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Keep an Eye on the State Budget and School Aid Revenues

By Aaron Keel, MASB Assistant Director of Government Relations

Jennifer Smith

and Jennifer Smith, MASB Director of Government Relations

DashBoard, Nov. 4, 2015

Last session, seven new laws were signed into effect that totaled more than $160 million in cuts to School Aid Fund revenue. There were 13 other laws signed last year that each had an indeterminate negative affect on local property tax and SAF revenue.

This session, House committees alone have passed several bills that cut at least $46 million annually and six others for which the negative effect is indeterminate.

Last week, the House Committee on Tax Policy continued this dangerous trend of disinvestment by passing House Bill 4645, which would exempt the transfer of residential property from the “pop-up” tax if it is being transferred between a  limited liability corporation and a party related to at least one member of the LLC. This bill would have an adverse effect on property tax collections at the local level, and subsequently, negatively affect the SAF.

While each of these bills may only cause a small decrease in local property taxes, when added to the many other policies passed in recent years, revenue streams to the School Aid Fund and local schools continue to be eroded.

Further, if we look at the larger budget picture, these cuts come during a time when the Legislature has approved setting aside $600 million from the General Fund to pay for a roads fix; the Governor is asking for $715 million for Detroit Public Schools; and Medicare is facing a $1 billion shortfall by 2018 to keep Michigan families healthy and insured. Additionally, the Legislature is considering rolling back state revenue by another $200 million annually through expanded tax credits and an income tax rollback that are included as part of the House’s road plan.

While you may hear rhetoric from Lansing legislators indicating they do not intend to use any SAF money to cover these cuts and expenses, because our Constitution expressly prohibits it, there comes a time when we must ask ourselves: how are we going to pay for all of this?

MASB is particularly concerned about the larger budget picture because SAF revenue is used for portions of the Higher Education and Community College budgets. However, the majority of their budgets come from the General Fund—the same fund that is simultaneously taking all of these cuts and being asked to pay for more at the same time. The current Higher Education Budget is more than $1 billion with $200 million coming from the SAF. As pressures on the General Fund increase, more money could be used from the SAF for higher education. One of the key provisions of the failed Proposal 1 would have constitutionally prohibited the use of SAF for higher education, thereby solving this issue.

While some will argue schools will be held harmless in these ongoing debates, we must keep a watchful eye on shifting pots of money and additional cuts that are happening at the local level. Basic arithmetic demonstrates that you cannot increase expenses and continually reduce revenue and still maintain a balanced budget. This trend of disinvestment at the local and state levels, with potentially more cuts to come, is dangerous for the long-term sustainability of our schools.

We need to be serious about protecting the SAF from cuts at the local and state levels. Let your legislator know you are watching and tell him/her to protect the School Aid Fund and its current revenue streams.

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