Court decision on Headlee brings back discussions about state funding

Local government advocates in Michigan recently received some good news out of the state appellate court. But local governments aren’t necessarily guaranteed more money as a result of the decision.

 

Over the summer, the Michigan Court of Appeals ruled that the state incorrectly calculated its required payments to local government, which municipal advocates say has meant cuts to the state aid owed to local governments. The lawsuit alleges that the state, for years, shortchanged communities by breaking the tax-limiting provision of the Headlee Amendment in the Michigan Constitution.

 

Headlee was an attempt to put a balanced program in place, which capped property taxes — limiting local governments’ revenue streams — while at the same time maintaining funding levels that existed in 1978, said John Philo, Executive and Legal Director, Sugar Law Center for Economic and Social Justice and the lead counsel in the Headlee lawsuit.

 

Philo discussed the developments in the court case on a recent episode of SaveMICity the Podcast with host Anthony Minghine, Deputy Executive Director and COO of the Michigan Municipal League.

 

Conflicts between the Headlee Amendment and Proposal A from 1994 have contributed to the breakdown of Michigan’s system for funding municipalities and the case is being followed very closely by Minghine and the SaveMICity initiative.

 

“This (case) does impact everyone,” Philo said. “Cities are pressed on how to raise revenue and they’re forced into these creative alternatives to do that.”

 

The case is the result of years of inadequate funding from the state to local units of government for programs, services and infrastructure, he told Minghine. While local officials are seeing their revenue stream reduced, they’re being asked to do more with less.

 

Philo noted that lawmakers who worked on the Headlee Amendment in the 1970s were trying to make sure that, even as they capped revenues, they also wanted to make sure the state had a stable funding system for existing municipal services.

 

However, that hasn’t happened. The lawsuit argues that Michigan is not correctly calculating the pool of money that is supposed to flow from state revenue sources to local units of government.

 

While the Michigan Court of Appeals’ decision wasn’t an all-out victory for local government advocates, they did win the argument about funded mandates. The state is required by the court to start keeping track of the funded mandates, Philo said, maintaining a list and publicly disclosing which ones they’re counting.

 

There was a split decision among the three-judge panel on whether charter schools could be considered the “political subdivisions of the state.” Philo said the groups representing local units of government had argued that charter schools, which are private, nonprofit institutions, shouldn’t be sharing in the same pool of money set aside for municipal governments.

 

And the court decided against the local government argument over Prop A, Philo said, in which the state cut the amount of property tax that local schools could collect while supplementing the lost revenue with a sales tax increase. That shift, he said. meant two hits to municipal governments: the loss of property tax revenue and the loss of other shared funding.

 

“It’s so broken now that it’s sort of created the crisis that we maybe needed all along … to say ‘This is nonsense. This is not how this is supposed to work,’” Minghine said.

 

The state has filed a motion for reconsideration and the groups awaiting a decision on that, Philo said.