Michigan lawmakers struggle to produce school funding plan by yearend deadline.

CHICAGO - Michigan lawmakers are down to the wire in crafting a plan to finance schools in the wake of a state law eliminating more than $6 billion of school operating property taxes next year.

State officials said yesterday that they were hopeful a compromise could be reached between differing House and Senate plans as early as last night. If not, they said the House and Senate would be back next week at the bargaining table.

Gov. John Engler has set a yearend deadline for devising a plan to replace property tax revenues for elementary and secondary schools. In July, the Legislature eliminated the tax in an attempt to bring long-sought property tax reform to Michigan, while leaving the property tax levy for school debt service intact.

"It's important that this deal gets done by the end of the year," said Nick Khouri, Michigan's chief deputy treasurer.

If a compromise cannot be reached this week, Khouri said the governor "will insist" the House and Senate reconvene next week. The Legislature must pass a school funding plan by Jan. 1; otherwise, a two-thirds vote of both chambers will be required to pass funding legislation. That would be tough in the House, which is split 55-to-55 between Republicans and Democrats, political observers said. for schools, which translates into annual per pupil grants of $4,800.

Major elements of the House plan, which would raise more than $10 billion for education, include raising the income tax to 6% and placing a 20-mill property tax on nonresidential property.

The Senate and House also passed backup plans that would fall into place if voters reject the sale tax increase. Under the Senate backup plan, existing school operating property taxes would stay in place and be cut by 20%. The difference would be made up by the cuts in the state's general fund, which would remain from the Senate's primary plan, said Jan Ellis, a spokeswoman for Senate majority leader Dick Posthumus, R-Alto.

The House backup plan would add a $16 million property tax on residential property to the 20-mill tax on nonresidential property, and increase the single business tax to 2.95% from 2.35%. The higher income tax of 6% would remain from the House's primary plan.

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