New State Cuts Add to School Crisis
Gov. Jennifer Granholm’s decision on Monday to make additional cuts in state funding to some of Michigan’s school districts means an additional $3.7 million loss to the Ann Arbor Public Schools in its current fiscal year, which began July 1.
In addition to $165 per-pupil cuts that were already anticipated, Granholm vetoed a portion of a bill that specified school-aid payments to be made to the state’s “hold harmless” districts, one of which is AAPS. She vetoed that item in a comprehensive K-12 school-aid bill that she signed on Monday. The new cuts of $233 per pupil will take effect unless the state legislature overrides her veto.
AAPS superintendent Todd Roberts told The Chronicle this morning that combined with the previous $165 per-pupil cuts, the Ann Arbor district now must deal with a $6.4 million loss in funding for the current fiscal year. They’ll likely need to tap their $28 million fund equity – the equivalent of a district’s savings account – as well as make cuts to services, trying to identify those that will be the least disruptive to the schools, he said.
Roberts said that Monday’s action at the state level makes it even clearer for the need to take more local control of school funding – referring to a proposed countywide millage that’s on the Nov. 3 ballot. [See Chronicle coverage: "Does It Take a Millage?"] “If we’re going to rely on [the state], then shame on us,” he said.
The millage proposal calls for collecting 2 mills annually over a five-year period. If the millage is approved by voters, it would be included in the December 2009 tax bill, and available for schools in the current fiscal year, Roberts said. It would help, he said, but not totally cover the loss in state funding.
The millage would raise $30 million to be equally distributed on a per-pupil basis throughout each of the county’s 10 school districts. Because Ann Arbor is by far the largest district, AAPS would receive about $11 million annually.
Roberts said they hadn’t yet identified specific items to cut from the budget, noting that their situation isn’t as dire as some other districts in Michigan. He described what other school officials in the state are contemplating – scenarios that include eliminating transportation completely, or simply running current programs until funding runs out, then ending the school year early.
Districts also expect additional state cuts early next year, Roberts said, unless the legislature takes action “other than argue with each other.”
The districts being affected by Granholm’s veto are “hold harmless” districts, which were created by the passage of Proposal A in 1994. That ballot initiative was designed to create more equitable funding across all districts and to keep property taxes from escalating dramatically, but it also took away, to a significant degree, local control over school funding.
When Prop A took effect, these “hold harmless” districts were receiving revenues higher than a $6,500 per-pupil base level set by the state at that time. Rather than have their funding lowered, the “hold harmless” districts were allowed to levy an additional millage to make up the gap. For Ann Arbor, that amount is $1,234 per pupil, or 4.42 mills. (The millage rate varies depending on property values, in order to generate a fixed amount of $1,234 per pupil.) In addition, “hold harmless” districts also receive a line item known as 20J, which provides $233 in per-pupil funding – the amount vetoed by Granholm on Monday.
On Thursday, Oct. 22, the state announced additional $127 per-pupil cuts to K-12 schools, on top of the $165 per-pupil cuts previously announced, and the cuts to “hold harmless” districts described in this article.
A letter from the state treasurer, Robert Kleine, sent to state budget director Bob Emerson states that the decision to cut funding stems from a revenue shortfall in the School Aid Fund. [.PDF of letter]
A second letter, sent from Emerson to state legislators, states that these cuts will be made unless the legislature comes up with additional revenues for the School Aid Fund within 30 days. [.PDF of letter]
With roughly 16,500 students, the Ann Arbor Public Schools would lose an additional $2.1 million if the new cuts take effect.
Mary,
Here are some other numbers you have not mentioned. A 2 mill increase on a $200,000 home ($100,000 assessed value) results in a $200/year increase in taxes. In order to compensate a buy of said $200,000 dollar home; the seller would need to reduce the selling price of the home by about $2800 (assuming 6% interest rate) to keep the payment the same after the tax hike as before. Any tax hike of the millage rate in this environment will probably result in a long term reduction in property values but will produce an increase in revenues in the short run. What sustains tax rates is household incomes. If household incomes are dropping, increases in the millage rate will result in reductions in home values in order to compensate. If household incomes are rising, housing values will go up along with rising millage revenue.
to ChuckL
If I see your point correctly, you’re saying increasing the tax rate shrinks the tax base. Growth of the tax base generates more taxes. I’m sure there’s some truth to that, but..
I for one didn’t look at the tax rate and ask the seller to adjust their price based on that consideration. I looked at the house, bought it based on the 3 factors that are usually cited as key to a property’s value: location, location, location (yes, a very old joke, but it’s longevity comes from truth). For me, the house being near relatives, in a good neighborhood with a great set of schools, and within walking/biking distance of downtown were key factors.
I have to wonder how many people start with the factors you’ve looked at in your comment–or when/to what degree those factors enter into negotiations. If those factors are secondary to the ones that shaped my decision about a house, then the millage seems likely to support the property values you look to as the bottom line basis for school funding.
Steve H.,
Maybe you don’t look at how millage rates affect housing values, but the banks do. The amount of house you can afford, or the mortgage payment, is based on a percentage of your annual gross income (usually about 30%). The mortgage payment includes the property taxes; if the millage tax rate increases, less money is available to pay for the house. Less money to pay for the house means sellers have to lower their sale price. $2800 less on a $200,000 house is about 1.5% of the home value so it is hard to notice it on each transaction; you need to look at the affect across an entire community. Ypsi has a millage (average home value) rate of about 60 mills (120,000) and Ann Arbor’s is about 46 mills (178,000). Notice that the average home in Ypsi pays about $3600 while in Ann Arbor it is about $4100 per year.
Of course, that calculation presupposes that one will buy the biggest house that one qualifies for under lending guidelines. Isn’t that why this discussion is happening in the first place?
JCP2,
If some home buyer says, “I’m gonna buy a house at <= 75% of what the bank says I can buy…"; the same price lowering effect would work. Or, if someone says I will only spend 20% of my income; the price lowering effect would work.
If only the market were so rational…
JCP2,
If you look at my post #4, you will see data for the average price of homes plus millage rates in Ann Arbor and Ypsilanti. Sure enough, Ypsilanti has a higher millage rate and lower average home values.
I believe there are two, contradictory forces at work; downward price pressure brought about by the increase in the millage rate and upward pressure brought about by the value of the services paid for with the new revenue. Since the proposed millage is only to keep existing services and due to the fact Ann Arbor is a donating $5 of $16 million dollars outside the city; I expect most of the effect will result in a reduction of home values in the long run. There should be a transient step increase in revenue to the AAPS; but in the long run, some of this increase will be given back due to the lowering of home values.
Homes in Ypsilanti are worth less than those in Ann Arbor not because of the higher millage, but because they are in Ypsilanti. More specifically, homes in the AAPS carry a pricing premium because AAPS is perceived as being a better school district. For a comparison, take a look at pricing of houses outside of the City of Ann Arbor, but within the Carpenter draw area and compare them to similar homes in the next block that go to Ypsilanti Public Schools. Most of my Proposal A taxes don’t end up in Ann Arbor anyway.
JCP2,
There is another factor to point out here. Not voting for the 2 mill increase will, in relative terms, probably have zero impact on the relative advantage that Ann Arbor enjoys over Ypsilanti. In fact, if the Ypsi schools have to cut deeper, that would give a relative advantage to Ann Arbor. There seems to be this thinking that throwing money at the schools results in an automatic improvement in their value to the public. Maybe throwing money all the time simply encourages dysfunctional behaviors to arise; the schools never have to even ask let alone answer the tough questions that are inherent to funding priorities.
My position is that the value proposition is not there; vote this turkey down and let the WISD come back with a better proposal and we can have this discussion again. Taking money from people who are losing their homes and health care so people who want to keep theirs is not fair. If WISD wants to take money from the community, let’s make sure they will spend it well.