CHICAGO -- A teachers union in Michigan has filed suit to force the state to devise an immediate plan to replace $6 billion in property tax revenues to school districts that was eliminated by a bill signed into law last week by Gov. John Engler.
The complaint was filed last Thursday in Wayne County Circuit Court by the Michigan Federation of Teachers and School Related Personnel, which represents more than 25,000 school employees, and parents of children who attend schools in Taylor and Dearborn, two communities southwest of Detroit.
The suit alleges that the law eliminating school operating property taxes "makes it impossible for school districts to operate after July 1, 1994" and "will impair the operation of some districts before that date."
The law, approved by the Michigan Legislature last month, wipes out about $6 billion in property tax revenues for elementary and secondary school districts beginning July 1, the starting date of fiscal 1995 for the districts. However, the law leaves intact school property tax levies for debt service on unlimited tax general obligation bonds.
Engler and State Sen. Debbie Stabenow, D-Lansing, the lawmaker and Democratic Party candidate for governor who introduced the bill, have called for a yearend deadline for the legislature to plan how to fund the schools.
Mark Cousens, attorney for the federation and parents, said the complaint asks the court to take jurisdiction over the school funding matter and force the state to somehow replace all the revenues that the schools will lose through the elimination of operating property taxes.
"At the moment, there is absolutely no guarantee the state will raise any revenues, only promises," Cousens said. "December 31 could come and go, and we'll have no replacement revenues."
Chris DeWitt, a spokesman for the Michigan Attorney General's Office, said yesterday that the office has just received the suit.
"We are reviewing the complaint and will take the appropriate action," he said.
The complaint points out that if the state misses the yearend deadline, school districts like those in Dearborn and Taylor could be hindered in their ability to issue tax anticipation notes next spring because the notes are secured with future property tax revenues.
Dan Mytty, supervisor of accounting services for the Dearborn district, said the district on its own has sold $14.7 million of Tans through the Michigan Municipal Bond Authority since 1990 and recently sold $30 million of Tans that mature in March.
"I guess we will have problems next spring if we do have to borrow, and there is no funding mechanism in place," he said.
Sarah Eubanks, executive director of the municipal bond authority, agreed that there would be a problem for school districts that want to access the authority's spring Tans pool for schools if no revenue source is identified to secure the debt.
"It is a problem, and the administration is aware there is this spring crunch [for school districts]," Eubanks said. "That's all the more reason to get a plan in place by the end of December."
She added that the authority issued $20 million to $25 million of Tans in May and another $175 million of Tans in July for about 100 school districts.
Rating agency officials said that without a revenue source, schools would not be able to issue the short-term debt.
"If the authority is not there [to levy taxes], they can't borrow against it," said Charles Kishpaugh, an assistant vice president in the Great Lakes region at Moody's Investors Service.
Moody's has said the ratings of 60 school districts in Michigan are at risk because of the law.
Joe O'Keefe, a director at Standard & Poor's Corp., said the agency is waiting to see the plan the administration develops, its likelihood of passage by the legislature , and its potential impact on local governments.
Cousens said rating agency concerns are "one of the elements of proof" that the intends to present to the court for the case and that he will "probably have someone from Moody's in court or [submit a deposition]."
Kishpaugh declined to comment on that possibility.
Bobbie McKennon, a spokeswoman for State Treasurer Doug Roberts, said Roberts will head up a working group for the governor to come up with a school financing plan by mid-October.