2015 Publications

State Assumption of School Debts
Memo 1135 ( April 2015 ) 8 pages

A recent report addressing the future of public education in the City of Detroit recommends that the State of Michigan assume responsibility for certain debts of Detroit Public Schools as part of a larger plan to reform governance and finance for all public schools in the city. A new Citizens Research Council of Michigan (CRC) report, "State Assumption of School Debts," examines the issues involved with such an state assumption of school debts by examining the consequences associated with previous instances where the state assumed responsibility for school debts. The CRC report urges policymakers to develop a statewide policy for dealing with school district debts, especially if the state is going to make additional resources available for such purposes.

The Coalition for the Future of Detroit Schoolchildren has recommended that the state assume $124 million annually of Detroit Public Schools’ (DPS) financial obligations. The obligations include debt service payments for long-term notes issued to finance current operations as well as required payments to the school employee retirement system for employee "legacy costs." If the state takes on these debts, DPS would see an almost $2,500 per-pupil increase in the amount of money available for classroom instruction; however, this will come at the expense of $124 million fewer state dollars available to share across all other public schools in the state. When the state assumes a district’s debts, the benefits are retained locally but the costs are socialized. "While DPS is currently the most recent financially and academically struggling district requesting direct state assistance with its debts, 55 other school districts across the state began the current fiscal year in a deficit situation," said Craig Thiel. "A request from any one of these districts, some of which are under the control of state-appointed emergency managers, may not be too far off."

Statewide Ballot Issue: Proposal 15-1
Sales and Motor Fuel Tax Increases Related to Transportation Funding
Memo 1134 ( March 2015 ) 3 pages

Summary of Report 389

Statewide Ballot Issue: Proposal 15-1
Sales and Motor Fuel Tax Increases Related to Transportation Funding
Report 389 ( March 2015 ) 32 pages

Proposal 15-1, which will appear on the statewide ballot at a special election on May 5, 2015. The proposal has the dual objective of increasing state funding for transportation repair and maintenance and modifying the taxation of motor fuels to guarantee that all taxes paid at the pump are directed to transportation purposes. If approved by voters, the proposal would change Michigan's tax structure to generate additional revenue for transportation infrastructure improvements as well as address the funding displacement to public schools and local governments caused by removing motor fuels from the base of the sales tax. The CRC analysis provides voters with an accessible and objective explanation of the issues surrounding the proposal and its ramifications for Michigan residents.

Use of Immediate Effect in Michigan
Memo 1133 ( March 2015 ) 9 pages

The 2015-16 legislative session is underway and the Michigan legislature is again up to the standard practice of granting immediate effect to almost every law enacted. A new Citizens Research Council of Michigan (CRC) report examines this practice in context of the provision of the 1963 Constitution for the effective date of state laws. CRC's analysis identifies the need for reform – either of the Constitution to reflect legislative practice or of legislative practice to reflect the Constitution.

"The original intent behind the immediate effect provision in our Constitution was for immediate effect to be the exception, as opposed to the standard practice," said Craig Thiel. "However, legislative practice over the years has made immediate effect more of the rule than the exception." The CRC report found that from 2000 through 2014, the legislature granted immediate effect to 94 percent of the laws it passed. Going back to the adoption of the Constitution, nearly 90 percent of all laws received immediate effect.

The CRC report suggests that they should consider either proposing a constitutional amendment so that the effective date provisions reflect longstanding legislative practice or honor the spirit of the Constitution by treating immediate effect as an exception rather than the rule in the law making process.

The report highlights some of the reasons why the legislature has relied so heavily on immediate effect for the effective date of laws, including the shift to the full-time legislature following the adoption of the 1963 Constitution, advances in communication technology, and practical and political considerations. The report also points out some of the concerns raised with the current legislative practice, specifically the complicating effects on the referendum process whereby citizens are able to have a direct say in a law.

"While the reasons for the legislature's expanded use of immediate effect may be meritorious and make sense," said Craig Thiel, "CRC believes that Michigan citizens served by the state constitution should be able to read the document and understand the process of government lawmaking. The wording, along with the framers intent, is for immediate effect to serve as the exception. If the wording is obsolete, as legislative practice would suggest, change the wording."

Reforming Statutory State Revenue Sharing
Memo 1132 ( February 2015 ) 8 pages

Summary of Report 388

Reforming Statutory State Revenue Sharing
Report 388 ( February 2015 ) 70 pages

Introduction of the Governor's budget proposal last week once again draws attention to a long-standing program of distributing state funding to local governments. Michigan's state revenue sharing program has provided a decreasing amount of assistance to lcoal governments over the last decade. Not only does the law fail to provide a method to distribute funds, but policymakers have been diverting funding from state revenue sharing to balance the state's budget. A new Citizens Research Council of Michigan report, Reforming Statutory State Revenue Sharing, describes the role of the revenue sharing program and provides alternatives that would provide a better foundation for the future distribution of revenue sharing dollars.

The report, prepared at the request of the House Appropriations Subcommittee on General Government, provides different paths that state policymakers could take for distributing revenues.

One path attempts to equalize the fiscal capacity of local governments by distributing state funds based on differences in their tax bases and by recognizing the varying demand for local services.

A second path suggests that the state identify the different sectors of the economy that require the greatest levels of local government services and prioritize assistance to local governments that host economic activities within those sectors.

A third alternative would transition the program from an unrestricted revenue sharing program, that allows local governments to decide how to use the funding, to a restricted revenue sharing program that funds the local government services for which the state has the greatest interest, namely public safety.

Managing School District Finances in an Era of Declining Enrollment
Memo 1131 ( January 2015 ) 8 pages

State policymakers have altered school funding and governance policy to fit the circumstances of the day. This new report suggests that policymakers once again need to alter state policies because of statewide declining student enrollment. The new report examines the causes, challenges, and possible state policy responses to declining student enrollment.

Michigan funds public school districts, in part, based on the number of students enrolled. Statewide, public school enrollment has declined by more than 11 percent over the past decade. This trend, combined with many new entrants to the public education market in Michigan, has contributed to student enrollment declines for over two-thirds of all public school districts.

"To their credit, many school officials have attempted to proactively respond to changing student enrollments," reports CRC's Senior Research Associate Craig Thiel, "but the economics of school finance suggest that state policy reforms could assist them to better manage school finances during an era of declining enrollment."

In recent years, state-level policymakers have shown considerable interest in revisiting Michigan's primary school funding mechanism. The Governor, the State Board of Education, and various factions of the Legislature have examined and weighed in with finance reform ideas. As the new Legislature gets seated and begins to contemplate the school finance issues it wishes to tackle, CRC offers the following considerations for state policy reforms to help school districts manage through the current era of declining enrollment:

First, moderate to significant enrollment decline is a clear sign of existing, or rapidly developing, fiscal stress. School officials and the state must heed this signal. It should be used as an early warning to districts and the state that a district is in trouble, prompting them to take action and provide additional assistance (i.e., technical, managerial, financial) to mitigate the effects of financial problems, including the potential disruption of student learning.

Second, the state should consider revisiting the blended student count formulas used during the past. Current formulas do not take into account previous years' student counts, but only the current year. By giving greater weight to previous years' student counts, districts are able to make a more gradual spending transitions to accommodate new revenue levels.

Finally, and perhaps most importantly, a fundamental disconnect exists between the state's per-pupil foundation grant and the nature of school cost pressures (i.e., heavy fixed costs in short run). Policymakers should consider modifying the per-pupil foundation grant so that the marginal revenue that a district losses or receives because of a change in student enrollment is equal to the change in marginal costs, either up or down. This would require breaking up the grant to reflect the relevant fixed and variable costs in education.

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