centralization of school finance in michigan - cepa.pdfVIP

Centralization of Paul N. Courant School Finance Susanna Loeb in Michigan Abstract School finance reform in Michigan involved centralization (at the state level) of spending decisions about schools, a large tax shift (mostly from property to sales), and a small tax cut. The changes came about after two decades of failed attempts to reduce property taxes in the state, and were the immediate result of an unlikely piece of legislation that abolished all funding for public schools. Unlike most centralized systems, foundation grants in Michigan differ by district. Distributionally, the reforms favor residents of small, rural districts (whose spending was increased sharply). Residents of poorer urban areas, including Detroit, lost net income as a result of the reforms, as did residents of some of the richest suburbs in the state. Michigan permits a number of districts to supplement their foundation grants by limited amounts, a strategy that we argue may be a promising way of combining the efficiency benefits of local control with the equity benefits of foundation grant systems. INTRODUCTION Between the 1993–1994 school year and the 1994–1995 school year the financ- ing and fiscal autonomy of public schools in Michigan changed radically. The changes were of three types: The system became highly centralized at the state level. Except for in a small number of districts, local spending per pupil is now determined at the state level. Moreover, even where there is some remaining local autonomy, the state determines a maximum level of permitted spending. Those districts that spent the most before reform still spend the most. Local property taxes were sharply reduced, and a variety of state taxes (most notably the sales tax) were increased. The net effect was a tax re-