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Chicago Fed Letter, No. 81, May 1994
School Reform and Tax Reform: A Successful Marriage?
Over the past year, the state of Michigan has profoundly changed the way in which the state's elementary and secondary schools are funded and, at the same time, fundamentally reformed the state's revenue system. With the passage of Senate Bill 1 during. the summer of 1993, the Michigan legislature effectively abolished the use of local property taxes as a primary funding mechanism for elementary and secondary education. In doing so, the state eliminated over $6 billion in locally imposed property taxes that would have provided more than 60% of the cost of the state's public elementary and secondary education. In its place, Michigan recently put together a blend of other tax sources including a statewide property tax and an increase in the sales tax. This new state tax structure is intended to enhance the state's competitiveness and environment for growth and investment. At the same time, the state has estaslished an entirely new system for distributing revenues for education that will reduce disparities between communities in per pupil spending.
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