Engler calls for repealing tax incentive

By Eric Morath (Last updated: 08/28/09 5:47pm) LANSING - Gov. John Engler recommended to remove a tuition tax incentive for Michigan’s 15 public universities Thursday in his $38.2 billion Fiscal Year 2002 Executive Budget, after the schools could not keep rising costs of tuition below the rate of inflation.

In the budget recommendation, which was given to a joint session of the state House and Senate Appropriations committees Thursday, Engler also proposed a flat increase funding of 1.5 percent for each school, which does not help close the gap that currently exists between MSU and peer schools University of Michigan and Wayne State University.

And if the tax credit, which goes to students that attend public universities where the tuition increases are less than the inflation rate, is repealed, schools would receive an additional 1.5 percent funding boost under Engler’s proposal.

According to the university’s Financial Aid Office, MSU students were not eligible for the tax credit in 2000, but they were in previous years.

And Val Meyers, assistant director of Financial Aid, said the tax credit did not seem to be a big issue when universities consider tuition.

“Universities have to look at the bottom line and see how much they need to operate,” Meyers said.

Meyers said MSU has made efforts to allow students to maintain the tax credit, but lower-than-projected inflation rates made the credits more difficult for university students to receive.

Under a plan initiated by MSU President M. Peter McPherson in 1994, the university has pledged to keep tuition hikes at or below the inflation rate. MSU’s tuition guarantee has never been broken because the administration uses projected inflation levels instead of the actual number to determine tuition.

But MSU students have not received the tuition tax cut for the past two years because the state calculates based on the previous year’s actual inflation - which has been lower than the university’s tuition hikes.

This has been the case for virtually all the state’s four-year universities.

“We have held tuition down to inflation-adjusted projection for the past six years,” McPherson said. “Ultimately, we all need to work to get as high appropriations for MSU as we can.”

If the state Legislature decides to repeal the tax incentive, MSU students would no longer have to worry about the rate of inflation impacting financial aid. Next year, the university would automatically receive an additional $4.8 million in funds.

According to the state budget office, tuition throughout the state has increased 18.4 percent between fiscal year 1995-1996 to fiscal year 2000-2001. Yet the rate of inflation has been 10.4 percent.

“The tuition tax credit is not being used due to the fact universities have not been able to restrain the tuition costs,” said Kelly Chesney, a Michigan Office of State Budget spokeswoman.

State Rep. Gretchen Whitmer, D-East Lansing, who represents MSU, serves on the House Appropriations Committee.

She said higher education funding was among her top concerns as she departed from the joint session.

“Funding is contingent on repeal of the tax credit and that is going to hurt students all across the state of Michigan,” Whitmer said.

Whitmer, who called the funding increases “modest,” is disappointed the proposed budget doesn’t draw MSU closer to U-M and Wayne State.

“You can’t close a gap if you give everyone the same increase - the gap grows,” she said. “Michigan State is in the research university tier for funding, and they are not funded at that tier level.”

But state Sen. John Schwarz, R-Battle Creek, who vice-chairs the Senate Appropriations Committee, said more funding to all schools makes for an easier time for all of the state’s college-bound students.

“The more generously the appropriations for each of the 15 public universities, the less upward pressure there is on the tuition rate,” Schwarz said.

Despite the gap between the state’s research institutions, MSU spokesman Terry Denbow said the budget looked positive for the university. And he was encouraged by Engler’s efforts to allocate equal funding for the state’s college students.

“I think this reflects another step towards peer institution equality, and that is favorable,” he said.

This year’s budget does not include as many surpluses as last year’s, due to lower than expected revenues, greater tax cuts and a seemingly unavoidable economic slowdown.

State Sen. Harry Gast Jr., a St. Joseph Republican who serves as chairman of the Senate Appropriations Committee, said there are always some problems to work out.

“Last year we had too damn much money, and this year we are about right,” he said. “This should be a rather easy budget to work with.”

The proposed budget also includes a hiring freeze for the state’s executive branch. Other efforts will be made to compensate for lower revenues.

Eric Morath can be reached at morather@msu.edu.

Originally Published: 02/09/01 12:00am