," Braun said. "This is particularly true given that the nonpartisan Tax Foundation found that Michigan’s overall state and local tax burden in 2006 was 16th highest in the nation. At the same time, Michigan’s spending on public education is high compared to most other states, yet that spending has not produced the prosperity that some have claimed for it."

The Mackinac Center study is available at www.mackinac.org/7924.