MSU School Finance Study Too Narrow to Support Tax Hike Recommendation

A widely publicized new study* by education policy analysts David Arsen and David N. Plank of Michigan State University recommends a 33 percent hike in the six-mill state school property tax, taking it up to eight mills. While the study usefully points out some problems related to the funding situation facing school districts with declining enrollments, and those with a high proportion of "high-cost" students, it falls far short of making a convincing case for raising taxes.

First, the picture it paints of overall school operations revenue since the 1994 Proposal A initiative is hardly bleak: "After adjusting for inflation, statewide per-pupil revenue increased by 13 percent between 1994 and 2002."

The report says very little about the billions of dollars-worth of new property taxes that have been imposed since 1994 for capital spending on schools. Is this important? According to a 2001 study commissioned by the Michigan Chamber Foundation, "Annual school building, site, debt, and sinking fund millage tax revenue have grown from $451.9 million in 1994 to almost $1 billion in 2000 — a 117 percent increase."

Therefore, based on the MSU study’s own findings, and a look at areas of school finance it did not examine, it is hard to conclude that Michigan school districts are on a starvation diet.

The second reason the MSU study’s evidence cannot support a tax hike recommendation is that it looks only at the revenue side of the school finance coin, ignoring the entire issue of school expenditures. To conclude that higher taxes are needed without asking whether current revenues are spent wisely is irresponsible. Indeed, there is plenty of evidence that schools are not getting maximum bang-for-the-buck on the expenditure side. Here are just a few examples:

• The Michigan Education Special Services Association (MESSA). Arsen and Plank note that "… a few key costs that school districts face are increasing faster than the rate of inflation, including expenses for employee health care and pensions." True, but they failed to ask why this is so. Part of the reason is that MESSA, an arm of the Michigan Education Association teachers union, administers the health insurance policies of most teachers. MESSA repackages Blue Cross/Blue Shield insurance, collects premiums, administers benefits — and tacks on a substantial fee for this service. The Mackinac Center for Public Policy has documented how one school district could save some $500 per employee with an equivalent non-MESSA policy. If schools provided coverage and terms common in the private sector (rather than the gold-plated MESSA package), they could save as much as 20 percent of their health care costs - possibly as much as $400 million a year.

• Michigan’s prevailing wage law. Michigan is one of 32 states with a so-called "prevailing wage" law that prohibits awarding any government construction contract to the contractor with the lowest bid unless the contractor also pays "prevailing wages," which are based on union pay scales. In recent years Michigan schools have been spending some $1.5 billion annually on construction, or close to $900 per pupil. Again, research by the Mackinac Center has found that the prevailing wage mandate increases construction costs by at least 10 percent. That means that without the law’s artificially inflated construction costs, schools could save at least $150 million annually.

• School lunch, janitorial, transportation and other support services. Many school districts have already started to nibble at the savings available from contracting out non-core functions such as food service, bus service, and maintenance. Much greater savings are available, but the MEA teachers’ union is kicking and screaming at every step. A recent issue of its monthly magazine was effectively dedicated to "fighting privatization." The Mackinac Center has documented many cases in which districts that do privatization right — write tight contracts, seek competitive bids, and closely monitor the performance of the contractor — save big.

These issues and many more make it hard to conclude that there is no fat in school budgets. The MSU study by Arsen and Plank looks only at the revenue side of the school finance equation, and only one portion of that. The study’s authors have assembled an array of useful data and offered a few reasonable recommendations. But given the narrowness of the study’s focus, their proposal for a statewide property tax hike is unjustified.

Note: Jack McHugh is manager of MichiganVotes.org, and legislative analyst for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich.

*"Michigan School Finance Under Proposal A — State Control, Local Consequences," by David Arsen and David N. Plank, The Education Policy Center, Michigan State University, November, 2003. http://www.epc.msu.edu/proposal.doc