CHICAGO - Michigan lawmakers are considering a plan to divert $900 million of revenue sharing and other state funds, now slated for local government units, to primary and secondary schools to help alleviate the loss of revenues caused by the elimination of school operating property taxes next year.

Under the plan unveiled last month by Senate Majority Floor Leader Phil Arthurhultz, R-Whitehall, most of the $900 million would come from cutting about $616 million of state revenue sharing raised from income, intangibles, and single business taxes from local governments. The remainder would come from eliminating various state grants that go to local governments.

The $900 million would be used to help fill the $6 billion school funding gap that resulted this summer when the legislature eliminated the use of property taxes to fund school operations beginning July 1, 1994.

Under his plan, Arthurhultz said local governments would get replacement revenues from so-called charter property tax mills levied by the counties that would no longer be used by school districts.

Arthurhultz said that 78 out of the state's 83 counties would break even or gain revenue under his plan. Of the five counties that would lose money - Baraga, Keweennaw, Luce, St. Clair, and Wayne - Wayne would be the hardest hit. Governments in Wayne County would lose $319 million under the plan, including a $211 million drop in state funding for Detroit.

Replacement revenues from the school millage would return only $49 million to Detroit and $107 million to the rest of Wayne county, Arthurhultz said.

Arthurhultz would raise the rest of the $6 billion for schools by closing income tax loopholes, raising the cigarette tax and taxing smokeless tobacco, instituting an interstate telephone tax, and capturing about $940 million in state revenue growth in fiscal 1994 and 1995.

Arthurhultz said he plans to introduce legislation on Sept. 21, weeks before a special task force created by Gov. John Engler is scheduled to present a plan to finance and reshape Michigan's school system. The senator said he is pushing his plan early to alert people that the state can raise enough money for schools without increasing or expanding the state sales tax, raising the state income tax, instituting a statewide property tax, or making "huge" cuts in state government.

Nick Khouri, the state's chief deputy treasurer and a member of the task force, said that "all options" for raising $6 billion for schools are on the table. He said that the Engler administration should have a school funding plan by next month.

Both Engler, a Republican, and State Sen. Debbie Stabenow, D-Lansing, the lawmaker and Democratic candidate for governor who introduced the bill eliminating school operating property taxes, have called for a yearend deadline to come up with a funding plan for schools.

Arthurhultz's plan has drawn criticism from Democratic lawmakers in the House. House Co-speaker Curtis Hertel, D-Detroit, said the plan would create "a nearly impossible burden for most cities," including Detroit.

"When they are facing other serious financial crises of their own, I don't know how we can ask our cities to come up with millions of dollars to make up this difference," Hertel said in a press release.

Officials from Detroit did not return phone calls.

Meanwhile, the law that eliminated school operating property taxes next year caused Engler's plan for a two-year budget to be scrapped. In March, the governor had proposed the first two-year state budget since 1945.

Patti Woodworth, the state's budget director, said that because school funding is "a big part" of the state's budget, the administration wants to devise a solution for replacing school property taxes before lawmakers vote on a fiscal 1995 budget.

The legislature last week passed most of the $7.9 billion general fund budget for fiscal 1994, which begins Oct. 1. Woodworth said that the 13 budget bills passed so far "are very close" to the budget recommendations Engler made in March, and that the three remaining bills are expected to be passed, Sept. 21 when the House and Senate convene.

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