The Michigan Constitution earmarks portions of state tax revenues for specific funds. Proposal 1 would change which state revenues go into the School Aid Fund.
Sales tax revenue is currently split into two categories, according to constitutional requirements. Two percent of the sales tax is a mandatory levy devoted exclusively to school aid. This provision was put into effect via a voter-approved constitutional amendment in 1994.[29] The other category is an optional levy of up to 4 percent, of which 60 percent goes into the SAF, 15 percent to cities, villages and townships (“revenue sharing”), and the rest to the state’s General Fund.[30]
Proposal 1 would increase the maximum rate of the optional portion of the sales tax from 4 to 5 percent. As mentioned earlier, new laws will automatically go into effect that will result in a new total sales tax rate of 7 percent. The use tax rate would also increase to 7 percent from 6 percent, although the state’s constitution does not limit its maximum rate.[31] A fiscal analysis estimates that these rate increases will add $708.6 million to the SAF and provide $177.1 million for revenue sharing in fiscal year 2016.[32]
The amendment also adds a new constitutional earmark on the state use tax. While the full 2 percent portion of the use tax is earmarked to the SAF, none of the other 4 percent portion goes to it. If Proposal 1 is approved by voters, 12.3 percent of the revenue generated by the 4 percent portion (to be increased to 5 percent) of the use tax would be earmarked for the SAF. This is expected to add $151.1 million to that fund in fiscal year 2016.[33]