The author wishes to thank Charlie Toulmin at the Wisconsin Department of Public Instruction for providing information and assistance. Word-processing was performed by Pam Yeomans, Human Service and Education Unit Secretary.

INTRODUCTION

PART I: EXPLANATION

    Article VIII, Sec. 2 2

    Article VIII, Sec. 10 5

PART II: FISCAL IMPLICATIONS

    Assumptions

    Qualifying Districts and Graduation Rates

    Value of the Voucher

    Migration of Public Schools Students to Private Schools & Private School Participation

    Data and Methodology

    Cost Estimate

    Funding Source

CONCLUSION

On July 31, 1999, the advocacy group Kids First! Yes! filed with the Secretary of State's office an initiative petition that would amend the Constitution, if adopted by the voters of Michigan. The amendment would alter Article VIII, Section 2 and would create Section 10 within Article VIII. Essentially, this amendment would permit the use of vouchers and other forms of State aid to pay for nonpublic education. The amendment also would require regular teacher testing, and would guarantee a per-pupil funding level. Kids First! Yes! has until July 10, 2000, to submit 302,711 valid signatures collected within a six-month time frame prior to submission.

Part I of this Issue Paper states relevant current law (where it exists), details proposed changes and additions, and attempts to explain the implications of each part of the initiative. Part II contains a fiscal impact analysis of the voucher portion of the measure.

PART I: EXPLANATION
 
 

Paragraph 1: Current Law

The legislature shall maintain and support a system of free public elementary and secondary schools as defined by law. Every school district shall provide for the education of its pupils without discrimination as to religion, creed, race, color or national origin.

Paragraph 1: Proposed

Same as Current Law

Implications of Above

None

Paragraph 2: Current Law

No public monies or property shall be appropriated or paid or any public credit utilized, by the legislature or any other political subdivision or agency of the state directly or indirectly to aid or maintain any private, denominational or other nonpublic, pre-elementary, elementary, or secondary school. No payment, credit, tax benefit, exemption or deductions, tuition voucher, subsidy, grant or loan of public monies or property shall be provided, directly or indirectly, to support the attendance of any student or the employment of any person at any such nonpublic school or at any location or institution where instruction is offered in whole or in part to such nonpublic school students. The legislature may provide for the transportation of students to and from any school.

Paragraph 2: Proposed

No public monies or property shall be appropriated or paid or any public credit utilized, by the legislature or any other political subdivision or agency of the state directly to aid or maintain any private, denominational or other nonpublic, pre-elementary, elementary, or secondary school. The legislature may provide for the transportation of students to and from any school.

Implications of Above

The proposed changes in the second paragraph are at the heart of allowing nonpublic schools to receive State aid. The key modification here is the removal of the "or indirectly" clause currently in the Constitution. The removal of this clause would allow for aid to be provided to nonpublic schools via an indirect route.

The proposed amendment also would remove the language detailing what types of aid cannot be provided to support the attendance of any student at a nonpublic school. Currently, Article VIII, Sec. 2 prohibits "payment, credit, tax benefit, exemption or deductions, tuition voucher, subsidy, grant or loan of public monies or property" to be used to support pupils in nonpublic schools. If this amendment to the Constitution were adopted, it would be possible to go beyond the voucher program proposed in the amendment. In other words, by removing the prohibition against these forms of aid, the amendment would permit the enactment of legislation allowing for tax credits, subsidies, grants or other forms of aid to be paid to families to support nonpublic schooling, without further amending the Constitution.

Paragraph 3: Proposed

Subject to the provisions of section 4 of article I, the legislature shall provide for regular testing of the knowledge in academic subjects of teachers in public schools and in nonpublic schools which redeem tuition vouchers under this section.⁽²⁾

Implications of Above

The creation of the third paragraph of Article VIII, Sec. 2 would mandate teacher testing at "regular" intervals. Teachers in all public schools and teachers in those nonpublic schools redeeming vouchers would be tested for knowledge in "academic subjects". The Legislature would have to provide for the testing program, and a determination of "academic subjects" would have to be made.

Paragraph 4: Proposed

Subject to the provisions of section 10, under procedures established by law, qualified school districts and any other approving school district shall participate in an educational choice program to permit any pupil resident in the district to receive a voucher for actual elementary and secondary school tuition to attend a nonpublic elementary or secondary school.

Implications of Above

This paragraph would require "qualified" and "approving" school districts (defined in Sec. 10) to participate in educational choice programs where any pupils who were residents in these districts would receive upon request vouchers to attend nonpublic schools. The request would be made to the resident public school district.

Paragraph 5: Proposed

Beginning in the 2001-2002 state fiscal year, the state shall guarantee that the total state and local per pupil revenue for school operating purposes for each local school district, as adjusted for consolidations, annexations, and boundary changes, shall not be less than in the 2000-2001 state fiscal year; provided the school district does not levy a millage rate for school district operating purposes less than it levied in 2000.

Implications of Above

This paragraph mirrors a guarantee currently in the Constitution, Article IX, Sec. 11, that requires the State to guarantee that the total State and local per pupil revenue for school operating purposes in each district not be less in 1995-96 and thereafter compared with 1994-95 levels. The term "school operating purposes" is not defined either in the Constitution or in the proposal. However, on October 19, 1999, in the case commonly referred to as Durant II, the Michigan Court of Appeals opined, "The per pupil funds guaranteed by Art. 9, §11 are commonly referred to as the 'foundation allowance'." If the Legislature, in implementing this proposal, were to follow the Court's definition, then the per pupil funding guarantee offered in the measure would be based upon foundation allowances as determined by Sec. 20 of the State School Aid Act.

This proposed paragraph, then, would require that per pupil State and local revenue for operating purposes calculated every year after 2000-2001 not fall below that amount received in 2000-2001. This is not a total funding guarantee, meaning that if 5% of a "qualified" or "approving" district's pupils migrated to nonpublic schools through the voucher program, then the total State Aid foundation allowance funding to the district would fall by 5%, and the district would lose categorical aid linked to those students using vouchers. Again, this proposal would guarantee a per-pupil funding level, not a total funding level.

Paragraph 1: Proposed

The tuition voucher established in section 2 shall be limited to the lesser of one-half the average per-pupil state and local revenue for operating purposes in public schools in the preceding fiscal year or the actual tuition paid per pupil at a nonpublic elementary or secondary school. The tuition voucher may be supplemented for pupils who require special education services.

Implications of Above

This proposal would establish the dollar value of a voucher. The voucher's value would be the lesser of actual tuition at a nonpublic school, or one-half of the average combined State and local revenue for operating purposes per pupil in the previous fiscal year. Again, "school operating purposes" is not defined, but if the Legislature adopted the Court of Appeals definition, then the voucher would be valued at one-half of the average foundation allowance. For purposes of the fiscal impact following this explanatory analysis, the Court of Appeals definition is used as the basis for the voucher value.

The section further states that more funds could be spent for pupils requiring special education services, beyond the value of the tuition voucher. Currently, public school districts report the costs of special education programs and special education transportation to the Department of Education. In accordance with the mandates in the Durant case, the State reimburses districts slightly more than 28% of the approved costs of special education programs and 70% of the approved costs of special education transportation. If a student requiring special education services requested and used a voucher, then according to this proposal, funding for that pupil's education could be supplemented beyond the voucher amount.

Paragraph 2: Proposed

The state treasurer shall, before the end of each calendar year, certify the average per-pupil state and local revenue for operating purposes in public schools for the fiscal year concluding in that calendar year.

Implications of Above

This paragraph simply would require the State Treasurer annually to determine the average combined State and local revenue per pupil for operating purposes. Once this was certified, the maximum value of the voucher could be determined by multiplying the average by one-half (see Article VIII, Sec. 10, Paragraph 1 implications).

A qualified school district is a district that had a four-year graduation rate of less than two-thirds as reported by the department of education for the 1998-99 school year, as certified by the superintendent of public instruction.

Implications of Above

As with "school operating purposes", the clause "four-year graduation rate" is not defined. The Department of Education does currently collect data and calculate graduation rates for all districts for publication in the Michigan School Report. The Department's definition of "completion/graduation rate" for the 1997-98 school year is a number that "indicates the percentage of 9th grade students who will complete their senior year of school and graduate". Unless a change is made in this current method of calculating graduation rates, it is anticipated that this would be the method used to determine the four-year graduation rate for 1998-99.

According to the proposal, the Superintendent of Public Instruction would have to certify each district's four-year graduation rate for 1998-99. Districts whose graduation rates were less than two-thirds would be determined "qualified" districts for purposes of providing vouchers upon request.

Paragraph 4: Proposed

A school district may approve the educational choice program by vote of the elected school board or of the electors in the school district, who shall have the right of initiative. To invoke the initiative, petitions signed by a number of registered electors, not less than ten percent of the total number of electors casting ballots for school board at the last preceding election at which members of the school board were elected, shall be required.

Implications of Above

This section would allow districts other than "qualified school districts" the opportunity to participate in the voucher program after certain requirements were satisfied. Specifically, an elected school board of any district could vote to participate in the program. Alternatively, an initiative could be placed on the ballot for a vote by the constituents of the school district.

In order to bring the initiative to the ballot, signatures totaling at least 10% of the number of electors voting in the last school board election would be required. For example, if voters in a district's last school board election cast 1,500 votes, a total of 150 signatures (10%) would be required to put the voucher initiative on the ballot. From there, a simple majority voting "yes" on the proposal would establish the voucher program for that school district. (There is no provision in this language to allow for the discontinuation of the voucher program once it was initiated, either by a school board or by the electorate.)

The legislature shall provide by law for the implementation of this section.

Implications of Above

The final section would require the Legislature to provide the ways and means of implementing the educational choice program.

The Kids First! Yes! proposal to amend the Constitution has many fiscal implications for the State and for local school districts. What follows below is a cost estimate of the voucher portion of the measure. The amendment does offer more possibilities for indirect aid beyond the voucher program for school choice in certain districts. As discussed above in the Implications of Paragraph 2 of Article VIII, Sec. 2, the removal of the prohibition against indirect aid to nonpublic education agencies would allow for other types of assistance to families with children currently enrolled in private schools. However, since other activities beyond the voucher program would not be required by the proposal, cost estimates are provided here only for the voucher system.

ASSUMPTIONS

Qualifying Districts and Graduation Rates

The Kids First! Yes! proposed amendment specifies that vouchers would have to be made available to K-12 pupils who reside in a "qualifying district". For purposes of this amendment, a "qualifying district" is one whose four-year graduation rate calculated for Fiscal Year (FY) 1998-99 is less than two-thirds. Graduation rates for FY 1998-99 will not be available for another year; FY 1997-98 graduation rate calculations were just released in the Michigan School Report published by the Department of Education.

In order to calculate four-year graduation rates, the Department of Education collects enrollment and transfer data and applies a formula. For a given year, the four-year graduation rate is calculated by multiplying together the retention rate of each grade (9-12). Retention rates are calculated by comparing the actual enrollment of each grade to the adjusted enrollment, which is the enrollment from the previous year adjusted by transfers into and out of the district, pupils retained in a grade, and pupils who graduated.

If each pupil is accounted for, then the retention rate will be 100%; if the actual enrollment is less than the "expected" or adjusted enrollment, then some pupils are unaccounted for (dropouts) and the retention rate mirrors the percentage of those pupils remaining in school. One caution with this method of calculating graduation/retention rates is that districts that do better jobs of tracking and reporting transfers into and out of their district will probably have higher calculated rates than those that do not, all else being equal. If districts do not monitor this activity closely, their rates may not accurately reflect true graduation rates.

This analysis is based upon the FY 1997-98 published graduation rates, and includes Detroit Schools. The FY 1997-98 data for Detroit Schools show a calculated graduation rate of 83.4% (greater than two-thirds), but are currently under review by the Department; therefore, Detroit is included in the analysis in order to construct a "high-end" estimate. Also under departmental review and included in the analysis is Lansing Schools, with a calculated graduation rate of 36.3%. Table 1 below illustrates the schools with FY 1997-98 graduation rates below two-thirds and Detroit Schools. Again, these are 1997-98 data; the Constitutional amendment would use 1998-99 data which will not be available for some time yet.

Source: 1999 Michigan School Report
¹Detroit Schools graduation rate data are under review by the Michigan Department of Education.
²Lansing Schools graduation rate data are under review by the Michigan Department of Education.

The proposed Constitutional amendment would be placed before the voters in November 2000. If the measure were adopted, it is reasonable to conclude that the voucher program would be implemented for the 2001-02 school year. The amendment states that the value of the voucher would be based upon the previous fiscal year's average per-pupil State and local operating revenue for operating purposes or actual tuition. For purposes of this analysis, it is assumed that the 2001-02 value of the voucher would be one-half of the average FY 2000-01 foundation allowance (the year prior to 2001-02). Public Act 119 of 1999 established FY 2000-01 foundation allowances. The estimated value of a 2001-02 voucher using enacted foundation allowances is $3,152 (one-half of the average FY 2000-01 foundation allowance of $6,304).

Migration of Public School Students to Private Schools and Private School Participation

The cost estimate provided here represents a range of costs, dependent upon the "migration" of public school students to private schools. The top end of the cost range represents zero pupils migrating from public to private, with the entire cost consisting of paying vouchers to some home-schooled pupils (see Data and Methodology below) and to all pupils residing in a qualifying district who already are enrolled in private schools. This analysis further assumes that all private schools that report data to the Department of Education would accept vouchers, and that all eligible private school pupils would request vouchers.

The low end of the cost estimate mirrors the data from Milwaukee Public Schools, which began a voucher program in 1990. Through the FY 1998-99 school year, 3% of the total number of public school pupils eligible for vouchers have migrated to private schools. Therefore, the low end of the range assumes that 3% of public school pupils residing in qualifying districts would migrate to private schools with a voucher proposal. Again, this assumes that all private schools that currently report data to the Department would accept vouchers, that all eligible private school pupils would request vouchers, and that the private schools would have enough capacity to enroll 3% of the eligible public school population.

It is important to realize that, in general, as the number of pupils migrating from eligible public schools to private schools increases, the overall cost of the voucher proposal is likely to decrease. This occurs because the State would save an amount equal to the difference between the district's foundation allowance and the $3,152 voucher amount for each migrating pupil. As more pupils migrate, the State would save more money on these migrating public school students.

Data and Methodology

Using FY 1997-98 data from the Michigan School Report, there are 32 districts with four-year graduation rates below two-thirds; including Detroit Schools brings the total number of "qualified" districts to 33. This analysis is based solely upon the 33 districts, and does not assume that other nonqualified districts would participate in the choice program via a school board vote or a district-wide vote (see Article VIII, Sec. 10 Paragraph 4 discussion).

The total number of public school students attending the 33 qualifying districts in FY 1998-99 was 282,305. The total number of private school students whose schools are located within the qualifying districts' boundaries was 24,638. This analysis also matched up those home-schooled students that reported to the Department with the intermediate school district boundary in which they reside. From there, the home-schooled students were assigned to school districts based on school district enrollment. The total number of home-schooled students residing in qualifying districts is estimated at 1,206.

COST ESTIMATE

Based upon the assumptions and data as outlined above, the estimate of the cost of the voucher proposal to the State ranges from $52.1 million to $79.6 million (see Table 2 below). The lower number ($52.1 million) assumes a 3% migration of public school pupils to private schools, meaning that 3% of the 282,305 eligible pupils (8,469) would transfer to non-public educating agencies. The 3% migration would yield a savings to the State of $27.5 million or $3,247 per migrated pupil, which would occur because the State would be paying the voucher amount of $3,152 rather than the district's foundation allowance. Further, this assumes that all 24,638 private school students plus 50% of the home-schooled students (603) would request and be able to redeem vouchers.

The higher cost ($79.6 million) assumes 0% migration and payment of vouchers to all 24,638 private school students plus 50% of the home-schooled students (603).

• The certified list of qualifying districts will not be available until FY 2000-01.
• An exact number of private school students who are residents of qualifying districts is not available - this estimate assumes that the number of private school students attending schools whose boundaries lie within qualifying districts is an adequate proxy.
• The capacity of private schools is unknown - this analysis assumes that excess capacity would support a 3% migration from public schools to determine the lower-end estimate.
• Due to the lack of data on a national basis, the 3% migration assumed for the lower end of the cost estimate is uncertain - Milwaukee's program is the only voucher system close enough to this proposal to be useful.
• All private schools currently reporting to the Department are assumed to accept vouchers - if not all did, the estimated cost would decline dependent on the number of schools and/or pupils not redeeming vouchers.

One final question to examine regarding the implementation of funding vouchers is, what would be the revenue source? Article IX, Section 11 of the Constitution establishes the State School Aid Fund (SAF). This section states that the SAF "shall be used exclusively for aid to school districts, higher education, and school employees' retirement systems, as provided by law". The Revised School Code defines a "school district" as a general powers school district organized under the Code, providing public elementary and secondary education.

Two examples clarify the funding source question:

• If a qualifying school district received the voucher revenue from the State and funneled it to the educating private agency, it appears that the SAF could be used to fund the voucher program. The SAF would in this instance be providing aid to a school district.
• If, however, a voucher were sent to the parents of a pupil enrolled in a private school, then SAF revenues could not be used to fund the program without a change in the Revised School Code defining private schools as public schools for the purposes of the voucher program.

The Kids First! Yes! proposed Constitutional amendment outlines a required voucher program in certain districts, allows other approving districts to participate in the program, guarantees a per-pupil funding level, mandates teacher testing in public schools and voucher-redeeming private schools, and removes the prohibition against any indirect aid (e.g., tax credits, deductions, or subsidies) provided to support nonpublic education. This report provided a detailed explanation of each component of the proposal, and estimated the cost of the required voucher program. It is important to note that this is an estimate, that changing any assumption would yield a different conclusion, and that as more data become available, later analyses will be necessary. It is hoped that this analysis will provide a basis for discussion on the issue at hand.