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Lansing — Michigan Gov. Rick Snyder on Thursday evening abruptly dropped his lame-duck push to pay a portion of income tax refunds out of the School Aid Fund, backing off a plan that had infuriated K-12 advocates because of a potential $425 million shift in dedicated education funding.

The Detroit News first reported on the proposal Thursday afternoon. Three hours later, the administration said Snyder had decided against pursuing the idea any further this year.

“It’s not going to happen during lame-duck,” Snyder spokesman Ari Adler told The News. “The governor has asked for it to be held. It’s the right thing to do, but it’s not the right time to do it.”

Snyder is expected to continue discussing the proposal with legislators in the next two-year legislative session, which begins in January.

An executive outline obtained by The News shows the Republican governor promoted the plan as a way to create “equitability” in how the state collects income taxes and pays out refunds, but critics said it would jeopardize a “fair and consistent” stream of funding for K-12 schools.

Under current law, about 24 percent of all income tax collections are deposited into the School Aid Fund, but “when income tax refunds to taxpayers are made, the entire amount comes out of the general fund, creating unfairness between the two funds,” the Snyder administration said in a memo circulating this week in Lansing.

The state is projected to pay out $1.8 billion in income tax refunds in the current fiscal year, according to the non-partisan Senate Fiscal Agency. Drawing 24 percent of those refunds from the School Aid Fund starting Jan. 1, as Snyder proposed, would likely reduce fund revenue by about $425 million. The figure could top $446 million next fiscal year.

But officials were discussing the possibility of phasing in the income tax refund shift, minimizing the immediate impact on the School Aid Fund.

“I think this is something the governor and the Legislature are both looking at,” budget department spokesman Kurt Weiss said earlier Thursday. “It’s not just one-sided.”

One school group blasted the idea as a $300 per-pupil cut to public education.

“Gov. Snyder’s newly revealed proposal to siphon money from the School Aid Fund to bail out the state’s General Fund would threaten to weaken the quality of our children’s instruction, spark widespread teacher layoffs, increase class sizes and even force school closures,” said Mark Burton, executive director of the Tri-County Alliance.

The Snyder administration, in its memo shared with some legislators, stressed that the plan would “not translate into a reduction in school spending,” suggesting supplemental appropriations would be made to replace any lost School Aid funding.

“The governor expects to offer a budget that INCREASES per pupil expenditures in 2018,” the memo read, noting School Aid spending has increased significantly in recent years.

The new proposal had not been formally introduced. But with only three full days left in the lame-duck session, it was positioned to see quick action through a vehicle bill sitting in the Government Operations Committee chaired by Senate Majority Leader Arlan Meekhof, R-West Olive.

Meekhof spokeswoman Amber McCann confirmed Senate Republicans had talked about the plan.

“That is extremely concerning,” said state Rep. Adam Zemke, D-Ann Arbor.

Zemke suggested Republicans were considering the move because they have “over-committed with some of their promises,” including dedicated road funding and local reimbursements because of the phase-out of most personal property taxes.

“They’re going to have continued decreased revenue issues in the general fund, and I think they’re very nervous about it, quite frankly,” he said. “My argument is, find it somewhere else. Don’t take it away from schools.”

Recent economic projections suggest state revenue will continue to grow in coming years, but Weiss said there is some concern about long-term “spending pressures” associated with areas such as public safety and roads.

Sen. Dave Hildenbrand, R-Lowell, said he is interested in the concept. The state’s two major funds have been somewhat “fungible” in recent years, he said, noting Michigan has used School Aid dollars for higher education and the general fund to support schools.

The state is expected to spend $497.5 million in School Aid Fund dollars on post-secondary education in the current budget year, according to the Senate Fiscal Agency, and $219 million in general fund dollars supporting K-12.

“Money’s been transferred, and I think this gives this Legislature and any future Legislature more ability to move money around to reflect the priorities of the state,” he said. “I know the concern, but conceptually I like having that flexibility when you’re in the appropriations role.”

Annual K-12 appropriations have jumped roughly $1.5 billion since fiscal year 2011, according to the Senate Fiscal Agency. However, a good portion of that new money has gone toward teacher pensions rather than direct classroom funding.

Education groups said the Snyder administration’s promise to continue increasing School Aid spending despite a potential income tax refund shift is far from a long-term guarantee.

“The School Aid Fund was designed to ensure Michigan’s public schools receive a fair and consistent stream of funding — free from the many changing political interest found during the budgeting process,” the Michigan Association of School Administrators said in a policy brief.

“Altering this system is not in the best interest of Michigan students or teachers, and sets a poor precedent for future fund allocation.”

joosting@detroitnews.com

(517) 371-3661

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