The Effects of Selected Tax Reform and School Finance Proposals on the Equalizing Tendencies of State Aid to Michigan Public School Districts
Authors:   ,   Andrews University, Hildebrand Dorothy 
Published: June 2023

Problem. The purpose of this study was to determine the effects selected tax reform and school finance proposals would have on the equalizing tendencies of state aid to Michigan school districts. The study focused on nine finance revisions as follows: The Tisch proposal which would make 50 percent cuts in all real property values; the Siljander proposal which would make 60 percent cuts in the value of some classifications of real property; two variations of the Tisch and Siljander proposals which would specify even larger reductions in property values than the original proposals; two variations of the Siljander proposal which would place ceilings on the amount of eligible state aid; and three alternative proposals which would not affect property values but would call for slight dollar increases in the state aid guarantee formula and/or removal of any designated mill-ceiling on state aid. Data Collection, Methods, and Procedures. Data were collected for 530 school districts representing 99.8 percent of all public school students in grades K-12 in the State of Michigan for the 1977-78 school year. Included for each school district was the tax rate and local per-pupil revenues; the total number of pupils; the state equalized valuations (S.E.V.) per pupil for each political subdivision (township, village, city) within each school district; and the amount of per-pupil state aid (apportionment) paid to each school district. Additionally, the amount of assessed property values by property classification for each of 1,783 political subdivisions in the State of Michigan for 1977 was acquired. The data collected for school systems and the data concerning property valuations were combined to reflect the property classifications within each school district. Subsequently, a computer simulation was performed applying each of nine finance revision schemes to the 1977-78 data. The r4elationship between state equalized valuations of property and state aid per pupil was determined by computing a Person product-moment-correlation coefficient for the 1977-78 data and each of the nine proposals being investigated to determine equalizing tendencies. A test of the difference between correlation coefficients from two independent samples was performed to determine statistical significance of each analysis compared to 1977-78 data. A power analysis of each proposal was performed to determine effect size and practical significance. Major Findings. The Tisch and Siljander proposals would significantly reduce the equalizing effects of state aid to Michigan schools. Two variations of the Siljander proposal which specified a ceiling on the amount of eligible state aid were not significantly different from the 1977-78 finance method and could be substituted without changing the equalizing effects of state aid. At the same time, property tax reduction could be achieved. No improvement in the equalizing effects of state aid to Michigan schools would be realized by adoption of any of the nine finance revision plans analyzed. Conclusions. Plans to reduce property taxes and make up for lost revenues by state sources decrease the equalizing effects of state aid except that shifts away from the property tax to other revenues can be carried out without damage to equalization if there is a ceiling on the amount of state aid permitted to the local school district. It appears that the larger the reduction in assessed valuations, the more damage that is done insofar as equalizing effects of state aid are concerned when the state makes up for lost revenues. Slight increases in the amount of state aid guaranteed in an equal yield formula does not improve equalization. Removing the ceiling on the number of mills eligible for state aid in a guaranteed equal yield formula does not result in improved equalizing tendencies of state aid. The utilization of computer simulation is a valuable tool in decision making.