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• Author: Weeks, Don
• Position: Michigan abolishes its property tax

As the Clinton administration draws national attention to its effort to reinvent government, Michigan gets national attention with its effort to reinvent education funding.

School bells across Michigan rang a S note of uncertainty this fall over how they will be funded next year. The Legislature, struggling unsuccessfully for years to lower property taxes, eliminated them completely as a funding source for school operations.

Within 24 hours, the Senate, followed by the House the next day, cut $6.9 billion in property tax revenue for schools. Now the Legislature is faced with the gigantic task of reinventing K-12 education. Regaining the revenue would require doubling the current 4.6 percent income tax and the 4 percent sales tax (which can be done only by constitutional amendment).

Governor John Engler signed the bill in front of Henry Ford's one-room schoolhouse, saying it was time the state renounce the antiquated system the Ford school represented.

Now comes the hard part. After decades of citizen and politician complaints about the unfairness of property taxes as a source of school funding, the Legislature must decide what kind of schools it wants and how it plans to fund them. And it must decide by the end of the year, unless lawmakers can muster the two-thirds vote required to give immediate effect to any financing plan passed in 1994.

The real rub is the Headlee Amendment. Under its provisions, the state can replace only $3.8 billion of the lost revenue. The Legislature could vote to give local governments the option of raising local property and/or income taxes, or instituting local sales taxes. Michigan has the lowest sales tax in the nation, when local options that exist in other states are taken into consideration.

The governor is reportedly considering a variety of options, including a sales tax increase (Michigan citizens rejected that most recently in June and on a number of earlier occasions). Another possibility is a hefty 4 percent real estate transfer tax. Today, the transfer tax in Michigan on a $100,000 home is $110; under the proposed tax it would be $4,000. This plan would raise $800 million in a year of average home and business sales. But Michigan, which has seen more turbulent economic times than most states, can't count on steady revenue with the cyclical automotive industry as its major economic underpinning.

Engler has also suggested allowing students to accumulate money not spent on their public schooling in a...