$1.3B spending deal shifts school aid to pay for roads, environmental cleanups

Sen. Jim Stamas, R-Midland, left, confers with Sen. Rick Jones, R-Grand Ledge, during a busy evening Thursday as the senate considers a fIurry of bills on what should be the last day of the "lame duck" session.

Lansing — Michigan would use new online sales tax revenue for road repairs instead of K-12 schools under a $1.3 billion lame-duck supplemental spending plan backed by GOP Gov. Rick Snyder that relies on a funding shift derided by public education groups. 

Michigan's Republican-led House approved the spending plan at around 4:45 a.m. Friday, working through the night after approving enabling legislation to reduce the percentage of income tax collections devoted to the School Aid Fund, the main source of state money for K-12 public schools. 

The plan would divert $141 million from the School Aid Fund this year and $173.8 million in future years, offsetting additional sales tax collections projected to flow into the fund as the result of a recent Supreme Court ruling on internet commerce.

The shift, first approved by the Senate late Thursday, paved the way for Snyder's push to use the new tax revenue for road repairs, pumping an extra $114 million into the effort this year and $143 million next year. 

The legislation also earmarks $69 million a year in income tax collections for environmental cleanup efforts as part of the larger spending agreement Snyder struck with legislative leaders. The Senate is expected to vote on the spending plan later Friday morning before adjourning for the year.

Schools are ultimately "held harmless" in the deal, said Amber McCann, a spokeswoman for Senate Republicans. But Democrats blasted the income tax diversion, which Rep. Christine Greig of Farmington Hills called a "shell game" that "robs us of the ability to make the investments we need in our schools and the investments that our voters intended."

The $1.3 billion spending plan is significantly larger than the $630 million version Snyder requested last month, a jump Budget Department spokesman Kurt Weiss attributed to a surge in federal match dollars for health and human service programs. 

Spending bump

While they opposed the School Aid Fund shift, many House Democrats voted for the larger spending plan after winning an amendment to allow $40 million in bonding for a "Heritage Hall" addition to the Michigan Capitol. The 54,000-square-foot facility would include an auditorium and conference room with space for visitors, gatherings and dining.

The spending plan also includes $115.5 million for 74 specific "enhancement grants," which typically facilitate pet projects requested by individual lawmakers, including $5 million for Muskegon Lake cleanup, $5 million for upgrades to the Gerald R. Ford Airport in Grand Rapids, $3 million for a Macomb County retention basin and $1.3 million for the Lowell Showboat.

The bills calls for $19.4 million in new spending to  fight PFAS “forever chemicals” that have now been identified in at least 113 official and pending sites across the state, according to the non-partisan House Fiscal Agency. The state would also spend an $15 million to hire 175 new Child Protective Services case workers following a scathing audit that uncovered significant flaws in child abuse complaint responses. 

The Senate would get $18 million to purchase a parking structure it is currently renting to add spaces for legislators, staff and other permitted users.  There is an additional $10.4 million for the Legislature cover increased cost for staffing and operations, including ongoing legal costs.

The state would deposit another $100 million into its so-called “rainy day” piggy bank, bringing the balance of the Budget Stabilization Fund to $1.152 billion by the end of the fiscal year.

The plan also includes $52 million in state spending to help spur what could be $922 million in federal upgrades for the Soo Locks in the Upper Peninsula, along with $8 million towards a $275 million federal invasive carp barrier project at the Brandon Road Lock Dam in Illinois. There is also $10 million for sexual assault victim assistance grants, $5.9 million to add staff at the state’s Caro Mental Health Center and $7.1 million for Hepatitis A outbreak response.

The agreement would earmark $69 million a year in income tax revenue for environmental cleanups. The annual appropriation would replace depleted bond funding, a top goal for Snyder as he prepares to leave office Jan. 1.

The "Renew Michigan Fund" would be used to clean up and redevelop hazardous waste sites, funding landfill oversight and boost recycling efforts. Snyder had initially proposed paying for those efforts by raising trash dumping landfill fees, but GOP lawmakers balked at that plan.

A separate education spending bill approved by the House in a 96-11 vote includes $31.3 million for mental health support services, $18 million in additional funding for districts with fluctuating numbers of at-risk pupils and $1.5 million for early literacy initiatives.

School Aid shift

The School Aid Fund shift, facilitated by separate legislation, divided lawmakers. An amendment from House Republicans would temporarily halt the diversion in any year that lawmakers vote to reduce the minimum foundation allowance below 2018 levels, but only through 2022.  The change did little to appease critics, who argued any new revenue from online sales should stay in the School Aid Fund, where it would end up under current law. 

“Every superintendent in Michigan has been forced to work within the ‘do more with less’ model of school administration over the last many years, but I certainly doubt any of us expected to be told we now have to pay to fix Michigan’s roads at the expense of our classrooms as well,”said Mark Greathead, superintendent of Woodhaven-Brownstown Schools and vice president of the Tri-County Alliance for Public Education.

McCann acknowledged concerns by public education groups but reiterated there is "no reduction" in school funding under the deal.  

"I understand that they would like us to leave the stream untouched," she said late Thursday after Senate approval, "but (Majority Leader Arlan Meekhof) has agreed ... that we want to create a source for the governor to fund his priorities."

Sen. Pat Colbeck, R-Canton, is stocked up with popcorn, but holds his head in his hands, facing a long night Thursday in the  Michigan senate.

House Democrats projected the plan will divert $10.6 million in funding that could have otherwise gone to Detroit Public Schools, $5.8 million for Utica Community Schools, $3.7 million for Ann Arbor Schools and $3.7 million for Plymouth-Canton Community Schools.

Schools have foregone revenues for years, but the moment they have the opportunity for increased funds for students the chance is taken away, said Democratic Rep. Donna Lasinski of Scio Township. 

"We're choosing to play games," Lasinski said. "We're choosing to pit our children's futures against the grasping of many hands."

Senate Republicans countered by circulating a handout showing that total K-12 funding has risen 20.4 percent since 2011 while the statewide pupil count has fallen 6.3 percent. The totals include increased state spending to help cover teacher retirement costs.

Michigan per-pupil school funding fell in Snyder’s first budget but has increased each year since. The minimum state allowance of $7,871 is up from $7,316 in 2011, but public education groups say those incremental increases have not kept up with inflation.

A 2016 “adequacy” study commissioned by the state — but questioned by GOP lawmakers — concluded that Michigan’s most successful schools were spending $8,667 per student, a figure researchers called a baseline for “what it might take all districts to succeed.”

Snyder's budgets have also consistently used the School Aid Fund to finance universities, including $900 million in the current year. The practice started under Democratic Gov. Jennifer Granholm but is opposed by Democratic Gov.-elect Gretchen Whitmer.

Sponsor opposition

State Rep. Martin Howrylak, a Troy Republican who introduced the initial legislation that was heavily modified Thursday, asked to have his name stricken as a sponsor after Senate Republicans added the School Aid Fund shift to his bill. 

As a CPA, Howrylak said he was concerned about the "fuzzy math," unintended consequences and the effect changing the income tax rate would have on the School Aid allocation.

"I didn’t know anything about this until I got wind of it on Tuesday," Howrylak said. "It's interesting to have your bill get hijacked in the Senate.”

The administration and legislative leaders reached tentative agreement on the supplemental spending plan Wednesday night but did not release any details Thursday and there was no public hearing on the budget bill. Details emerged around 3 a.m. Friday

Budget Director John Walsh sent lawmakers a Dec. 10 letter outlining $98 million in "lapsed funding" that was not spent in 2018. The state is also projecting $203 million in new revenue this year as a result of the Supreme Court’s South Dakota v. Wayfair decision on online sales.

The Michigan Treasury Department in October began requiring all online and mail-order retailers to pay the state’s 6 percent sales tax on any transactions and taxable sales. Previously, Michigan had only been able to require collection by sellers with a physical presence here.  

While the Michigan Constitution dictates how sales tax revenue is distributed and requires a majority go toward the School Aid Fund, the spending plan would effectively divert a similar amount of income tax revenue to fund road repairs, minus $20 million in revenue sharing payments for local governments.