The property tax predicament.

• Author: Mackey, Scott

Property taxes, like the weather, always rouse complaints. But can states agree on alternatives to this stable source of school revenue?

When Michigan voters approved a March ballot measure to transfer more than $2 billion in school funding from the property tax to sales and other taxes, pundits predicted that the idea would spread across the country. After all, here was an opportunity to eliminate the hated school property tax and replace it with relatively benign sales and excise taxes.

It appeared that other states might quickly follow suit. Similar proposals emerged and passed at least one house in Colorado, Idaho, Vermont and Wisconsin.

But lawmakers quickly found out that replacing a major revenue source like the property tax raises some difficult questions and requires some difficult choices. As the 1994 sessions came to a close, none of these states had approved a major school finance restructuring like Michigan's although Wisconsin had boosted school funding substantially.

The issue is not dead. The coalition of conservatives who want to cut property taxes and liberals concerned about disparities between rich and poor school districts, instrumental in Michigan's reform, could emerge in other states to drive school finance and tax reform to the top of the 1995 legislative agenda.

However, intervening elections and the between session "cooling off" period will probably spark a more careful and critical review of the implications of shifting more school funding from local sources to states. Two key questions will frame the debate: 1) Can state government afford to commit more general revenue to schools and continue to provide the other services it currently provides, or will state spending cuts be necessary? 2) Will more state money mean less local control?

The School Finance Dilemma

The issues of local control and state funding are not new to the school finance debate. Back in the 1970s, there was widespread agreement that schools needed to be less dependent upon the property tax. States began a major push to boost state aid for elementary and secondary schools.

Even the federal government tried to get involved. In 1972, President Richard Nixon asked federal agencies to study "whether a federal value added tax is the best substitute for residential school property taxes" and "the best means of ensuring, under a system of school finance in which states have primary responsibility, that local school districts will be able to retain control of basic education decisions..." While the federal financing role never did expand significantly, the state share of K-12 funding grew from 40 percent in 1970 to 47 percent in 1979.

A new round of state funds was targeted for schools in the 1980s, both in response to school funding equity lawsuits and in support of the "school improvement" initiatives that came in the wake of the report, A Nation at Risk. But in many states these additional funds came with strings attached. And, rather than reducing property taxes, they sometimes required local schools to increase their own spending to meet new state requirements for such things as smaller class sizes and higher teachers' salaries.

New money has failed to stem the tide of equity lawsuits. Cases are still pending in 11 states. States like New Jersey and Texas that have changed their...