Projections Show Schools Get More Even With Road Funding Shift

State funding for public schools is projected to increase by $2.5 billion over the next eight years, even if a House GOP plan is adopted that would shift some sales tax revenue from schools to roads, according to a Mackinac Center for Public Policy analysis.

James Hohman, assistant director of fiscal policy for the Mackinac Center, projects that under the House-passed road plan, school funding will still increase from $11.5 billion in 2014 to $14.0 billion in 2023. Without the House plan, the School Aid Fund would increase to $14.9 billion by 2023.

The projections are based on an estimate of 2.8 percent average growth in state tax revenues earmarked to public schools over the next eight years. The figure comes from extending the shorter-term growth projections of the most recent state revenue estimating conference, which reflects the consensus view of the Department of Treasury and the legislative fiscal agencies, with input from University of Michigan economists.

“Economic growth matters,” Hohman said.

Media reports asserting the House road funding bills would cause Michigan’s public schools to lose money are misleading, he said.

The House package would gradually shift around $1 billion of state tax revenue to roads over six years, with no net tax increase (total state revenue is now about $30 billion, federal dollars excluded). Under House Bill 4539, fuel purchases would be exempt from the 6-percent state sales tax (none of which goes to roads). This is linked to HB 5477, which would increase the tax on gas and diesel fuel, and shift the levy to a wholesale tax rather than one imposed at the pump. The revenue shift would be phased in over six years, and would result in no net tax increase.

With the state experiencing an economic recovery, revenue from the state’s education property tax, sales tax and income tax are all increasing. Those taxes are major sources of school funding.

For example, sales tax revenue has increased from $6.09 billion in 2009 to $7.05 billion in 2013. Individual income tax revenue has increased from $5.86 billion in 2009 to $8.27 billion in 2013.

Much of that revenue flows through a state School Aid Fund. Nothing prohibits the Legislature from appropriating additional state tax revenue to schools, which it has done several times in recent years.

“Michigan is entering its fifth year of recovery and this means more revenue for the state budget,” Hohman said, adding that the GOP’s House package allows for both increased school and road funding without raising taxes.

A road funding plan passed by the Senate in November makes no changes to current revenue allocations, and would instead phase in a net fuel tax increase of around $1.2 billion annually.