Clock starts ticking on School Aid cuts

Gov. Granholm made it official – aid to school districts will be cut by June 1st unless the Legislature acts. Speaking to the news media, the governor reiterated her frustration with the Legislature’s inaction. “Nobody is more frustrated than I am,” she said. “The Legislature has not filled that hole. The clock starts ticking today.” If other funds are not found, the cuts would amount to approximately $122 per pupil taken out of school districts’ final aid payments, and a further $8 million in cuts to intermediate school districts.

Under current law, aid to school systems must be cut if tax revenues earmarked for the state School Aid Fund are lower than expected. Once the Legislature is formally notified of a shortfall – which is happening now – lawmakers have 30 days to find an alternative to avoid automatic cuts. Even after the accounting changes and smaller cuts signed into law today (SB 221 as amended in the House), the executive’s latest figures show an estimated $213 million school aid deficit remaining. State Treasurer Robert Kleine reported that sales tax revenues, which provide the bulk of School Aid Fund revenues, have been about $20 million less than projected each month since January.

Options for closing the deficit for this fiscal year with new revenues are narrowing. A tax on services, such as the governor proposed in January, could not be implemented until August even were it passed this week, Mr Kleine said. That would only give it two months in this fiscal year to collect revenue. Another alternative, an increase in the state income tax, could be made retroactive to the beginning of the year, he noted. One option apparently being discussed by legislators is a temporary income tax increase, followed by a ballot proposal that gives the public the choice between an increased sales and/or services tax or making the higher income tax permanent. This structure echoes Proposal A in 1994, in which citizens were asked to choose between an increase in the sales tax to support schools and a higher income tax.

State school Superintendent Mike Flanagan reported that about 30 districts across the state were already operating with a deficit, and that the proposed cuts would push between 30 and 70 more into deficit spending. Another 100 or more would face cash-flow crunches before aid payments resumed in October, Mr Flanagan said.

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Picture mixed on revenues; public wants cuts mixed with taxes

Mixed news on tax collections
Estimates released by the Senate Fiscal Agency indicate that tax collections for April were above those of the same month one year ago. Unfortunately, some of that bump was caused by the timing of payments, which placed more key tax payments in the month of April this year. Officials expect that tax collections for May will be below those of a year ago, and nearly all observers expect the May revenue estimation conference to find that the overall budget deficit has worsened considerably since the last projections were made in January.

Public still leery of tax increases
An EPIC/MRI poll conducted for the Detroit News at the end of April indicates that most Michiganders do not want to hear about tax increases. Though the vast majority of respondents acknowledged that the state was in a fiscal crisis, once reminded about a potential $1 billion deficit, fourteen percent clung to the notion that things were not so bad. Poll results showed little enthusiasm for tax increases, though 60% agreed that a mix of budget cuts and tax increases should be used to close the deficit. Twenty three percent insisted that the budget should be balanced through cuts alone.

When faced with a choice between extending the 6% sales tax to some consumer services, or increasing the income tax rate by a percentage point (from the current 3.9% to 4.9%), respondents leaned strongly toward the sales tax option – 51% to 30%. About half of respondents said that they would not hold a vote for tax increases against their representatives in the Legislature.

Margin of error for the poll was plus or minus 4%.