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CRC Column

The right to criticize government is also an obligation to know what you are talking about. 
-Lent Upson, 1st Executive Director of CRC  


 

The 98th Annual Meeting of the Citizens Research Council of Michigan is scheduled for Friday, September 12, 2014 at the Detroit Athletic Club.

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For over 90 years, the objective of the Citizens Research Council of Michigan has been to provide factual, unbiased independent information on significant issues concerning state and local government organization and finance. CRC believes that the use of this information by policymakers will lead to sound, rational public policy in Michigan.

 

CRC's Blog

Check out the latest posts on the Citizens Research Council of Michigan blog, CRC Column:

 

IN THE NEWS

CRC Releases an Analysis of Proposal 2014-1: Personal Property Tax Reform

July 2, 2014, Proposal 1, the only statewide measure on the August 5 ballot, asks Michigan voters to approve the conversion of a portion of the state's current use tax to a new local tax as part of a plan to reimburse local governments for the cost of recently enacted exemptions of business property from the personal property tax. The Citizens Research Council of Michigan (CRC) has released its analysis of the ballot proposal to explain the ballot measure for voters.

The state Legislature and Governor enacted legislation in 2012 and 2014 that bring significant personal property tax (PPT) relief to Michigan businesses. Because the PPT is levied locally on the taxable value of business property, which includes everything from business equipment and machinery to chairs and computers, local governments stand to be most directly affected by these changes.

"Past efforts to exempt business personal property from the local property tax base eventually failed because the state was never able create a reimbursement method to keep local governments whole," said Bob Schneider, CRC's Director of State Affairs. "For some local units with a strong manufacturing base, the tax on personal property brings in a lot of local revenue."

To address this local impact, the legislation creates a mechanism to reimburse local governments for any lost PPT revenues. A key element of the plan is the conversion of a portion of the state's current use tax into a new local community stabilization share tax. The revenues of this new tax would be distributed to local governments to offset lost PPT revenues through a new special authority -- the Local Community Stabilization Authority (LCSA). The LCSA is considered a local unit of government in the legislation, but would look rather different than other local governments.

Proposal 1 Webinar

View the recorded Webinar

"The new authority is defined as a local government, but has statewide boundaries, so we essentially have a very unique statewide local unit of government set up to administer the reimbursement of other local units of government," said Schneider. "This peculiar arrangement really revolves around assuring local governments that they'll get their money. They don't want to see this money pass through the state government's appropriations process."

The conversion of a portion of the state's use tax to a new local tax, however, creates other constitutional issues. In 1978, voters added several sections to the Michigan Constitution (commonly referred to as the "Headlee Amendment") that limit the taxing authority of both the state and local governments. Calling the new tax a local tax means it has to be approved by voters, which explains the need for the ballot measure.

"Because the law creates a new local tax, that local tax needs to be approved by local voters," said Schneider. "And, in this case, because the 'local' tax is administered by a local authority that happens to have statewide boundaries, the usual local vote now becomes a statewide vote."

The tax shift will have significant fiscal implications for the state's General Fund. The state will lose a portion of its current use tax revenues under the proposal. The analysis suggests state general fund/general purpose (GF/GP) revenues will be $107 million lower in FY2016 and $349 million lower in FY2017 as more and more state revenue is shifted to the new local tax. By FY2025, the GF/GP revenue loss is expected to reach $500 million.

Because all of the enacted PPT legislation was "tie-barred" by the legislature, the August vote effectively becomes a referendum on the entire package of reforms. If the ballot question is approved by voters, the personal property tax reforms will go forward, with local revenue reimbursement from the new tax. If the measure fails, all provisions of the personal property tax reforms will be repealed effective for tax year 2015, meaning that all businesses would once again be subject to any relevant tax levies on personal property.

The full report is available at no cost HERE.

 

IN THE NEWS

School District Fiscal Health Improves in 2013

June 16, 2014 - Between fiscal year 2012 (FY2012) and FY2013, 85 percent of all traditional public school districts in Michigan saw their fiscal health improve or remain steady according to a new report from the Citizens Research Council of Michigan (CRC), School District Fiscal Health Improves, But Some Long-Term Challenges Remain. This is a marked improvement from FY2012, when over 70 percent of traditional districts experienced increased fiscal stress and a decline in their health. The report also notes that the number of severely stressed districts (deficit districts) has hovered around 50 over the past three years, contrary to earlier warnings from state officials that the number of deficit districts could grow to 100.

CRC's new report finds that, overall, the fiscal health of Michigan school districts is a mixed bag and that the good news is tempered by some bad news, especially as it relates to the most fiscally-challenged districts in the state. This was confirmed recently by State Superintendent of Public Instruction Mike Flanagan's quarterly update to lawmakers. While the vast majority of deficit districts are expected to reduce or eliminate their problems by the end of the year, nine districts are projected to see their deficits increase.

"The recent increases in per-pupil funding provided by the state combined with the prospect for additional per-pupil bumps the next two years, conditions are ripe for continued improvement," said Senior Research Associate Craig Thiel. "The prospect of better financial health, however, will be tempered for many districts by the headwinds created by pension obligations and declining student enrollments."

In addition to examining recent trends in state funding, student enrollment changes, and retirement system reforms, the CRC report analyzes school financial data compiled and reported by Munetrix, a private firm specializing in public sector financial management reporting. The report reveals that, over the past five-year period, about one-half of all traditional public school districts saw their fiscal health erode while the other health saw their health improve or remain constant.

The report is available at no cost HERE.

 

IN THE NEWS

CRC Updates the Outline of the Michigan Tax System

April 15, 2014, Today is April 15... tax day. Across the state, Michigan citizens are working to file their annual tax returns, but how can those same citizens learn more about the taxes they pay and how those taxes are used? To this end, the Citizens Research Council of Michigan (CRC) has updated its most popular report, the Outline of the Michigan Tax System. This report, which serves as a handy resource for many, provides a concise and accessible summary of Michigan taxes and captures all of the changes made to the state and local tax landscape since the last update in March 2012.

In the last year, state policymakers enacted legislation to phase-out most of the personal property tax (PPT) paid by Michigan businesses on commercial and industrial personal property and altered elements of the state tax structure to reimburse local governments for the revenue they stand to lose. Another major change established a "sales tax on the difference" mechanism with regard to automobile and watercraft trade-ins. The new law requires that sales tax be imposed only on the difference between the purchase price and the trade-in price, rather than the entire purchase price as under previous law.

"With the new taxes authorized to ensure reimbursement to local governments for lost personal property tax revenues, Michigan now has 59 taxes that the state (38) and local (21) governments are authorized to levy," reports Bob Schneider, CRC's Director of State Affairs.

For each tax contained in the Tax Outline, you can find information on its legal authority, rate, base, administration, and the amount of revenue it raises. The Tax Outline also contains helpful links to official sources, which may contain more details than are available in CRC's summary outline.

In addition to tracking the details of each tax's rate and base, the Tax Outline tracks tax revenues from year to year. It is of note that the four years summarized in the Tax Outline show all local government tax revenues declining by a total of $1.1 billion. Over that same period, all state tax revenues increased by a total of $1.2 billion. Several individual types of taxes show the effects of the decline in property values caused by the foreclosure crisis, with total general property tax revenues down 9.3% since 2007 and the state education tax down 12% over this period.

IN THE NEWS

CRC Report Examines Michigan's Policy of Providing State Support to Nonpublic School Students

Michigan's recent winter storms shed light on some of the unique relationships that can exist between a local public K-12 school district and the private and religious (nonpublic) schools located with the district's boundaries. The storms and frigid temperatures caused districts to cancel classes for a number of days, and many nonpublic schools were forced to follow suit. For some nonpublic schools, the decision to close was related to the fact that the public school district, which canceled classes, delivers educational services to, and provides transportation for, the nonpublic schools’ students.

Michigan law forbids direct public support of nonpublic schools; however, it allows state support of nonpublic school students enrolled in public schools. Students attending nonpublic elementary and secondary schools have long been able to enroll part time in public schools (both traditional public and charter schools) and receive instruction in non-core curriculum offerings. Student instruction in elective courses such as physical education, art, technology, and foreign languages is financed by the state dollars that public school districts receive through the per-pupil foundation grant that has been in place since adoption of Proposal A in 1994. The Michigan Supreme Court has ruled that such arrangements do not violate the state constitutional prohibition against "parochiaid" -– direct state support of nonpublic schools. CRC’s new report, State Support of Nonpublic School Students, examines the history of Michigan’s policy behind "shared time" instruction, how it differs from "parochiaid," and participation in the program.

"It is easy, upon hearing about ’shared time’ instruction, to conflate the issue with ’parochiaid,’" said Craig Thiel of CRC. "The two are different in form and very different from a legal perspective."

CRC’s new report documents the observed growth in participation and possible reasons for such growth, including the financial incentives created by the per-pupil foundation grant. The report highlights how "shared time" enrollment affects state School Aid Fund finances, as well as the finances of individual districts. Some districts have increased their participation as a way to supplement traditional revenue streams and help them manage through difficult financial times. The report also discusses public policy issues raised by the mechanics of "shared time," particularly the per-pupil funding that accompanies nonpublic school student enrollment in public schools.

"Participation in ’shared time’ is at an all-time high with the state paying an estimated $57 million in fiscal year 2013 to educate nonpublic school students," said Craig Thiel. "Enrollment in ’shared time’ instruction continues to grow, even though statewide public school enrollment has been declining for years. This is a trend worth taking notice of."

CRC's report is available at no cost on the Citizens Research Council's website and can be accessed here.

IN THE NEWS

CRC Study Aims to Reform Michigan’s Ballot Question Process

January 10, 2014, The Citizens Research Council of Michigan has released a comprehensive study of the laws and procedures for getting constitutional amendments, initiatives and referendums to the ballot and bringing those questions to a vote. This study was spurred by a seeming growing sense of voter frustration with Michigan’s tools for direct democracy that was felt during the campaigns for the six questions that appeared on the November 2012 ballot.

Reform of Michigan’s Ballot Question Process looks at the ways questions make it to the ballot and compares Michigan’s processes and restrictions to those in place in other states. It looks at the laws that apply to paid petition circulators, the need to better inform petition signers, the petition certification process, and potential campaign and electioneering reform.

The primary recommendations of the report are for the state to require ballot question proponents to apply to the state before circulating petitions and for greater disclosure of those that finance support or opposition to the ballot question campaigns. Changing to front-load the petition certification process would clarify the roles of Secretary of State, Board of State Canvassers, Attorney General, and others involved in the process; eliminate 11th hour races to courts to challenge font size or the substance of proposals; and improve voter confidence in whole process.

“People need more information about the proposals being put before them,” said Eric Lupher, CRC's Director of Local Affairs. “Moving to a front-loaded certification process would allow for drafting of the 100 word descriptions for inclusion on the petitions; it would allow for analysis of the ballot questions by disinterested parties either inside or outside of government for voters to read before signing petitions; and it would allow for early legal review of the proposals, perhaps copying the process used in other states wherein the opponents and proponents are empowered to write arguments making the case for a yes or no vote on the questions.”

In Citizens United v. Federal Election Commission, the U.S. Supreme Court said that funding disclosure for issue ads could be justified because of the “government interest” in providing the electorate with information regarding election-related spending resources. It left it to the states to establish funding disclosure laws.

“Ballot question campaigning and electioneering is the purest form of issue ads,” said Mr. Lupher. “While Michigan and other states have been embroiled in how funding disclosure laws should apply to political and judicial candidates, those issues need to be separated from ballot issue campaign funding laws to bring more sunshine to the Michigan voters.”

CRC's report is available at no cost and can be accessed here.

In anticipation of a forthcoming report, CRC held a webinar on January 8, 2014, to discuss "Reform of Michigan's Ballot Question Process." The webinar can be viewed at on YouTube. (note there is a few minutes without audio following the introduction because of audio malfunction)

 

 

IN THE NEWS

CRC Report Takes a Look at Michigan's New School District Dissolution Policy

December 10, 2013, In July, Michigan state government officials, acting under the authority of a new state law, dissolved two local school districts, resulting in the closure of all of the districts' schools and the reassignment of the districts' students to neighboring districts. The speedy dissolution of the Buena Vista and City of Inkster school districts came after the State Superintendent of Public Instruction, in consultation with the State Treasurer, determined that the districts were no longer financially sustainable. CRC’s new report, School District Dissolutions: Another Approach to Address Local School District Fiscal Distress, examines the state’s new policy allowing for school district dissolutions and its implications for local districts and the state at-large.

Although fiscal distress among Michigan’s nearly 550 local public school districts and almost 275 charter schools is not widespread, a growing number of districts are ending their fiscal years in deficit. Today, the State Superintendent of Public Instruction reported that 50 school districts ended the 2012-13 fiscal year with a General Fund deficit, the largest number of deficit districts since the passage of 1994’s Proposal A. Until recently, state officials relied exclusively on the emergency manager statute to directly intervene in the affairs of local districts to address fiscal distress; now they have another tool at their disposal.

“It is unclear if Public Act 96 was intended as a “one off” policy response or if it will become a permanent tool used by state officials,” said Craig Thiel of CRC. “However, the adoption of a new school district dissolution policy signals that state officials are continuing to search for a policy solution to deal with financially failing school districts.”

CRC’s new report identifies many of the causes of school district fiscal distress and the state’s oversight role in preventing distress from occurring in the first place. Additionally, the report discusses the justifications for state intervention, along with the state’s traditional response when districts are unable to address their problems on their own.

The report also examines a number of issues, some previously not contemplated, associated with the state’s new authority to dissolve local school districts under Public Act 96, including: • the state’s departure from prior laws that require local voter approval to alter school district boundaries; • the differences between the new law and the emergency manager law for dealing with fiscal distress; • the provision of additional state resources to liquidate a dissolved school districts’ debts; and • the potential inequitable treatment of those responsible for paying the local 18-mill school operating tax. “Local school districts, as creatures of the state, require consistent and transparent policy guidance from the state government when it comes to confronting fiscal distress,” Thiel added. “The state’s ad hoc reaction for dealing with the unfortunate circumstances in the Buena Vista and Inkster school districts illustrates that state government lacks a uniform model that it will apply when school districts fail.”

The full report is available HERE.

 

 

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Recent Publications

School District Fiscal Health Improves, but Some Long-term Challenges Remain

2014 Update of the Outline of the Michigan Tax System

State Support of Nonpublic School Students

Reform of Michigan's Ballot Question Process

School District Dissolutions: Another Approach to Address Local School District Fiscal Distress

Medical Costs of No-fault Automobile Insurance

Michigan's Single-State Recession and Its Effects on Public Employment

Consolidation Issues Associated with the Proposed Merger of the City of the Village of Douglas and the City of Saugatuck

School Aid Budget: Will FY2014 Increases Be Sustainable in FY2015?

 

 

 

 

 

 

Last Updated July 29, 2014

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