The Flint water crisis has been long in the making by the state. The crisis was hastened by a reduction in state revenue sharing leading to the eventual appointment of a cost cutting emergency manager. Flint and other local governments have been shorted billions state revenue sharing for three decades. The cumulative effect has been to create a financial crisis for many local governments. The state’s action has violated the Headlee Amendment to the State Constitution requiring that Michigan make annual payment of at least 48.97% of all state revenue to local governments. In many years this requirement has not been met. As a result, local governments, like Flint, have been required to reduce services, cut work forces, pay levels, pensions and, in some cases, turn over local control to the state.
Understanding the Headlee Amendment
The Headlee Amendment caps the local property tax, but requires the state maintain its percentage payments to local governments to support essential local services at the same level as in 1978 when the amendment, part of a nationwide property tax revolt in the 1970s, was adopted. The required payments to local governments by the state was originally set at 41.6% of state revenues, but was reset in 1989 to 48.97% by the Michigan Court of Appeals in Oakland County v. Department of Mental Health, because of the state’s violation of the amendment at that time. Other major state violations, however, have gone unchecked.
In this regard, annual calculations of the 48.97% may not include state payments to local governments resulting from a ‘tax shift’, or payments made to local governments to perform obligations of the State or payments made to local agencies that are not ‘political subdivisions of the State’. The state has consistently included in its annual calculations all three types of prohibited payments. This allows the state every year to keep more of its revenue to be spent on other State priorities.
Violations of the Headlee Amendment
In 1989 Oakland County successfully brought suit against the state to establish that mental health payments made to counties were intended to satisfy an obligation of the state and were not eligible to be counted in meeting the Headlee Amendment minimum payment requirement to local governments to support local services. It was held that mental health payments were not eligible, but rather than excluding them, the minimum payment requirement was increased to 48.97%. However, other payments to local governments to satisfy state obligations, such as maintaining the state’s justice system and its major roads, went unchallenged and continue to be counted today in the calculation.
Next, in the early 1990s, the state carried out two significant reforms in Michigan’s public education that materially impacted its payments to local governments. First, the state legislature sparked a crisis in public school funding by repealing the power of local school districts to levy property taxes for public school operations, thereby eliminating approximately $6.4 billion of school funding, leaving Michigan public schools insolvent. Gridlock prevented the legislature from solving the problem, so the people of Michigan adopted Proposal A of 1994 lifting the state constitutional limit on the sales tax by 2% and requiring that the increased revenues be paid to local school districts to replace lost property tax revenue. This constituted a ‘tax shift’ to support Michigan’s public schools. Although prohibited from counting ‘tax shift’ funding by the Headlee Amendment, the state nonetheless included it in calculating the minimum required payments to local governments. This too has gone unchallenged,
Then, the state created Public School Academies, commonly known as charter schools, to compete with traditional local school districts. Charter schools are non-profit corporations and receive payments directly from the state to provide local educational services. The state maintains these non-profit corporations are ‘political subdivisions of the state’ and, accordingly, payments made to them may be included in the calculation of minimum payments to local governments. The assertion that charter schools having no accountability to the electorate are ‘political subdivisions of the state’ would be laughable, if counting payments to them were not significantly reducing payments to local governments that are political subdivisions of the State, such as cities and local school districts.
The shortfall in state payments to local governments resulting from these three prohibited accounting maneuvers has been extreme in some years. As an example, by not counting Proposal A monies alone for the year 2013, the shortfall in payments to local governments would have been $2.5 billion.
Article IX, Sec. 32 of the Michigan constitution places the responsibility on taxpayers to enforce the Headlee Amendment by bringing suit to hold the state accountable to comply with its terms. It appears the only way that local governments will receive their required share of State revenue is for them to support their taxpayers in bringing suit against the State to enforce the State Constitution.
John E. Mogk is a professor at Wayne State University Law School.
