Gov. John Engler of Michigan gave municipal market officials a sales pitch yesterday for his plan to restructure and finance education in his state.

Speaking at a luncheon sponsored by the Municipal Forum of New York, the Republican governor said the plan he unveiled Oct. 5 would bring accountability to public schools in Michigan, reduce funding inequities among school districts, and provide a $4.3 billion net cut in property taxes.

After the Legislature cut more than $6 billion of operating property taxes for elementary and secondary schools as of July 1, 1994, Engler proposed a way to fund schools.

Specifically, he called for increasing sales and single business tax rates, imposing a real estate transfer tax, hiking the cigarette tax, instituting a new property tax on business and non-residential property, and eliminating about $774 million in state revenue sharing to local governments.

The result, Engler said, will be a $4,500 per pupil annual grant that students could use at any public school. Engler Administration officials have said that school choice would bring more competition to the school system, which in turn should produce better schools.

"The plan changes education forever," Engler said. "It empowers teachers, parents, and students."

Engler wants to place the financing plan on the Feb. 8 ballot in the form of a single constitutional question.

Even though rating agencies and municipal bond officials have voiced concerns about uncertainties created by the elimination of school operating property taxes, forum attendees did not question Engler about the plan.

After his speech however, Engler admitted that his plan still needs some selling to the Legislature. A two-thirds vote from lawmakers is needed to place the plan on the ballot. Engler said he expected his plan to be amended and that he is willing to look at alternatives to some of his school funding recommendations.

"I'll look at any reasonable alternative proposal that is put forth," he said.

Engler has already said he is willing to keep revenue sharing for cities after the governments protested the proposal. Nick Khouri, Michigan's deputy state treasurer, said the arrangement would allow cities to keep $250 million. However, Khouri said that some cities have changed their minds and support Engler's plan to replace lost revenue sharing with a set amount of property tax mills.

Officials in the Michigan Senate, which is controlled by Republicans, and the House, which is split between Republicans and Democrats, said that most of the bills should pass in committees this week and move to the two chambers' floors next week.

If the plan passes but voters reject the constitutional change in February, Engler said the state may have to revert to some form of property tax to raise money for schools.

"It's the only option we have, and it's not very appealing," Engler said.

At the luncheon meeting yesterday, Engler also announced that he signed into law on Tuesday measures repealing prohibitions on state investments in South African companies or in entities that do business in South Africa.

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