School Funding Discussion November 15, 2007

1. School Funding DiscussionNovember 15, 2007 Brighton Area Schools

2. Agenda • Proposal A • Before Proposal A, What Proposal A Established, and the Effect of Proposal A • Revenue Sources • State Level: School Aid Fund • Local Level: Typical Revenue Items • Foundation Allowance • Minimum & Maximum Trends • Hold-Harmless & Section 20j • Headlee Rollback • Current Issues

3. Pre-Proposal A • In 1963 the State Constitution reinforced the tradition of maintaining local control over schools and school financing. • Local elections set the millage rate for property tax that was the primary funding source for schools. • Michigan property owners were paying about 35% more than the national average to support their schools. • During the 1980’s and 1990’s large groups of citizens became increasingly active in reducing the amount of taxation on property owners. • Lawsuits were being won that claimed an inequity of funding to local schools – thus promoting discrimination in the educational opportunity for children because of the inability to raise operating funds. • In March of 1994 voters approved by a 2:1 margin what is now known as Proposal A.

4. Proposal A • The components of Proposal A • All property (homestead and non-homestead) is taxed at 6 mills. • Non-homestead property is taxed an additional 18 mills (for a total of 24 mills). • Cap on Taxable Value of 5% or the rate of inflation, whichever is less per year. • Sales tax was increased from 4% to 6%. • SEV goes from taxable value to true value when property is sold. • Local district can no longer request millage increases for operations (*). (*) Exception: Enhancement Mills. Educational Service Agencies may request the enhancement millage, which is up to 3 additional mills for operating purposes.

5. Effect of Proposal A • For 1994-1995 Proposal A established a minimum funding level across the State beginning at $4,200 per pupil. • Changed the method of funding for schools from a primarily property tax based system to one based on sales and income tax. This reduced the number of millage elections needed for operational dollars. • Attempted to address the equity and funding problems faced by many school districts. • Dedicated all or parts of certain taxes as being earmarked for education (2% increase in sales tax, 6-mill State Education tax, etc.) • Required school districts to take over responsibility for paying contributions to the retirement system and for social security where in the past the state paid most of these costs.

6. Effect of Proposal A • Limited ability of local schools to raise operating dollars. • Lowered property taxes for property owners. • Did not address issues such as Headlee Rollbacks on 18 mills. • Created cash flow issues due to the reliance on the new State payment system. • Did not address school districts needs in the areas of upgrading facilities.

7. Effect of Proposal A • Provides the State can roll student foundation grant back to 1994-1995 funding levels during bad economic times. • Provided for two student counts in a school year that are averaged to determine revenues. The current blended count is 25% of the February count (prior year) and 75% of the September count (current year).

8. State Aid Revenue Sources FY 2007-2008 Total Resources $12.8 Billion

9. Local District Revenue Sources • Common Revenue Sources: • Local – • Foundation Allowance (local portion) • Interest Income • Participation Fees • State – • Foundation Allowance (state portion) • Categorical Grants – At-Risk, Declining Enrollment, School Lunch, Middle School Math, Adult Education, School Readiness, Vocational Education • Federal – • Title I, Title II, School Food Services (breakfast, lunch, milk, fruits & vegetables, entitlement commodities), Vocational Education, Safe & Drug Free Schools • Other – • Educational Service Agency Transfers (special education and general education)

10. Foundation Allowance Trends Note/1: Districts with a per pupil foundation of less than $6,500 in FY 2002 received an equity payment per pupil equal to $6,500 minus their per pupil foundation. The per pupil equity payment was “rolled up” into the district’s per pupil foundation beginning in FY 2003. Note/2: If the minimum foundation was less than $5,170 the increase was to $5,170. Note/3: The Brighton Foundation was adjusted for the 2003 and 2004 pro-ration of state aid.

11. Hold-Harmless & Section 20j • An exception to the 18 mill operating tax limit is commonly referred to as a “hold-harmless” provision. • Of the 552 conventional public schools in Michigan, 51 are considered “hold-harmless districts.” • Those districts can levy a millage above the 18 mill operating tax because their district had 1995 per-pupil revenues that were higher than $6,500 (the millage must be approved by voters and is subject to headlee which will be discussed later).

12. Hold-Harmless & Section 20j • A qualifying district may levy a large enough homestead property tax millage to produce a total state and local revenue equal to the amount available to the district in 1995 (inflation adjustments are considered). • The effect is to allow a hold-harmless district to receive at least as much under Proposal A as it did before Proposal A. • The State’s contribution to the district’s foundation allowance is equal to the State maximum portion minus the district’s maximum possible per-pupil nonhomestead tax revenue. • Section 20j is a State funded categorical that ensures increases in per-pupil funding levels equal to the base foundation allowance (inflation adjustments are considered).

13. More Foundation Allowance Trends

14. Headlee Rollback • Article 9, Section 31 of the Michigan Constitution… stipulates that if the percentage increase in the assessed value of real and personal property in a taxing jurisdiction exceeds the inflation rate, the authorized property tax millage must be reduced to a level that would limit the annual increase in property tax revenue to the rate of inflation. • Calculated by the County Equalization Director & is automatic. • The “rollback” can be stopped by a majority vote of the qualified local electors to hold the tax rate constant. • The Headlee Amendment does not apply to the State Education Tax (6 mills).