The Great Tax Switch After years of painful maneuvering, Michigan may have found a better way to finance public schools

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Back in the 1640s, when the current method of financing public schools was developed, if a man had money, he put it into his land. There were no IRAs or Social Security. With property the best gauge of wealth, it made sense to pay for public schooling out of property taxes. Nor did anyone wonder about the wisdom of yoking schools to local real estate values; if nothing else, taxpayers knew exactly how their money was being spent.

After 350 years, however, methods have finally changed. Or so believes John Engler, the Governor of Michigan. After years of debate about school finance, his state's voters took what may be a historic step. Under Engler's leadership, they replaced property taxes almost completely as a means of funding their 3,286 public schools. Instead, by a 69% majority, they agreed to raise the state sales tax from 4% to 6% and to increase the tax on a pack of cigarettes from 25 cents to 75 cents. At the same time, they adopted the Governor's proposal to raise the minimum amount the state's schools must spend per pupil from $3,277 to $4,200.

On one level, the vote was simply the latest machination in Michigan tax politics, which resembles nothing so much as a billion-dollar game of chicken. Engler, a Republican, won the governorship in 1990 by less than 1% after promising in the campaign to cut property taxes 20%. His attempts to do so -- and to replace the revenues by increasing the sales tax -- were rejected by the voters until last summer, when state Democrats, in an apparent act of political grandstanding, proposed to do away with education-funding property taxes without naming any alternative revenue source. To the applause of some onlookers and the horror of others, Engler took them up on it, promising to find some way to make up the money. Until the vote last week affirmed his method, the possibility loomed that public education in Michigan, penniless, might screech to a halt -- along with Engler's political career.

| And yet the Michiganders' decision also has tremendous national resonance. It presented itself at a moment when property-tax funding of education had become a multistate catastrophe. Fairness is the issue. Owning a valuable dwelling, for example, is no longer the sign of a hefty income. Homeowners angry at being repeatedly dunned on the basis of a long-paid-for house have become the nucleus of a nationwide anti-property tax rebellion whose most jarring manifestation occurred, as it happens, in Michigan. In March 1993, public schools in the town of Kalkaska shut down after citizens rejected the school levy. Just as alarming are potentially crippling court cases in more than 40 states provoked by the ghettoization that results when only districts with high real estate values can finance decent schools.

In such desperate straits, Engler's radical solution became attractive. After the vote last week, Ernest Boyer, president of the Carnegie Foundation for the Advancement of Teaching, declared, "One thing is clear. A more equitable and stable method of financing public schools must be found, and Michigan has clearly taken a bold step in that direction." Officials in Rhode Island, South Carolina, New Hampshire and Vermont all asked for detailed projections of Engler's plan.