CHICAGO -- Gov. John Engler of Michigan yesterday signed into law a historic measure that eliminates the ability of school districts to levy certain property taxes.

The law wipes out $6.3 billion of property tax revenues for school districts' operating budgets, beginning next July 1, the start of fiscal 1995 for the districts.

Under the new law, property taxes will still be levied to pay off schools' unlimited tax general obligation bonds.

"Let's face it. What we've had in Michigan is a 19th-century system of education whose funding has been based on unfair property taxes, and whose class schedule has revolved around the harvest. It's time to leave that system behind," Engler said in a press release.

Engler did not propose any alternative funding sources after signing the bill, according to John Truscott, Engler's spokesman. Instead, Engler called on the Legislature to "reinvent" schools by transforming Michigan's education system in the next 100 days.

"Be prepared for stunning reform," Engler said. "This is an historic opportunity without parallel in recent Michigan memory. Our generation of leadership must rise to the challenge."

Truscott said state Treasurer Doug Roberts is heading a task force to study the quality of education, tax reform, and state and local cooperation. The task force is expected to draft a plan including financing options by mid-September.

Rating agency and public finance officials have raised concerns that the elimination of the property tax could impair both tax increment bonds supported in part by school taxes and limited tax general obligation bonds paid off with property tax revenues.

Moody's Investors Service has said that the ratings of 60 school districts in Michigan are at risk because of the new law, Standard & Poor's Corp. officials have said the effects on credits they rate will depend on what action the Legislature takes to replace the property tax funding.

Andi Brancato, spokeswoman for House co-speaker Curtis Hertel, D-Detroit, said that House Democrats have not proposed any alternative funding sources.

Hertel opposed the measure when it was a bill. Now that the bill has become law, he said in a press release, the quality of education must be lawmakers' primary focus.

"It is inevitable that this money is going to be replaced somehow. There are no free lunches in this world," Hertel said. "And because we know that the money will be replaced, our first concern must be to make sure we are spending it as wisely as possible."

Brancato said that a House Democratic task force plans hearings to discuss how the quality of education in the state can be improved.

State Sen. Debbie Stabenow, D-Lansing, who plans to run for governor in 1994, suggested several options to replace the $6.3 billion of operating tax revenues for local and secondary schools, including increases in state personal income and business taxes.

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