Snyder plan links road funding bump to school aid shift
Lansing — Michigan Gov. Rick Snyder is linking plans to boost road funding with a plan to shift money out of the School Aid Fund, frustrating public education groups who fought a similar effort two years ago.
Snyder wants to use $183 million in new online sales tax revenue to boost road funding, as The Detroit News reported last month. But in his lame-duck pitch to lawmakers, the term-limited governor is also proposing to use the School Aid Fund to pay out more than $500 million in income tax refunds.
The move would “correct the long-term accounting distortion” between the state’s general fund and the School Aid Fund, the Snyder administration said in an outline obtained by The News. It would not affect current-year school spending.
Roughly 24 percent of Michigan income tax revenues flow into the School Aid Fund, which is generally used to fund K-12 education. But income tax refunds are paid out exclusively through the General Fund, the state’s main pot of discretionary money.
Road funding and tax refunds are not directly related, but diverting the new online sales tax revenue would force lawmakers to open up the tax code. Snyder appears to be using the opportunity to address a longstanding budget concern.
Current law “unfairly” reduces General Fund revenue and increases School Aid Fund dollars, the administration said in its pitch, proposing to pay out tax refunds “in the same proportion as collected.”
Splitting up the source for tax refunds would cost the School Aid Fund about $504 million in the current fiscal year, but Snyder is proposing to "hold schools harmless" by cancelling a $500 million School Aid Fund appropriation for higher education, which would instead come out of the General Fund.
But that arrangement is not protected in the future, and mounting pressures on the state budget could prompt lawmakers to change course next year, said Peter Spadafore of the Michigan Association of Superintendents and Administrators.
“What they’re calling an accounting distortion is actually an intentional distribution of revenues to protect school funding from General Fund obligations like promises made in road funding packages, refunds and tax credits,” Spadafore said.
Snyder’s proposal wouldn't reduce school funding this year, “but at the end of the day, it’s still a raid on what’s supposed to be dedicated revenue for school funding,” he said.
It’s not yet clear whether Snyder’s plan will generate support in the Republican-led Legislature. With less than a month left in the governor's tenure, legislators could consider their own plans for a projected $204 million in new sales tax revenue the state will receive this year because of a recent U.S. Supreme Court ruling on internet purchases.
“I just talked to the Treasury about it yesterday, so I don’t know where that’s going to land,” said Senate Appropriations Chairman Dave Hildenbrand, R-Lowell. “I’m getting my arms around it.”
Dedicating new out-of-state internet sales tax revenues to roads and changing the way income tax refunds are paid "are not new positions from the administration. In fact, they have been long-held positions," Treasury Department spokesman Ron Leix said.
"With the number of active legislative days dwindling and both topics having commonalities, a combined proposal has been made to change the dedication to the School Aid Fund and General Fund," Leix said. "This will provide more money for roads, accelerating the phase-in of new road dollars. It also holds K-12 harmless."
Senate Minority Leader Jim Ananich, D-Flint, said he opposes the plan from Snyder, a certified public accountant, arguing it would be inappropriate to shift money out of the School Aid Fund "just because you want your account ledger to add up."
"I think this is just one of those cases where (Snyder) just can't take off the accountant hat, and he's not realizing what it's like to be a teacher or superintendent. Taking hundreds of millions out of the School Aid Fund when our schools are getting progressively worse every year, I think it's just the wrong thing to do."
Like his predecessor, Democratic Gov. Jennifer Granholm, Snyder's budgets have used the School Aid Fund to fund programs beyond K-12 schools, including $408 million the state would continue to spend this year on community colleges.
Democratic Gov.-elect Gretchen Whitmer has vowed to stop using School Aid Fund revenue to fund universities or community colleges but has not specified where she would find another $908 million to continue current funding levels.
Using the new online sales tax revenue on roads would already require a tax shift. The Michigan Constitution dictates how sales tax revenue is distributed and requires a majority go toward the School Aid Fund. Snyder wants lawmakers to divert an equivalent amount of income tax revenue to fund road repairs, minus $20 million in revenue-sharing payments for local governments.
The Tri-Counties Alliance for Public Education, a coalition of education leaders in Metro Detroit, opposed Snyder’s push to draw some tax refunds form the School Aid Fund in 2016.
“We’re keeping a close eye on it,” said Executive Director Bob McCann. Any changes to tax revenues devoted to schools “is certainly a red flag for public education everywhere. You’re talking about a pretty major shift.”