first checking to see whether there was water in the pool.rnUnder the gun, the state acted, jacking up the sales taxrnand cigarette taxes to cover the funding shortfall.rnBut the National Review account erred: it was not the staternHouse that created the crisis but the Republican-controlledrnSenate; the amendment abolishing property taxes was sponsoredrnby Senator Debbie Stabenow (Democrat-Lansing), nowrna member of Congress. After ending property taxes, the legislaturernpartially restored them amid a crisis that ended in arnmarathon 26-hour session on Christmas Eve 1993. In additionrnto raising the sales and cigarette taxes, as Polsby reported, therndeal forced voters to raise user fees and utility and real estaterntransfer taxes when they approved Proposal A on March 15,rn1994.rnBeware the Ides of March, critics warned. But Michiganrnvoters accepted Proposal A’s tradeoff: a propert)’ tax cutrncoupled with a sales tax increase. State Treasurer DougrnRoberts proudly notes that Michigan now ranks 38th nationwidernin terms of state and local tax burden as a percentage ofrnpersonal income. In 1993, prior to Proposal A’s passage, thernstate ranked 15th, according to the U.S. Department of Census.rnOnce considered a high-tax state, Michigan’s tax burden is nowrnaround the national average. Economists say the state could dornbetter, but Governor Engler deserves much credit; he hasrnsigned 24 tax cuts into law in eight years. “But the upshot of thisrnpolitical melodrama has not been without controversy,” Polsbyrnwrote in National Review. “If propert}’ taxes were cut, the potentialrnfor central control of education from Lansing was increased.”rnLocal school officials complain that state officials arerndeaf to this concern. In an ironic twist, state officials have theirrnown complaint about centralized power: the repeated refusal ofrnWall Street bond-rating agencies to upgrade Michigan’s debt tornAAA since Proposal A’s passage.rnWall Stieet, however, has liked much of what it has seen outrnof Michigan lately. In January 1998, Standard & Poor’s up-rnLIBERAL ARTSrnFOR RESEARCH PURPOSES ONLYrn”It all started when Jennifer Furio, a young motherrnand a Sunday School teacher from Bellingham,rnWashington, began writing letters to serial killers —rnwith the hope that they would tell her why theyrnraped and tortured and killed and mutilated women.rn. . . The letters [from the serial killers], transcribedrnand reproduced exactly as they were writtenrn—unedited and uncensored —are without arndoubt unlike anything you have eer read —graphic,rndetailed descriptions of the atrocious crimesrnthey committed.”rn—from a press release for The Serial Killer Letters:rnA Penetrating Look Inside the Minds ofrnMurderers (The Charles Press, 1 ‘->rngraded Michigan’s debt to kk+. Moody’s followed suit inrnMarch, raising Michigan’s rating to Aal. Both upgrades representrnan improvement from January 1991, when Governor Englerrntook office. S&P placed Michigan on a “credit watch” thatrnmonth, noting a budget deficit (since eliminated) left over fromrnthe Blanchard years. But both upgrades included cautionar)’rnnotes. Michigan’s strengths, S&P noted, “are mitigated by decreasedrnrevenue flexibility and increased funding commitmentsrnrelated to the implementation of school funding reform”rnand the cyclical nature of the state’s automobile industry.rn”Debt factors are favorable,” Moody’s reported.rnHowever, contingent debt issued through the SchoolrnBond Loan Fund program . . . continues to grow rapidlyrnand is outstanding in amounts that nearly double directrnstate debt. Continued careful management of this contingentrndebt exposure, particularly in the state’s financiallyrnweakest school districts, such as Detroit.. . will be importantrnto the stability of the rating.rnProposal A addressed the operational side of school financern—the inequities between rich and poor school districts—rnbut it left unresolved the issue of debt. “We have not had a debaternon this issue since the 1970’s,” said Nick Khouri, vicernpresident of Public Sector Consultants, a Lansing group, andrndeputy state treasurer when Proposal A was written. EchoingrnWall Street, Khouri notes that the School Bond Loan Fimdrn”has exploded in recent years, increasing the cost to the (Michigan)rnbudget and creating a potential long-term financial liabilityrnfor state taxpayers.” One of the reasons Khouri cites for “therndramatic increase in school debt” is Proposal A, which “loweredrnthe average homeowner’s millage rate for school operatingrnpurposes from 35 mills to six. This sharp drop was seen byrnmany school administrators as an opportunit)’ to ask voters to replacernpart of the reduction with an increase in debt mills.”rnState Treasurer Roberts concedes Proposal A did not solvernthe debt issue. In fairness to Roberts, there probably would notrnhave been enough votes to pass a better plan. Half of the Republicanrnlegislative caucus —and most of the Democrats —rnwould have resisted a solution. But Governor Engler andrnRoberts have failed to convince Wall Street to give Michigan arnAaa/AAA credit rating—despite repeated attempts. Wall Streetrnis watching how Engler’s administration solves a crisis unravelingrnin the Detroit school district, where taxpayers approved arn$1.5 billion school bond issue in 1994. Roberts will not approvernthe bonds because Detroit officials have not provided arngood explanation of how the district spent the money from anrnearlier $162 million bond project. Prosecutors last year declinedrnto pursue criminal charges in the affair because theyrncould not determine whether any Detroit officials personallyrnprofited from the deal. The decision not to prosecute ended arn20-month joint FBI and state police criminal probe.rnThe most likely solution to this problem is not political, butrnfinancial: debt restructuring, or better yet, shock therapy—anrneconomic czar to clean up the Detroit mess. For Proposal A tornemerge as the national model for school finance, the debt sidernof the issue must be addressed in a manner that will be approvedrnby the bond market.rn”How many votes does the f- – -ing bond market have?” complainsrnHoward Paster, a Clinton lobbyist, in Bob Woodward’srnThe Agenda. More power than hack staffers like Paster willrnever admit. ‘ C •rn20/CHRONICLESrnrnrn