The Headlee Amendment:

A Study Report by the Michigan Law Revision Commission

 

Table of Contents

 

 

Executive Summary

Frequently Asked Questions

  1. Introduction
  2. Article IX, § 26: The State Revenue Limit
    1. Definitions.
    2. Reporting Requirements.
    3. Refunds of Excess Revenues.
    4. Adjustments to the Revenue Limit.
    5. Imposition of New State Taxes.
  3. Article IX, § 27: The Fiscal Emergency Exception.
  4. Article IX, § 29: The Maintenance-of-Support Clause.
    1. The Implementing Legislation.
    2. The Meaning of the Term "Necessary Costs."
    3. The Meaning of the Term "Required . . . by State Law."
      1. Are state constitutional provisions within the scope of the term "state law" found in Article IX, §29?
      2. What activities or services are "required" under state law?
        1. Public Education.
        2. Fire Protection.
        3. Waste Disposal and Other Public Works Projects.
        4. Assistance to the Accused and to Crime Victims.
    4. The Method of Funding New State Mandates.
  5. Article IX, § 30: Prohibition Against Reducing the Proportion of Total State Funds Paid to Local Government
    1. The Implementing Legislation.
    2. Judicial Interpretation of Section 30.
  6. Article IX, § 31: Prohibition Against New or Increased Local Taxes Without Voter Approval
    1. What Constitutes a "Local Tax" Under Section 31?
    2. Local Tax Increases Necessitated By A Court Judgment.
    3. What Constitutes a "New Tax" Under Section 31?
      1. User Fees.
      2. Special Assessments.
    4. The Assessed Value of Property as Finally Equalized.
    5. The Implementing Legislation for Headlee Rollbacks and Rollups.
  7. Article IX, § 32: Taxpayer Suits.
    1. The One-Year Limitations Period.
    2. Recovery of Fees and Costs.

 


 

The Headlee Amendment:
A Study Report by the Michigan Law Revision Commission (1)

 

In 1998, the Michigan Law Revision Commission undertook a study of the operation and impact of the Headlee Amendment. (2) This study report is a restatement of the law of the Headlee Amendment. It summarizes the Amendment's provisions, provides an overview of the statutes enacted by the Legislature since 1978 to implement it, and analyzes the growing body of case law interpreting the Amendment.

 

 

Executive Summary

 

 

Twenty years ago at the general election held on November 7, 1978, Michigan voters ratified the initiative petition, Proposal E, to amend Article IX of the Michigan Constitution. This constitutional amendment, popularly known as the Headlee Amendment, was proposed as part of a nationwide "taxpayer revolt" in which taxpayers were attempting to limit legislative expansion of requirements placed on local government, to put a freeze on what they perceived was excessive government spending, and to lower their taxes both at the local and state level.

 

The Headlee Amendment has four core provisions:

  1. Property taxes, other local taxes, state taxation, and state spending may not exceed the limitations of the Amendment, absent voter approval.
  2. The state is prohibited from requiring new or expanded activities by local governments without full state financing.
  3. The state is prohibited from reducing the proportion of state spending in the form of state aid to local governments.
  4. The state is prohibited from shifting the tax burden to local governments.

Sections 26 through 34 of Article IX expand on Section 25's broad provisions.

 

First, Section 26 limits the amount of taxes the state may collect in any given fiscal year to 9.49 percent of personal income in Michigan during the preceding calendar year. Section 26 further provides that taxpayers are to receive a refund if revenues exceed the limit by 1 percent or more.

 

Second, in the event of a fiscal emergency, Section 27 permits a one-year suspension of the Section 26 revenue limit upon the Governor's request and the two-thirds concurrence of the Legislature.

 

Third, Section 28 prohibits deficit spending.

 

Fourth, Section 29 prohibits the state from circumventing the taxing and spending limits of Sections 26 and 28 in two respects. Section 29 prohibits the state from reducing the state financed proportion of necessary costs for mandated programs in effect when the Headlee Amendment was ratified. This provision is known as the maintenance-of-support provision. Section 29 further prohibits the state from requiring units of local government to perform new or increased activities since ratification of the Headlee Amendment without appropriating funds to cover the necessary increased costs.

 

Fifth, Section 30 is a corollary to Section 29. While Section 29 ensures that the proportion of state money paid to local government to cover necessary costs will not decrease from FY 1978-79 levels, Section 30 provides that the percentage of the total state budget earmarked for local government spending will not decline from the FY 1978-79 level.

 

Sixth, Section 31 has three main requirements: (a) voter approval is required for any new local tax or any increase in the rate of an existing local tax; (b) if the base upon which any existing local tax is expanded, then the rate must be reduced; and (c) if annual property valuations are greater than the annual rate of inflation, then the property tax rate in the local governmental unit must be reduced so that the increased tax levy on existing property is no greater than the rate of inflation.

 

Seventh, Section 32 gives taxpayers standing to challenge alleged violations of the Headlee Amendment and vests the Court of Appeals with original jurisdiction over such taxpayer suits.

 

Finally, Section 34 authorizes the Legislature to enact implementing legislation to bring the terms of the Headlee Amendment into effect in Michigan.

 

The following table summarizes the Headlee Amendment:

Article IX, § 25 Introduction to the Headlee Amendment
Article IX, § 26 State Revenue Limit Capping State Taxes at 9.49 Percent of Residents' Personal Income
Article IX, § 27 Fiscal Emergency Exception
Article IX, § 28 State Spending Limit Prohibiting Deficit Spending
Article IX, § 29 Prohibition Against Unfunded State Mandates to Local Government and Requirement of Maintenance of Support to Local Government
Article IX, § 30 Prohibition Against Reducing the Proportion of Total State Funds Paid to Local Government (41.61 Percent of State Budget)
Article IX, § 31 Prohibition Against New or Increased Local Taxes Without Voter Approval; Property Tax Increases Capped At the Lesser of the Rate of Inflation or the Increase in Property Valuation
Article IX, § 32 Authorization of Taxpayer Suits in the Court of Appeals
Article IX, § 33 Definitions
Article IX, § 34 Authorization to Enact Implementing Legislation

 

 

Frequently Asked Questions:

 

 

1. What constitutes a state mandate to local government?

 

The implementing legislation for Section 29 defines the term "state requirement" broadly to mean "a state law which requires a new activity or service or an increased level of activity or service beyond that required of a local unit of government by an existing law." The following cases illustrate the principles of Section 29:

 

a. The Michigan Supreme Court has held that requirements upon local government imposed under the Michigan Constitution are not a "state requirement" for purposes of Section 29 and unfunded state mandates. For example, the Supreme Court has concluded that general public education, being required under the State Constitution, is not required under state law as that term is used in Section 29. However, special education programs are within the scope of maintenance-of-support provision of Section 29.

b. The State is not required to reimburse a municipality for fire protection for state-owned buildings because municipalities are not required by state law to provide fire protection services. Similarly, because municipalities are not required to provide fire protection under state law, state-mandated overtime compensation to firefighters is outside the scope of Section 29.

c. Because a county is not required to operate a solid waste disposal site, the State is not required to reimburse the county for upgrading a landfill in order to comply with a state environmental law. Similarly, the costs associated with implementing state requirements regarding sewage disposal systems operated by municipalities are not within the scope of Section 29 because sewage disposal is an optional, not a mandatory, activity under state law.

d. The Attorney General has issued an opinion that M.C.L. § 339.2011, requiring units of local government engaged in public works projects to use licensed architects, engineers, and land surveyors where project costs are $15,000 or more, is not within the scope of Section 29 because units of local government are under no state-mandated obligation to engage in public works projects.

e. The Attorney General has issued an opinion that state law requiring county prosecutors to assist the accused in locating and serving witnesses is within the scope of Section 29, as is services to crime victims to be provided by county prosecutors pursuant to the Crime Victim's Rights Act, M.C.L. §§ 780.751 et seq.

2. What costs incurred by local government must the state fund?

 

Section 29 prohibits the State from reducing the state-financed proportion of the necessary costs of any existing activity or service required of units of local government under state law. The Legislature has defined the term "necessary cost" to mean "the net cost of an activity or service provided by a local unit of government. The net cost shall be the actual cost to the state if the state were to provide the activity or service mandated as a state requirement, unless otherwise determined by the legislature when making a state requirement." It should be noted that while Section 34 of the Headlee Amendment does authorize the Legislature to enact implementing legislation, the Legislature's definitions of constitutional terms are not binding on Michigan courts.

 

3. If the Legislature underfunds units of local government in violation of Section 29, what is the remedy?

 

The Michigan Supreme Court held in its 1997 Durant decision that the state is liable in damages if it violates Section 29, measured by the amount of underfunding of the state-mandated activities. The damage award must be distributed to the units of local government adversely affected by the underfunding. The units of local government in turn distribute the monies in a manner they deem appropriate, including distributing the funds to local taxpayers. An award of interest on the damage lies within the discretion of the courts. Successful taxpayers are also entitled to an award of attorneys' fees.

 

4. If the Legislature enacts a tax that benefits local government, is that a "local tax" under the Headlee Amendment?

 

The Michigan Supreme Court has held that a tax is a state tax if it is styled as a state tax, is structured as a state tax, serves a state purpose, was enacted by the Legislature, is collected by the state, and is distributed by the state. In contrast, the Court added, a tax is a local tax if it is collected by local government, is administered directly by that local entity, and is spent by the local government according to local fiscal policy.

 

The focus of the Court's analysis is on whether the monies collected are subject to a state appropriation. Less important to the Court is the fact that the beneficiary of the state appropriation is a specific unit of local government.

 

5. Are user fees and special assessments a "new tax" under the Headlee Amendment?

 

There is no legislation defining the terms "user fee" or "special assessment." In general, a fee is exchanged for a service rendered or a benefit conferred. A fee is distinguishable from a tax in that a fee provided there is some reasonable relationship between the amount of the fee and the value of the service or benefit.

 

Special assessments are distinguishable from general property taxes in at least three respects. First, general property taxes are levied on real and tangible personal property, whereas special assessments are levied only on real property. Second, general property taxes are levied across the board within the assessing jurisdiction to defray the costs of government in general, whereas special assessments are levied only within a special assessment district which is comprised of the land and improvements that are specially benefitted by the public improvements (e.g., streets, sewer line, dams to control lake levels). Third, in theory general property taxes are levied on an ad valorem basis, whereas special assessments are levied on the basis of frontage or land area.

 

6. If a unit of local government increases its millage rate without voter approval, does it violate the Headlee Amendment?

 

The Headlee Amendment does not prohibit millage increases without voter approval if the increase is within "the rate authorized by law" or "the maximum authorized rate." For example, if a unit of local government was authorized by the voters to assess 18 mills before adoption of the Headlee Amendment, but it had only levied 16 of the 18 mills so authorized, that unit is free to assess the remaining two mills without voter approval.

 

 


 

I. Introduction


Twenty years ago at the general election held on November 7, 1978, Michigan voters ratified the initiative petition, Proposal E, to amend Article IX of the Michigan Constitution. According to the Michigan Supreme Court, the purpose of this constitutional amendment, popularly known as the Headlee Amendment, was the following:

 

Article 9, §§ 25-34 was presented to the voters under the popular term "Headlee Amendment," named after its original proponent, Richard Headlee. It was proposed as part of a nationwide "taxpayer revolt" in which taxpayers were attempting to limit legislative expansion of requirements placed on local government [i.e., unfunded state mandates], to put a freeze on what they perceived was excessive government spending, and to lower their taxes both at the local and state level. (3)

Article IX, § 25 summarizes the four core provisions of the Headlee Amendment: (4)

 

1. Property taxes, other local taxes, state taxation, and state spending may not exceed the limitations of the Amendment, absent voter approval.

 

2. The state is prohibited from requiring new or expanded activities by local governments without full state financing.

 

3. The state is prohibited from reducing the proportion of state spending in the form of state aid to local governments.

 

4. The state is prohibited from shifting the tax burden to local governments.

 

Sections 26 through 34 of Article IX expand on Section 25's broad provisions.

 

II. Article IX, § 26: The State Revenue Limit.

 

 

Section 26 limits the amount of taxes the state may impose in any given fiscal year to 9.49 percent of personal income in Michigan during the preceding calendar year. Section 26 provides in full:

 

There is hereby established a limit on the total amount of taxes which may be imposed by the legislature in any fiscal year on the taxpayers of this state. This limit shall not be changed without approval of the majority of the qualified electors voting thereon, as provided for in Article 12 of the Constitution. Effective with fiscal year 1979-1980, and for each fiscal year thereafter, the legislature shall not impose taxes of any kind which, together with all other revenues of the state, federal aid excluded, exceed the revenue limit established in this section. The revenue limit shall be equal to the product of the ratio of Total State Revenues in fiscal year 1978-1979 divided by the Personal Income of Michigan in calendar year 1977 multiplied by the Personal Income of Michigan in either the prior calendar year or the average of Personal Income of Michigan in the previous three calendar years, whichever is greater.

 

For any fiscal year in the event that Total State Revenues exceed the revenue limit established in this section by 1% or more, the excess revenues shall be refunded pro rata based on the liability reported on the Michigan income tax and single business tax (or its successor tax or taxes) annual returns filed following the close of such fiscal year. If the excess is less than 1%, this excess may be transferred to the State Budget Stabilization Fund.

 

The revenue limitation established in this section shall not apply to taxes imposed for the payment of principal and interest on bonds, approved by the voters and authorized under Section 15 of this Article, and loans to school districts authorized under Section 16 of this Article.

 

If responsibility for funding a program or programs is transferred from one level of government to another, as a consequence of constitutional amendment, the state revenue and spending limits may be adjusted to accommodate such change, provided that the total revenue authorized for collection by both state and local governments does not exceed that amount which would have been authorized without such change.

 

A. Definitions

Section 33 of Article IX defines the terms "Total State Revenues" and "Personal Income of Michigan" as follows:

"Total State Revenues" includes all general and special revenues, excluding federal aid, as defined in the budget message of the governor for fiscal year 1978-1979. Total State Revenues shall exclude the amount of any credits based on actual tax liabilities or the imputed tax components of rental payments, but shall include the amount of any credits not related to actual tax liabilities.

 

"Personal Income of Michigan" is the total income received by persons in Michigan from all sources, as defined and officially reported by the United States Department of Commerce or its successor agency.

Pursuant to the authority granted under Section 34 of Article IX to enact appropriate implementing legislation, in 1988 the Legislature enacted definitions of "total state revenues" and "personal income of Michigan" that elaborate on the Section 33 definitions. It is important to note that while the Legislature is authorized to enact appropriate implementing legislation, the Legislature's statutory definitions of constitutional terms are not binding on the courts. In some instances, Michigan courts have accepted the Legislature's Headlee Amendment definitions. See, e.g., Durant v. Dep't of Education, 129 Mich. App. 517, 342 N.W.2d 591 (1983)(adopting Legislature's definition of "state law"). In other instances, the courts have rejected the Legislature's definitions. See, e.g., Durant v. State Bd. of Education, 424 Mich. 364, 381 N.W.2d 662 (1985)(rejecting the Legislature's exclusion from the term "necessary costs" costs recoverable from the federal government).

 

Turning to the Legislature's Section 26 definitions, M.C.L. § 18.1350a provides:

 

As used in sections 26 to 28 of Article IX of the state constitution of 1963:

 

(a) "Personal income of Michigan" for a calendar year means total annual personal income as officially reported by the United States department of commerce, bureau of economic analysis, in August of the year following the calendar year for which the report is made. Revision of the total annual personal income figure as reported by the bureau of economic analysis after August of the year following the calendar year for which the report is made shall not cause personal income of Michigan as defined to be revised.

 

(b) "Total state revenues" means the combined increases in net current assets of the general fund and special revenue funds, except for component units included within the special revenue group for reporting purposes only. For fiscal years beginning after September 30, 1986, total state revenues shall be computed on the basis of generally accepted accounting principles as defined in this act. However, total state revenues shall not include the following:

(i) Financing sources which have previously been counted as revenue, for the purposes of section 26 of Article IX such as, beginning fund balance, expenditure refunds, and residual-equity and operating transfers from within the group of funds.

(ii) Current assets generated from transactions involving fixed assets and long-term obligations in which total net assets do not increase.

(iii) Revenues which are not available for normal public functions of the general fund and special revenue funds.

(iv) Federal aid.

(v) Taxes imposed for the payment of principal and interest on voter-approved bonds and loans to school districts authorized under section 16 of Article IX of the state constitution of 1963.

(vi) Tax credits based on actual tax liabilities or the imputed tax components of rental payments, but not including the amount of any credits not related to actual tax liabilities.

(vii) Refunds or payments of revenues recognized in a prior period.

(viii) The effects of restatements of beginning balances required by changes in generally accepted accounting principles.

(c) The calculation of total state revenues required by section 350b(3) [M.C.L. § 18.1350b(3)] shall not be adjusted after the filing of the report required by June 30, 1989, unless future changes in generally accepted accounting principles would substantially distort the comparability of the base year and the current and future years. In no event shall intervening years be recalculated.

B. Reporting Requirements

Before 1986, the revenue limit had not been officially calculated and there was no annual report of compliance with the revenue limit. Some evidence existed that the limit may have been exceeded in FY 1984-85. The upshot was an intensive review by the Governor's Office and the Legislature of the original methodology used to determine the tax limit. This review produced a limit of 9.49 percent, compared to the 10.1 percent limit that had been widely accepted before 1986. The 9.49 percent limit was approved by the Auditor General in 1986. (5) Following this interbranch review, the Legislature enacted a law that not only requires the Director of the Department of Management and Budget to submit a report that calculates the revenue limit on an annual basis, but also requires the Director and the State Treasurer to prepare an annual report that summarizes in detail the State's compliance with the revenue limit. (6) That report is in turn reviewed by the Auditor General who examines the past and present methodology of calculating revenues.

C. Refunds of Excess Revenues.

The second paragraph of Section 26 provides that taxpayers are to receive a refund if tax revenues exceed the limit by 1 percent or more. Legislation was enacted in 1988 that clarifies that refunds are predicated on revenues (not personal income) exceeding the revenue limit by 1 percent. M.C.L. § 18.1350d sets forth the revenue refund procedure:

(1) The procedures enumerated in this section shall be followed when revenues are required to be refunded pursuant to section 26 of Article IX of the state constitution of 1963.

(2) For any fiscal year in which total state revenues exceed the revenue limit as provided in section 26 of Article IX of the state constitution of 1963 by 1% or more, the revenues in excess of the revenue limit shall be refunded pro rata based on the liability reported on the state income tax return filed pursuant to section 441 of Act No. 281 of the Public Acts of 1967, being section 206.441 of the Michigan Compiled Laws, and the single business tax return filed pursuant to section 97 of Act No. 228 of the Public Acts of 1975, being section 208.97 of the Michigan Compiled Laws, for the taxpayer's tax year beginning in the fiscal year for which it is determined that the revenue limit has been exceeded.

(3) A refund shall not be required if total state revenues exceed the revenue limit by less than 1%.

(4) If total state revenues exceed the revenue limit by less than 1%, the

governor shall recommend to the legislature that the excess be appropriated to the countercyclical budget and economic stabilization fund, or its successor.

(5) A refund required pursuant to this section shall be refunded during the fiscal year beginning on the October 1 following the filing of the report required by section 350e [M.C.L. § 18.1350e] which determines that the limit was exceeded in the prior fiscal year for which the report was filed.

A Headlee Amendment refund was authorized by the Legislature in 1995 in the form of a tax credit equal to 2 percent of the taxpayer's tax liability for the 1995 tax year. See M.C.L. § 206.252.

 

The second paragraph of Section 26 provides further that "[i]f the excess is less than 1%, this excess may be transferred to the State Budget Stabilization Fund [italics added]." Although M.C.L. § 18.1350e(4) requires the Governor to recommend that revenues that are less than 1 percent in excess of the limit be placed in the budget stabilization fund, there is no provision in the implementing legislation that requires the Legislature to accept the Governor's recommendation, nor is there any provision for an alternative disposition of such excesses in the event the Legislature does not accept his recommendation. Political pressure presumably would be brought to bear on the Legislature to either accept the Governor's recommendation and deposit the excess in the budget stabilization fund or, in the alternative, refund the excess to taxpayers.

D. Adjustments to the Revenue Limit.

The last paragraph of Section 26 provides for an adjustment of the revenue limit in the event that responsibility for funding a program is transferred from the local to the state level, or vice versa, pursuant to constitutional amendment. In addition, the last paragraph states that the total revenue collected after the change may not exceed the amount authorized before the transfer. (7)

E. Imposition of New State Taxes.

According to the Attorney General, Sections 25 and 26 do not prevent the state from imposing new taxes, so long as the projected revenues therefrom, together with all other state revenues, do not exceed the revenue limit of Section 26. In an opinion issued in 1986, the Attorney General was asked whether the state excise taxes on hotel rooms and liquor (M.C.L. §§ 207.621, 436.141) that are credited to the convention facility development fund violate the Headlee Amendment. Based upon projections for FY 1986, all revenues collected, including those from the subject state excise taxes, would not exceed the Section 26 revenue limit. Therefore, the Attorney General concluded that the state excise taxes do not violate Section 26. (8)

 

III. Article IX, § 27: The Fiscal Emergency Exception.

 

 

Section 27 of Article IX is a safety valve in the event of a fiscal emergency. It permits a one-year suspension of the Section 26 revenue limit upon the Governor's request and the two-thirds concurrence of the Legislature. Section 27 provides in full:

The revenue limit of Section 26 of this Article may be exceeded only if all of the following conditions are met: (1) The governor requests the legislature to declare an emergency; (2) the request is specific as to the nature of the emergency, the dollar amount of the emergency, and the method by which the emergency will be funded; and (3) the legislature thereafter declares an emergency in accordance with the specific of the governor's request by a two-thirds vote of the members elected to and serving in each house. The emergency must be declared in accordance with this section prior to incurring any of the expenses which constitute the emergency request. The revenue limit may be exceeded only during the fiscal year for which the emergency is declared. In no event shall any part of the amount representing a refund under Section 26 of this Article be the subject of an emergency request.

No Section 27 emergency has been declared to date.

 

IV. Article IX, § 28: The State Expense Limit

 

 

Working hand-in-glove with the Section 26 revenue limit is the Section 28 expense limit. Section 28 prohibits deficit spending and provides in full:

 

No expenses of state government shall be incurred in any fiscal year which exceed the sum of the revenue limit established in Sections 26 and 27 of this Article plus federal aid and any surplus from a previous fiscal year.

The Legislature enacted the following implementing legislation for Section 28 entitled, limitation on expenditures of state government": (9)

(1) Expenditures of state government which exceed the sum of the following amounts shall not be incurred in any fiscal year:

(i) The revenue limit established in section 350b [M.C.L. § 18.1350b].

(ii) A surplus from a previous year.

(iii) Federal aid.

(iv) Taxes imposed for the payment of principal and interest on bonds, approved by the voters and authorized under section 15 of Article IX of the state constitution of 1963.

(v) Loans to school districts authorized under section 16 of Article IX of the state constitution of 1963.

(vi) The dollar amount of an emergency established pursuant to section 27 of Article IX of the state constitution of 1963.

(vii) Other amounts excluded from the calculation of the revenue limit under the definition established in section 350a [M.C.L. § 18.1350a].

(2) For the purposes of this section, an amount withdrawn from the countercyclical budget and economic stabilization fund created pursuant to section 351 [M.C.L. § 18.1351] shall be considered a surplus.

Since 1978, the annual state budget has been under the Section 26 revenue limit. Consequently, Section 28 has not been the subject of litigation.

 

V. Article IX, § 29: The Maintenance-of-Support Clause

 

 

Having placed a limit on state spending under the terms of Sections 26 and 28, the Headlee Amendment prevents the state from circumventing these limits either by shifting the burden of administering state-mandated programs to units of local government without the requisite funds to carry them out, or by reducing the state's proportion of spending for mandated programs in effect when the Headlee Amendment was ratified. Section 29 of the Headlee Amendment closes these loopholes. (10)

 

Section 29 of the Headlee Amendment, also known generally as the maintenance-of-support clause, contains two prohibitions on the State. First, the State is prohibited from reducing the state-financed proportion of the necessary costs of any activity or service required under state law of local governmental units prior to the adoption of the Headlee Amendment. Second, the State is prohibited from requiring new activities or services or an increase in new activities or services of units of local government without a state appropriation and disbursement of funds to pay for the increased costs since the adoption of the Headlee Amendment. Section 29 provides:

 

The state is hereby prohibited from reducing the state financed proportion of the necessary costs of any existing activity or service required of units of Local Government by state law. A new activity or service or an increase in the level of any activity or service beyond that required by existing law shall not be required by the legislature or any state agency of units of Local Government, unless a state appropriation is made and disbursed to pay the unit of Local Government for any necessary increased costs. The provision of this section shall not apply to costs incurred pursuant to Article VI, Section 18 [governing salaries of judges].

Section 29 is thus intended to prevent a reduction below 1979 levels in the proportion of state funding for state-mandated activities and services, and to prevent unfunded state mandates for new or increased activities and services after 1979. A unit of local government that carries out a state-mandated program in 1998 is entitled to receive the same percentage of funding that the state provided for that program on a statewide basis in the base year 1978-79 (this is only applicable, of course, for state-mandated programs in effect in 1978-79). For example, assume that in the base year 1978-79 the statewide necessary costs to units of local government to carry out state-mandated Program A were $2 million, and that the State funded and disbursed a total of $1 million to units of local government in connection with Program A. The base-year percentage would be 50 percent. Next assume that in 1994-95 (the payout year), the statewide necessary costs to units of local government of Program A were $4 million, but that the State funded and disbursed a total of $1.75 million to units of local government for Program A. The payout-year percentage would be 43.75 percent. The State would have underpaid 6.25 percent (50-43.75), or $250,000 (6.25% x $4 million).

 

In Schmidt v. Department of Education, (11) the Supreme Court filled in one of the gaps in Section 29 of the Headlee Amendment, namely, what is the correct methodology for determining whether the state is meeting its obligation to maintain existing levels of funding to units of local government. The Court had the parties in Schmidt brief the three competing methods of determining the state's compliance with Section 29: (1) state-to-state, (2) state-to-local, and (3) local-to-local. As explained by two commentators:

 

To illustrate the three competing approaches, assume that when the Headlee Amendment was adopted, state funding in the aggregate to local units for Service X was 50 percent of the aggregate costs of Service X statewide, with state funding to District A for Service A at 40 percent of the total cost of Service X to District A and state funding to District B for Service X at 60 percent of the total cost of Service X to District B. Under the state-to-state method, the state is obliged to continue aggregate funding at 50 percent of aggregate costs, while the costs of providing Service X in particular districts is not determinative. The state-to-local method requires the state to fund both districts at a level of 50 percent of the districts' costs for providing Service X, representing an increase in District A's funding and a decrease in District B's funding. Under the local-to-local method, the state must continue funding each local unit at the level in effect at ratification of Headlee, such that District A's funding is continued at 40 percent of its costs to provide Service X and District B's funding is continued at 60 percent of its costs to provide Service X. (12)

The Court in Schmidt adopted the state-to-local approach, observing that the first sentence of Section 29 focuses on a single proportionate obligation by the state measured during the base year, while the second sentence refers to unit and governmental body in the singular. This suggested to the Court that the framers intended that the state's obligation ran to each unit of local government.

 

In one of Schmidt's progeny, Mayor of Detroit v. State of Michigan, (13) the Court of Appeals held that Act 374, abolishing Detroit Recorder's Court and merging it with the Wayne Circuit Court, does not violate Section 29 of the Headlee Amendment. The Court examined the method of funding state trial court operations in 1978 -- the Headlee base year -- with the method required under Act 374. The Court concluded that Act 374 neither mandates new activities for local units vis-a-vis the state in comparison with 1978, nor does it increase the level of activity required of local units. Despite the fact that a particular local unit (i.e., Wayne County) may now be financing activities previously financed by another local unit (i.e., the City of Detroit) does not result in a Headlee violation, according to the Court:

 

The Headlee Amendment does not directly address state mandates that result in shifts among local units or reductions in post-1978 state subsidies for particular units; it only guarantees that each local unit will receive the same proportion of state funding provided on a statewide basis in the base year of 1978. (14)

In the Court's view, Act 374 merely continues existing activities, as opposed to mandating new activities or increasing the level of existing activities. The only issue is whether Act 374 reduces the state-financed proportion of the necessary costs of trial court operations to the units at issue from that provided on a statewide basis in 1978. The Court found that in 1978 the only state contribution to trial court operations was financing a portion of judicial salaries, and that the state is still providing at least the same proportion of the total necessary costs of trial court operations to the units at issue as it provided on a statewide basis in 1978. (15)

 

Finally, in 1995, Wayne County brought an action in the Court of Claims against the State seeking money damages for an alleged violation of the unfunded state mandate provision of Section 29. In Wayne County Chief Executive v. Engler, 230 Mich. App. 258, 583 N.W.2d 512 (1998), the Court of Appeals held that (1) money damages are neither a necessary not proper remedy in a suit in which a violation of the second sentence of Section 29 is established; (2) the Court of Claims lacks subject-matter jurisdiction to hear Headlee Amendment claims because money damages are not a remedy available in a suit brought pursuant to the second sentence of Section 29; and (3) because money damages are not an available remedy in a suit brought pursuant to the second sentence of Section 29, neither the one-year limitations period governing Headlee taxpayer suits nor the three-year limitations period governing actions brought in the Court of Claims is applicable. (16)

A. The Implementing Legislation.

The implementing legislation for Section 29 is at M.C.L. §§ 21.231-21.244. It contains the following four provisions.

 

First, in connection with disbursements of state funds to units of local government, the Department of Management and Budget (DMB) is responsible for administering the disbursement of state funds to units of local government. It publishes guidelines and forms for units of local government when submitting a claim for disbursement. (17) The implementing legislation requires an initial advance disbursement in accordance with a schedule of estimated payments that is adequate to meet state requirements as they fall due. The Governor is required to recommend to the Legislature those amounts which the Governor determines are required to be made to each unit of local government and the total amount of state disbursements required for all units of government. In the event a deficiency arises, the State Budget Director is to prorate the appropriated amounts among the eligible units of local government and is to recommend a supplemental appropriation to the Legislature sufficient to cover the deficiency. (18)

 

Second, regarding administrative rules promulgated by a state agency that either mandate new activities or services to be performed by units of local government or which increase the level of activity or service beyond that required by existing law, the state agency promulgating the administrative rule must submit a fiscal note to the Joint Committee on Administrative Rules and to the Director of DMB. The fiscal note must estimate the cost of the rule for the first three years of the rule's operation. The Department is to submit a request for an appropriation, if necessary, for all rules approved by JCAR. The Legislature is then to appropriate the amount required as stated in the Department's request. (19)

 

Third, the Legislature is required to promulgate joint rules that provide a method of identifying whether or not legislation creates a state mandate on units of local government, and that provide a method of estimating the revenue needed to reimburse units of local government. (20) The Legislature has never promulgated these joint rules.  Instead, the Senate and House Fiscal Agencies make regular estimates for the Legislature of any costs that proposed legislation will impose on the state and units of local government. (21) In addition, the implementing legislation to Section 29 directs the DMB to submit an annual report to the Legislature that includes the following information: (22)

(1) [T]he department shall collect and tabulate relative information as to the following:

(a) The state financed proportion of the necessary cost of an existing activity or service required of units of local government by existing law.

(b) The nature and scope of each state requirement which shall require a disbursement under section 5.

(c) The nature and scope of each action imposing a potential cost on a local unit of government which is not a state requirement and does not require a disbursement under this act.

(2) The information shall include:

(a) The identity or type of local unit and local unit agency or official to whom the state requirement or required existing activity or service is directed.

(b) The determination of whether or not an identifiable local direct cost is necessitated by state requirement or the required existing activity or service.

(c) The amount of state financial participation, meeting the identifiable local direct cost.

(d) The state agency charged with supervising the state requirement or the required existing activity or service.

(e) A brief description of the purpose of the state requirement or the required existing activity or service, and a citation of its origin in statute, rule, or court order.

Fourth, in order to administratively resolve cases involving disputed facts, the Section 29 implementing legislation creates the Local Government Claims Review Board within DMB. (23) It consists of nine members appointed by the Governor with the advice and consent of the Senate. Each member is appointed for a three-year term. At least four members of the Board must be representatives of local government. The Board's function is set forth in Section 10(4) of the implementing legislation: (24)

[T]he Board shall hear and decide upon disputed claims or upon an appeal by a local unit of government alleging that the local unit of government has not received the proper disbursement from funds appropriated for that purpose.

If the Board approves a claim, a concurrent resolution of the Legislature must be adopted before the claim is paid. Appeals are limited to the following issues:

(a) An appeal alleging that the director has incorrectly reduced payments to a local unit of government pursuant to section 5(4) [M.C.L. § 21.235(4)].

(b) An appeal alleging that the director has incorrectly or improperly reduced the amount of a disbursement when a claim was submitted pursuant to section 8(2) [M.C.L. § 21.238(2)].

(c) An appeal alleging that the local unit of government has not received a proper disbursement of funds appropriated to satisfy the state financed proportion of the necessary costs of an existing activity or service required of a local unit of government by existing law, pursuant to section 12 [M.C.L. § 21.242].

The statute directs the DMB to adopt Board procedures for receiving claims, including a procedure for a hearing on a claim if so requested by a local unit of government. (25) The DMB adopted such procedures in 1987 that can be found in the Michigan Administrative Code, Rules 21.101-21.401.

 

The most significant jurisdictional limitation of the Local Government Claims Review Board is that it has no power to hear cases brought by taxpayers challenging violations of the Headlee Amendment. As explained below, Section 32 of Article IX makes the Court of Appeals a court of original jurisdiction to which taxpayers may bring Headlee Amendment challenges.

 

The Headlee Commission noted in late 1994 that the Local Government Claims Review Board has been underutilized. The Commission's Report observed:

Although claims have been filed with the state, the Claims Review Board has never met to review those claims. This has principally occurred because the issues pending before the Board have been tied up in the Durant litigation. The ongoing delay in that litigation has unfortunately discouraged local units from filing claims on other issues. (26)

It seems safe to conclude that the Local Government Claims Review Board has not yet realized its full potential.

B. The Meaning of the Term "Necessary Costs."

Section 29 prohibits the State from reducing the state-financed proportion of the necessary costs of any existing activity or service required of units of local government under state law. The Legislature has defined the term "necessary cost" to mean

the net cost of an activity or service provided by a local unit of government. The net cost shall be the actual cost to the state if the state were to provide the activity or service mandated as a state requirement, unless otherwise determined by the legislature when making a state requirement. Necessary cost does not include the cost of a state requirement if the state requirement satisfies 1 or more of the following conditions:

(a) The state requirement cost does not exceed a de minimus [sic] cost.

(b) The state requirement will result in an offsetting savings to an extent that, if the duties of a local unit which existed before the effective date of the state requirement are considered, the requirement will not exceed a de minimus cost.

(c) The state requirement imposes additional duties on a local unit of government which can be performed by that local unit of government at a cost not to exceed a de minimus cost.

(d) The state requirement imposes a cost on a local unit of government that is recoverable from a federal or state categorical aid program, or other external financial aid. A necessary cost excluded by this subdivision shall be excluded only to the extent that it is recoverable. (27)

The term "de minimis cost" is defined as "a net cost to a local unit of government resulting from a state requirement which does not exceed $300.00 per claim." (28)

 

In Durant v. State Board of Education (Durant II), (29) the Michigan Supreme Court addressed the issue of what constitutes a "necessary cost" within the meaning of the maintenance-of-support provision of Article IX, § 29. (The term "necessary costs" and "necessary increased costs" are both found in Section 29, the latter term being used in the context of post-Headlee state mandates. Presumably, the courts would interpret both terms in the same manner.) The plaintiffs in Durant II argued that the term "necessary costs" means "useful or beneficial," citing in support McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819), the seminal U.S. Supreme Court decision interpreting the "necessary and proper" clause of Article I, § 8, cl. 18 of the U.S. Constitution. The defendants in Durant II argued that "necessary" was synonymous with "essential or indispensable." The state defendants urged the Court to adopt the Legislature's definition of "necessary costs" found in the implementing legislation quoted above. The Court accepted the defendants' argument and concluded that the more limited definition of the term "essential or indispensable" was in keeping with the voters' intent. (30) The Court approved the Legislature's definition of "necessary costs" found in the first part of the implementing legislation. The Court agreed that the Legislature's use of the actual cost to the State if it provided the service is a legitimate benchmark, adding that the actual market cost would also be a reliable measure. (31)

 

The Court of Appeals has cautioned that the "actual costs" a unit of local government incurs is not necessarily to be equated with "necessary costs." (32) At the same time, however, "incremental costs" of providing a state-mandated program (e.g., special education) do not necessarily equate with "necessary costs" because of the existing infrastructure provided by a regular education program that would have to be furnished to special education students in the absence of a regular education program. (33) In one of the last phases of the Durant litigation, the Court of Appeals held that once it is established that an activity or service is required by state law (discussed below), the plaintiff has the burden of showing what the actual cost to all units of local government was of carrying out the state-mandated activity or service. Once a prima facie case is established, the burden then shifts to the State to show that these "actual costs" were not "necessary costs." (34) In an earlier phase of the Durant litigation, the Court of Appeals held that "necessary costs" would be the least expensive among alternative methods by which a unit of local government could satisfy the state-mandated activity or service. (35)

 

In Durant II, The Michigan Supreme Court invalidated the Legislature's exclusion in M.C.L. § 21.233(6)(d) from necessary costs "a cost on a local unit of government that is recoverable from a federal or state categorical aid program, or other external financial aid." The Court stated that as long as the activity is state-mandated, even if federally-funded in part, to the extent the State uses that section of the implementing legislation to reduce the amount of categorical school aid and to require units of local government to make up the difference through the use of outside funding, the statute violates the Headlee Amendment's prohibition on reductions in the proportion of state aid below 1978-79 levels for specific requirements imposed by statute or state agency rule. (36)

C. The Meaning of the Term "Required . . . by State Law."

What is the meaning of the phrase "required . . . by state law," found in Article IX, § 29? In the implementing legislation for Section 29, the Legislature has conflated the terms "required" and "state law" into the single term "state requirement." It defines "state requirement" as follows: (37)

"State requirement" means a state law which requires a new activity or service or an increased level of activity or service beyond that required of a local unit of government by an existing law.

The Legislature has excluded from its definition of "state requirement" the following:

(a) A requirement imposed on a local unit of government by a state statute or an amendment to the state constitution of 1963 adopted pursuant to an initiative petition, or by a state law or rule enacted or promulgated to implement such a statute or constitutional amendment.

(b) A requirement imposed on a local unit of government by a state statute or an amendment to the state constitution of 1963, enacted or adopted pursuant to a proposal placed on the ballot by the legislature, and approved by the voters, or by a state law or rule enacted or promulgated to implement such a statute or constitutional amendment.

(c) A court requirement.

(d) A due process requirement.

(e) A federal requirement.

(f) An implied federal requirement.

(g) A requirement of a state law which applies to a larger class of persons or corporations and does not apply principally or exclusively to a local unit or units of government.

(h) A requirement of a state law which does not require a local unit of government to perform an activity or service but allows a local unit of government to do so as an option, and by opting to perform such an activity or service, the local unit of government shall comply with certain minimum standards, requirements, or guidelines.

(i) A requirement of a state law which changes the level of requirements, standards, or guidelines of an activity or service that is not required of a local unit of government by existing law or state law, but that is provided at the option of the local unit of government.

(j) A requirement of a state law enacted pursuant to section 18 of Article 6 of the state constitution of 1963.

The terms "court requirement," "due process requirement," "federal requirement," and "impled federal requirement" are defined at M.C.L. §§ 21.232(3), 21.232(7), 21.233(2), and 21.233(3), respectively. (38)

1. Are state constitutional provisions within the scope of the term "state law" found in Article IX, § 29?

In Durant II, the Michigan Supreme Court addressed the issue of whether state constitutional provisions are within the scope of the term "state law" as used in Article IX, § 29. The specific issue was whether the constitutional mandate of Article VIII, § 2 for a free public education is a "state law" for purposes of Section 29. The Supreme Court answered this question in the negative, holding that it was not the intent of the voters to include in Section 29 any obligations that may be imposed upon local governmental units by Article VIII, § 2 of the Constitution (and, by a parity of reasoning, by any other provision of the State Constitution), with the expressly stated exception of Article VI, § 18. (39) Reading the first and second sentences of Section 29 as being in pari materia, the Court concluded that the term "state law" found in the first sentence of Section 29 refers to state statutes and state agency rules, given that the phrase "required by the legislature or any state agency" is used in the second sentence of Section 29. (40) The Court added that a restrictive view of the term "state law" is warranted because ballot proposals are carefully scrutinized in Michigan to eliminate any possibility of confusion. (41)

2. What activities or services are "required" under state law?

Section 29's freeze on the proportion of state money paid to units of local government to defray their necessary costs applies only to activities or services that are required by state law and that are funded, in whole or in part, by the State. The courts have held that the State is not obligated to reimburse units of local government for increased or expanded activities or services if the initial activity or service is optional. Michigan courts have been asked to determine whether certain activities and services performed by units of local government are "required" by state law, as that term is used in Article IX, § 29. The following cases are illustrative.

a. Public Education.

In Durant II, the Supreme Court concluded that free public education, being required under the State Constitution, is thus not required under state law as that term is used in Section 29, notwithstanding M.C.L. § 380.1284 that requires 180 days of school. Federally-mandated educational programs administered by the State also are not within the ambit of Section 29. (42) However, if the activity or service is also mandated under state law, such as special education programs, then it is within the ambit of Section 29. (43)

b. Fire Protection.

The State is not required to reimburse a municipality for fire protection for state-owned buildings because municipalities are not required by state law to provide fire protection services. (44) Similarly, because municipalities are not required to provide fire protection under state law, state-mandated overtime compensation to firefighters is outside the scope of Section 29. (45)

c. Waste Disposal and Other Public Works Projects.

Because a county is not required to operate a solid waste disposal site, the State is not required to reimburse the county for upgrading a landfill in order to comply with a state environmental law. (46) Similarly, the costs associated with implementing state requirements regarding sewage disposal systems operated by municipalities are not within the scope of Section 29 because sewage disposal is an optional, not a mandatory, activity under state law. (47)

 

The Attorney General has issued an opinion that M.C.L. § 339.2011, requiring units of local government engaged in public works projects to use licensed architects, engineers, and land surveyors where project costs are $15,000 or more, is not within the scope of Section 29 because units of local government are under no state-mandated obligation to engage in public works projects. (48)

d. Assistance to the Accused and to Crime Victims.

The Attorney General has issued an opinion that state law requiring county prosecutors to assist the accused in locating and serving witnesses is within the scope of Section 29, as is services to crime victims to be provided by county prosecutors pursuant to the Crime Victim's Rights Act, M.C.L. §§ 780.751 et seq. (49)

D. The Method of Funding New State Mandates.

If a unit of local government is mandated by state law to perform a new activity or service, must the Legislature enact a new appropriation that specifically identifies and provides the necessary funds, or may the Executive Branch reimburse the unit of local government from the existing budget? In Mahaffey v. Att'y General, (50) plaintiffs brought a federal and state constitutional challenge of 1993 legislation that required physicians to provide information to female patients contemplating an abortion. In the context of the Headlee Amendment, the Attorney General conceded that the informed consent law requires new activities or services to be performed by local public health departments. The funding for this new activity or service was to come from the Department of Health's existing budget. The plaintiffs argued that any funding had to come from a specific appropriation from the Legislature earmarked for that purpose. The Court of Appeals agreed with the Attorney General's position that the Headlee Amendment does not require the Legislature to enact a new appropriation specifically identifying and providing funds for new services required of units of local government. The Court stated that Article IX, § 29 requires only that a state appropriation be made to pay the local governmental unit for any increased costs. In accord with the voters' call for responsible and cost-efficient government reflected in the Headlee Amendment, the executive branch may fund a new activity or service required of units of local government by the Legislature from an existing appropriation. (51)

 

 

VI. Article IX, § 30: Prohibition Against Reducing the Proportion of Total State Funds Paid to Local Government

 

Section 30 of the Headlee Amendment is a corollary to Section 29. While Section 29 ensures that the proportion of state money paid to local government to cover necessary costs will not drop below FY 1978-79 levels, Section 30 provides that the percentage of the total state budget earmarked for local government spending will not decline from the FY 1978-79 level. Section 30 provides:

The proportion of total state spending paid to all units of Local Government, taken as a group, shall not be reduced below that proportion in effect in fiscal year 1978-79.

The DMB has determined that the FY 1978-79 proportion of state pending for local government is 41.61 percent. The DMB used three criteria to determine whether state spending was paid to a unit of local government: (1) the unit must be a governmental entity; (2) the unit must receive payment from the State; and (3) the source of the payment must be from state-raised revenues rather than from federal funds or private or local funds that might flow through the state treasury. (52) According to the DMB, the state has failed to meet that percentage in only two years, FY 1981-82 when the percentage of state spending on units of local government was 41.34 percent, and FY 1982-83 when the percentage of state spending on units of local government was 41.25 percent.

A. The Implementing Legislation.

The current version of the Section 30 implementing legislation was first enacted in 1984, with substantial amendments in 1988. First, M.C.L. § 18.1349 provides:

In accordance with the provision of section 30 of Article IX of the state constitution of 1963, the proportion of total state spending from state sources paid to all units of local government shall not be less than the proportion in effect in fiscal year 1978-1979. The executive budget submitted to the legislature and the budget enacted by the legislature shall be in compliance with section 30 of Article IX of the state constitution of 1963.

Second, M.C.L. § 18.1350 addresses the accounting methodology for certain aspects of state spending. It provides:

(1) If state government assumes the financing and administration of a function, after December 22, 1978, which was previously performed by a unit of local government, the state payments for the function shall be counted as state spending paid to units of local government.

(2) Amounts excepted from the financial liability of a county under section 302(2)(c) of the mental health code, Act No. 258 of the Public Acts of 1974, being section 330.1302 of the Michigan Compiled Laws, shall be counted as state spending paid to local units of government.

(3) State spending paid to units of local government shall include the same proportion of the state's short-term interest and interfund borrowing expense as the proportion of state spending from state resources paid to all units of local government, as is established pursuant to section 349 [M.C.L. § 18.1349, quoted immediately above.]

(4) Refunds or other repayments of prior year revenues shall not be considered in the determination of total state spending.

Third, the Legislature has enacted definitions of the terms "state spending paid to units of local government," "total state spending," "total state spending from state sources," and "unit of local government." (53)

 

Fourth, the Legislature has directed the State Budget Director to make an annual report to the Legislature of Section 30 funding. (54) It has also adopted a procedure for making up deficiencies in Section 30 funding that requires that deficiencies be made up in the fiscal year following the fiscal year in which the deficiency in payments was identified and reported to the Legislature. (55)

 

Finally, the Legislature has established a local government payment fund when additional state funding to units of local government is required under Section 30. (56)

B. Judicial Interpretation of Section 30.

The Section 30 case law is sparse. The Supreme Court has rejected the argument that Section 30 means that state funds paid to individual units of local government (e.g., school districts) must remain in the same proportion as it was in FY 1978-79. In Durant II, the Court dismissed this contention, noting:

The clear language of this provision makes it unnecessary to explore this issue further. The term "taken as a group" clearly requires that the overall percentage allotment of the state budget for local units of government must remain at 1978 levels. We decline to accept a strained interpretation of an unambiguous statement of intent by the voters. (57)

Likewise, the Court of Appeals has held that Section 30 does not require the State to allocate a fixed percentage of its budget to a specific purpose or unit of local government (e.g., to public education or to school districts). (58) At the same time, however, in satisfying its Section 30 obligation, the State may not categorize as state spending to units of local government payments made to reimburse a local governmental unit for providing a service that was the state's obligation to provide in 1978. (59) Thus, even when state funds are paid to a unit of local government, for purposes of Section 30 such funds cannot be counted as "state spending paid to all units of local government" when the local governmental unit is merely discharging the state's obligation. (60) If a contrary interpretation of Section 30 was adopted, then in times of shrinking state budgets, adding state payments for such programs to the category of state spending on units of local government could dilute the amount of state money paid to programs originally included in the 41.61-percent base-year level.

 

VII. Article IX, § 31: Prohibition Against New or Increased
Local Taxes Without Voter Approval

 

While the focus of Article IX, §§ 26-30 is on state government revenue and spending limits, the focus of Article IX, § 31 is on limiting the power of local government to tax. Article IX, § 31 provides:

Units of Local Government are hereby prohibited from levying any tax not authorized by law or charter when this section is ratified or from increasing the rate of an existing tax above that rate authorized by law or charter when this section is ratified, without the approval of a majority of the qualified electors of that unit of Local Government voting thereon. If the definition of the base of an existing tax is broadened, the maximum authorized rate of taxation on the new base in each unit of Local Government shall be reduced to yield the same estimated gross revenue as on the prior base. If the assessed valuation of property as finally equalized, excluding the value of new construction and improvements, increases by a larger percentage than the increase in the General Price Level (61) from the previous year, the maximum authorized rate applied thereto in each unit of Local Government shall be reduced to yield the same gross revenue from existing property, adjusted for changes in the General Price Level, as could have been collected at the existing authorized rate on the prior assessed value.

 

The limitations of this section shall not apply to taxes imposed for the payment of principal and interest on bonds or other evidence of indebtedness or for the payment of assessments on contract obligations in anticipation of which bonds are issued which were authorized prior to the effective date of this amendment.

The first two sentences of Section 31 have three main features. First, voter approval is required for any new local tax or any increase in the rate of an existing tax.

 

Second, if the base upon which any existing tax is expanded, then the rate must be reduced. For example, assume the state law establishing the base of the general property tax was amended to eliminate one or more of the current exemptions, with the result that the state equalized value of all property (the tax base) is increased. In that event, the maximum authorized property tax rate in each unit of local government would have to be reduced so that the total property tax levy of each local governmental unit would not increase as a result of the change in the base. This part of Section 31 prevents an increase in the total revenue yield that results from changes in the tax base.

 

Third, the tax rate that is limited by Section 31 is "the rate authorized by law" or "the maximum authorized rate." This tax rate limitation ties into Article IX, § 6 which requires voter approval for any millage increase.

 

The third sentence of Section 31 is arguably the most well-known part of the Headlee Amendment, at least for property owners in the State. It creates a mechanism for reducing property taxes when assessments increase faster than the rate of inflation. This sentence of Section 31 provides for what is popularly known as "Headlee rollbacks." The provision undergirds the first two sentences of Section 31 that require voter approval for new or increased local taxes and that require a proportional reduction in the rate of any existing local tax when the base is broadened. A millage that is allocated from the basic 15 mills or the separate 18 mill tax limitation established under Article IX, § 6 is subject to Headlee rollbacks. As observed by the Attorney General:

Thus, for example, if the property tax revenue of a township is generated by one of the 15 mills received from the annual allocation and the assessed valuation as equalized of property in the township increases by a greater percentage than the increase in the General Price Level, that one mill rate must be "rolled back" as provided in Const. 1963, art. 9, § 31 unless the qualified electors in that township vote to restore that tax rate or vote for additional millage. (62)

To illustrate, if the state equalized value of property in a unit of local government is $10 million and rises to $11 million in the following year, exclusive of new construction, there would be a 10-percent increase in the state equalized value. If the Consumer Price Index increases by only 6 percent, Section 31 requires that the property tax rate in the local governmental unit be reduced so that the tax levy on existing property increases by no more than 6 percent. Thus, if the total tax levy of the local governmental unit had been $200,000 in Year 1 (i.e., 20 mills x $10 million), in Year 2 the total tax levy on existing property may not exceed $212,000 ($200,000 x 1.06). Because the new state equalized value of existing property is now $11 million and the maximum authorized rate of taxation is $212,000, the millage must be reduced to 19.273 mills ($212,000 maximum tax levy $11 million state equalized value). Any new construction added to the tax rolls will be taxed at the rolled-back millage rate of 19.273 mills. The Legislature has enacted an implementing statute for the Headlee rollback provision. It also enacted legislation in 1993 providing for Headlee "rollups." The implementing legislation is discussed below in Section D of this Part.

 

The last sentence of Section 31 excludes preexisting debt service taxes and ties into Article IX, § 6, the latter provision authorizing the repayment of general obligation bonds with unlimited taxes. After the Headlee Amendment, voter approval is now required before new general obligation bonds can be issued that are to be repaid with unlimited taxes. General obligation bonds are to be distinguished from limited tax general obligation (LTGO) bonds. A unit of local government may issue LTGO bonds without voter approval because they are paid from taxes the issuing unit of government is authorized to impose by law and other non-tax revenues the issuer may receive. The use of LTGO bonds has been criticized by the Headlee Commission as a subversion of the restrictions imposed on units of local government by the Headlee Amendment because they tie the hands of successor governments and erode the voting power of the people. (63)

A. What Constitutes a "Local Tax" Under Section 31?

The plain language of Article IX, § 31 prohibits local governmental units from levying any new taxes or increasing any existing tax beyond the maximum authorized rate after December 23, 1978, unless local voters approve the levy. What if the Legislature enacts a new tax that directly benefits certain localities? Examples of such taxes include the city utility users tax that benefits Detroit, M.C.L. § 141.801; (64) the airport parking excise tax that largely benefits Wayne County, M.C.L. § 207.371; the convention and tourism marketing taxes, M.C.L. §§ 141.871, 141.881, 141.891; and the Tiger Stadium tax, M.C.L. § 207.751, which authorizes an excise tax to be levied on hotel and motel accommodations.

 

The basic focus in answering the question of what is a "local tax" under Section 31 is on the entity responsible for levying the tax. If the entity responsible for levying the tax is the Legislature, then the tax is a state tax for purposes of Section 31, even if the tax benefits localities. (However, such a state tax would then be subject to the limits of Article IX, § 26.) The leading case on this issue is Airlines Parking, Inc. v. Wayne County. (65) There, the Michigan Supreme Court held that the airport parking tax that is levied on parking facilities within 5 miles of Metropolitan Airport (66) is a state excise tax, not a "local" tax. The Court noted that "because it is at least theoretically possible that the state could levy a tax that was local in character, the entity imposing the tax in question may not conclusively resolve the Headlee question." (67) Notwithstanding that some local governmental units directly benefit from the tax (tax receipts are distributed to Wayne County monthly), the Court nevertheless found that the tax is a state tax because it is styled as a state tax, is structured as a state tax, serves a state purpose, was enacted by the Legislature, is collected by the state, and is distributed by the state. In contrast, the Court added, local taxes are collected by local government, are administered directly by that local entity, and are spent by the local government according to local fiscal policy.

B. Local Tax Increases Necessitated By A Court Judgment.

If a local tax increase becomes necessary in order to satisfy a court judgment, is that tax increase outside the scope of Section 31's prohibitions? The Revised Judicature Act authorizes a court to order the levy of ad valorem (i.e., by value) property taxes to satisfy a money judgment entered against enumerated types of local governmental units. (68) The RJA also provides generally that if a judgment is rendered against any municipality, the legislative body of that municipality may issue certificates of indebtedness or bonds of that municipality for the purpose of raising funds to pay the judgment. (69) That section was enacted before the effective date of the Headlee Amendment. Because the Headlee Amendment does not prevent the imposition of a tax or tax increase that was authorized prior to its effective date, a tax increase necessitated by a court judgment entered pursuant to M.C.L. § 600.6093 arguably does not come within the restrictions of Section 31. (70) Moreover, because a court is not a unit of local government (as the latter term is defined in Article IX, § 33), one federal court has concluded that there would be no violation of Section 31 if local taxes were increased to pay a court judgment. (71)

 

On the other hand, the Michigan Court of Appeals has stated that while a unit of local government may issue LTGO bonds to pay a judgment levy without violating the last sentence of Section 31, it may not do so if the bonds would cause the local governmental unit to exceed its authorized rate of taxation without voter approval. (72)

 

The Headlee Commission suggested that the Revised Judicature Act be amended to provide that a judgment levy be paid out of regular property tax levies or by issuing LTGO bonds (which are paid from existing tax revenues), but that in either case the judgment would at least be satisfied from funds that come from voter-approved taxing authority. (73) In this way, local governmental units will be forced to make the politically difficult budgetary choices that they may have been avoiding, which may have been the catalyst for the litigation that resulted in the judgment levy in the first place.

C. What Constitutes a "New Tax" Under Section 31?

As noted, in the absence of voter approval, Section 31 prohibits units of local government from levying any new tax or from increasing the rate of an existing tax above the rate authorized by law or charter when Section 31 was ratified. A vexing issue is what constitutes a "new tax" as opposed to a "user fee" or "special assessment" under Section 31. Section 31 requires that a "new tax" receive voter approval. A "user fee" and a "special assessment," on the other hand, if not a "tax," are not subject to the same constitutional constraint. The Headlee Amendment does not define the term "tax," nor has the Legislature done so in implementing legislation. (74)

1. User Fees.

In Bolt v. City of Lansing, (75) the Court of Appeals considered a Section 31 challenge to a charge imposed by the City of Lansing on landowners for the cost of separating storm water runoff from raw sewage and treating the runoff. The plaintiffs claimed that the charge was a new tax that had not been approved by the voters and thus violated Article IX, § 31. The City of Lansing maintained that the charge was a "user fee" and not subject to voter approval under Section 31. The Court agreed with the City of Lansing, offering the following definition of "fee":

 

In general, a fee is exchanged for a service rendered or a benefit conferred, and there must be some reasonable relationship between the amount of the fee and the value of the service or benefit. (76)

The Court conceded that a charge for sewage disposal and treatment falls somewhere between two ends of a spectrum, with one end being an ad valorem property tax, and the other being a charge for a city snow removal service that a landowner voluntarily uses. Relying on a 1954 Supreme Court decision that classified a charge for sewage treatment as a user fee, (77) where the Supreme Court analogized charges for sewage disposal to a fee for furnishing water to city residents, the Court of Appeals concluded that the Lansing storm water runoff charge is a user fee, not a new tax.

 

The Michigan Supreme Court granted leave to appeal in the Bolt case and reversed the Court of Appeals. (78) The Court held that the Lansing storm water service charge is a tax for purposes of Article IX, § 31 of the Headlee Amendment, for which approval is required by a vote of the people. The Court conceded that there is no bright-line test for distinguishing a valid user fee and a tax that violates the Headlee Amendment. The Court noted that a user fee generally (1) serves a regulatory rather than a revenue-raising purpose, (2) is proportionate to the necessary costs of the service, and (3) is voluntary. (79) The lack of correspondence between the charges and the benefit conferred demonstrated to the Court that the City of Lansing had failed to differentiate any particularized benefits to property owners, upon whom the tax was imposed) from the general benefits conferred on the public. (80)

2. Special Assessments.

In addition to the question of the status of "user fees" under Section 31, are "special assessments" a tax under Section 31? Special assessments are widely used by local governmental units to defray the costs of a variety of local improvement projects. Special assessments rather than general property taxes are used to finance such public improvements because such improvements do not benefit the general population within the unit of local government. Accordingly, it is appropriate that the direct beneficiaries of such improvements pay for them. (81)

 

Special assessments are distinguishable from general property taxes in at least three respects. First, general property taxes are levied on real and tangible personal property, whereas special assessments are levied only on real property. Also, real property otherwise exempt from general property taxes are not ipso facto exempt from special assessments unless specifically exempted under the legislation authorizing the special assessment.

 

Second, general property taxes are levied across the board within the assessing jurisdiction to defray the costs of government in general, whereas special assessments are levied only within a special assessment district which is comprised of the land and improvements that are specially benefitted by the public improvements (e.g., streets, sewer line, dams to control lake levels). However, the Legislature has authorized the creation of special assessment districts that arguably benefit the general public, such as, for example, ambulance service. (82)

 

Third, in theory general property taxes are levied on an ad valorem basis, whereas special assessments are levied on the basis of frontage or land area. For example, a lakefront owner with a 100-foot frontage would pay twice as much for a dam installation to control the lake level as would a lakefront owner on the same lake with 50 feet of frontage.

 

The Michigan Supreme Court has defined a "special assessment" as "an imposition or levy upon property for the payment of the costs of public improvements which confer a corresponding and special benefit upon the property assessed." (83) In Blake v. Metropolitan Chain Stores, (84) the Supreme Court distinguished "special assessments" from "taxes":

A special assessment is laid on the property specially benefitted by a local improvement in proportion to the benefit received for the purpose of defraying the cost of the improvement. The word "taxes" represents to the mind exaction to defray the ordinary expenses of the government and the promotion of the general welfare of the county. It is not generally understood as applying to improvements, levied upon property with a resultant benefit thereto to the amount thereof. (85)

A Supreme Court opinion that has approached the question with arguably the greatest precision and candor is St. Joseph Township v. Municipal Finance Committee. (86) There, the Court stated:

While the word "tax" in its broad meaning includes both general taxes and special assessments, and in a general sense a tax is an assessment, and an assessment is a tax, yet there is a recognized distinction between them in that assessment is confined to local impositions upon property for the payment of the cost of public improvements in its immediate vicinity and levied with reference to special benefits to the property assessed. The differences between a special assessment and a tax are that (1) a special assessment can be levied only on land; (2) a special assessment cannot (at least in most States) be made a personal liability of the person assessed; (3) a special assessment is based wholly on benefits; and (4) a special assessment is exceptional both as to time and locality. The imposition of a charge on all property, real and personal, in a prescribed area, is a tax and not an assessment, although the purpose is to make a local improvement on a street or highway. A charge imposed only on property owners benefitted is a special assessment rather than a tax notwithstanding the statute calls it a tax. (87)

The Attorney General's Office has issued two opinions regarding the status of "special assessments" under Section 31. The first opinion addressed the status of special assessments, apportioned on an ad valorem basis, for police and fire protection, garbage collection, and street lighting. Citing Blake v. Metropolitan Chain Stores, the Attorney General concluded that if the charge is imposed only on those property owners who are benefitted by the charge, then it is a special assessment and not a tax. (88) The second opinion addressed the status of a special assessment district established to defray the cost of ambulance service provided by a city. (89) The Attorney General concluded that since a municipality's ambulance service must benefit all its residents, and since the property specially assessed does not receive a corresponding special benefit not provided the general public, such a "special assessment" would be a "tax" for purposes of Article IX, § 31.

The Headlee Commission recommended that the Legislature define the terms "special assessment" and "user fee" as follows:

A "special assessment" is a payment for a physical improvement yielding a proportionate increase in the value of property, in which the revenue from the special assessment is used only for the costs of the improvement.

 

A "fee for service" or "user fee" is a payment made for the voluntary receipt of a measured service, in which the revenue from the fees is used only for the service provided.

As noted in the Headlee Commission Report, local governmental units have increasingly resorted to imposing mandatory user fees since ratification of the Headlee Amendment, including fees for mandatory recycling programs and fees for emergency telephone service. (90)

D. The Assessed Value of Property as Finally Equalized.

In order to implement Headlee rollbacks, a millage reduction fraction has to be determined. Pursuant to Article IX, § 31, if the aggregate values of property as determined by the assessing units of any county are more or less than 50% of true cash value, the State Tax Commission "equalizes" the county assessment by using a multiplier to add to or subtract from the aggregate assessed valuation of the county's taxable and real personal property. That process yields the state equalized value. The purpose of equalization is to adjust for differences in the modes of assessment among assessing units of government with the goal of achieving uniformity of property tax assessment at both the intra-county and intercounty levels. (91)

 

There are six classes of real property and five classes of personal property. (92) The State Tax Commission equalizes the value of taxable property in each of the classifications. The assessed valuation of property as finally equalized for the separate classes is added together, and that sum is used in determining a "millage reduction fraction." This fraction is multiplied by the maximum millage rate authorized by the unit of local government in determining the tax rate for the local government. M.C.L. § 211.34d(7) states the method by which the millage reduction fraction is calculated:

A millage reduction fraction shall be determined for each year for each local unit of government. For ad valorem property taxes that became a lien before January 1, 1983, the numerator of the fraction shall be the total state equalized valuation for the immediately preceding year multiplied by the inflation rate and the denominator of the fraction shall be the total state equalized valuation for the current year minus new construction and improvements. For ad valorem property taxes that become a lien after December 31, 1982 and through December 31, 1994, the numerator of the fraction shall be the product of the difference between the total state equalized valuation for the immediately preceding year minus losses multiplied by the inflation rate and the denominator of the fraction shall be the total state equalized valuation for the current year minus additions. For ad valorem property taxes that are levied after December 31, 1994, the numerator of the fraction shall be the product of the difference between the total taxable value for the immediately preceding year minus losses multiplied by the inflation rate and the denominator of the fraction shall be the total taxable value for the current year minus additions. For each year after 1993, a millage reduction fraction shall not exceed 1.

In O'Reilly v. Wayne County, (93) the Court of Appeals considered a challenge to the millage reduction fraction methodology. The Court concluded that separate millage reduction fractions need not be calculated for each class of property specified in M.C.L. § 211.34c. The Court rejected the plaintiff's argument that the phrase in Section 31, "assessed valuation of property as finally equalized," must be interpreted to mean the assessed valuation of each separate class of property as finally equalized. The Court found nothing in the language of Section 31 to suggest an intent to prohibit an increase of taxes within a class of property when such an increase results from equalization of assessments of that class with other classes at the same percentage of true cash value.

E. The Implementing Legislation for Headlee Rollbacks and Rollups.

The third sentence of Article IX, § 31 requires that property tax millage rates be rolled back when assessed values, excluding new construction, exceed the rate of inflation. The implementing legislation provides a methodology and procedures for implementing Headlee rollbacks. It is attached hereto as Appendix B.

 

What if the rate of inflation exceeds the increase in property valuations? Can local taxing authorities reach back to prior years when property values exceeded inflation and "recapture" a portion of the increase in property values? A 1993 amendment to the implementing legislation prohibits Headlee "rollups" that would have allowed an increase in property taxes up to the "maximum authorized rate" if the rate of inflation exceeded the growth rate in property valuations. The 1993 amendment prohibits rollups without voter approval, thereby permanently reducing property taxes. M.C.L. § 211.34d(16) provides:

 

Beginning with taxes levied in 1994, the millage reduction required by section 31 of Article IX of the state constitution of 1963 shall permanently reduce the maximum rate or rates authorized by law or charter. The reduced maximum authorized rate or rates for 1994 shall equal the product of the maximum rate or rates authorized by law or charter before application of this section multiplied by the compound millage reduction applicable to that millage in 1994 pursuant to subsections (8) to (12). The reduced maximum authorized rate or rates for 1995 and each year after 1995 shall equal the product of the immediately preceding year's reduced maximum authorized rate or rates multiplied by the current year's millage reduction fraction and shall be adjusted for millage for which authorization has expired and new authorized millage approved by the voters pursuant to subsections (8) to (12).

The Headlee Commission has concluded that the implementing legislation, although "extremely complex and difficult to understand," (94) nevertheless limits the increase in property tax revenue to the rate of inflation plus new construction.

 

 

VIII. Article IX, § 32: Taxpayer Suits

 

Section 32 of the Headlee Amendment gives taxpayers standing to challenge alleged violations of the Headlee Amendment and vests the Court of Appeals with original jurisdiction over such taxpayer suits. Section 32 provides:

Any taxpayer of the state shall have standing to bring suit in the Michigan State Court of Appeals to enforce the provisions of Sections 25 through 31, inclusive, of this Article and, if the suit is sustained, shall receive from the applicable unit of government his costs incurred in maintaining such suit.

The apparent purpose of vesting the Court of Appeals with original jurisdiction over taxpayer suits was to expedite the judicial review process by eliminating the circuit court step. If this was the drafters' intent, it was misguided. As the experience from the 17-year long Durant litigation amply demonstrates, because the Court of Appeals is not a factfinding body, all disputed questions of fact are referred to a special master (i.e., a circuit court judge (95)), who makes findings of fact and recommendations to the Court of Appeals. (96) Other than the applicable standard of appellate review, the only differences between this process and the normal circuit court adjudicatory process followed by an appeal to the Court of Appeals seem to be matters of form rather than substance.

 

The implementing legislation for Section 32 provides:

M.C.L. § 600.308a. Taxpayers' suits

Sec. 308a. (1) An action under section 32 of article 9 of the state constitution of 1963 may be commenced in the court of appeals, or in the circuit court in the county in which venue is proper, at the option of the party commencing the action.

(2) The jurisdiction of the court of appeals shall be invoked by filing an action by a taxpayer as plaintiff according to the court rules governing procedure in the court of appeals.

(3) A taxpayer shall not bring or maintain an action under this section unless the action is commenced within 1 year after the cause of action accrued.

(4) The unit of government shall be named as defendant. An officer of any governmental unit shall be sued in his or her official capacity only and shall be described as a party by his or her official title and not by name. If an officer dies, resigns, or otherwise ceases to hold office during the pendency of the action, the action shall continue against the governmental unit and the officer's successor in office.

(5) The court of appeals may refer an action to the circuit court or to the tax tribunal to determine and report its findings of fact if substantial fact finding is necessary to decide the action.

(6) A plaintiff who prevails in an action commenced under this section shall receive from the defendant the costs incurred by the plaintiff in maintaining the action.

Although the implementing legislation vests the circuit court and the Court of Appeals with concurrent jurisdiction over taxpayer suits, there are no reported cases in which a taxpayer initiated a Headlee Amendment challenge in circuit court. (97) However, taxpayer lawsuits alleging not only Headlee Amendment violations but also other violations of state law must be filed in circuit court. (98)

A. The One-Year Limitations Period.

All taxpayer suits must be brought within one year after the cause of action accrues. The Supreme Court has upheld the statutory one-year limitations period as a reasonable restriction designed to protect the fiscal integrity of government units that might otherwise face the prospect of losing several years' worth of tax revenues. (100)

 

In connection with a challenge to the issuance of bonds, the Court of Appeals has held that if the taxpayer's challenge goes to the legality of a bond issue under the Headlee Amendment, that challenge is barred if brought after the bonds are issued, even if the taxpayer suit is filed within one year of the bond issuance. (101) Known as the Bigger rule (after Bigger v. City of Pontiac, 390 Mich. 1, 210 N.W.2d 1 (1973)), the rule protects the vested interests of third-party bondholders. In this connection, the Legislature has protected the interests of taxpayers by requiring publication of a notice of intent to bond, thereby giving taxpayers adequate notice and an opportunity to bring a Headlee challenge in the Court of Appeals. (102)

B. Recovery of Fees and Costs.

Section 32 provides for the recovery of "costs" by a successful taxpayer in a Section 32 lawsuit. The Supreme Court has held that the term "costs" used in Section 32 includes reasonable attorney fees. In Macomb County Taxpayers Ass'n v. L'Anse Creuse Public Schools, (103) the Court concluded that the term "costs" was to be given a common meaning rather than be treated as legal term of art. The Court adopted the reasoning of the Court of Appeals in Durant v. Board of Education, (104) that the term "costs" include attorney fees:

[L]itigation brought pursuant to § 32 can be complex and protracted. The financial outlay needed for maintaining a suit of this nature can be extremely burdensome and inhibitive. Attorney fees compose a substantial portion of such outlays. Without the ability to recoup all costs of maintaining an action to enforce the Headlee Amendment, including reasonable attorney fees, the average taxpayer could not withstand the financial obligation incurred as a result of exercising that taxpayer's right to bring suit. Accordingly, we conclude that, in ratifying the Headlee Amendment, "the great mass of people themselves" intended the term "cost" to include reasonable attorney fees. (105)

The Supreme Court also consulted the drafters' notes which, although not authoritative, weigh in favor of a conclusion that "costs" includes attorney fees. The drafters' notes state that by costs is meant all expenses incurred in maintaining a taxpayer's lawsuit, including filing, service, witness, and attorney fees. However, only individual taxpayers are entitled to recover their Section 32 costs; associations and governmental units are ineligible.

 


Appendix A

 

M.C.L. § 600.6093.

 

(1) Whenever judgment is recovered against any township, village, or city, or against the trustees or common council, or officers thereof, in any action prosecuted by or against them in their name of office, the clerk of the court shall, on the application of the party in whose favor judgment is rendered, his attorney, executor, administrator, or assigns, make and deliver to the party so applying a certified transcript of the judgment, showing the amount and date thereof, with the rate of interest thereon, and of the costs as taxed under the seal of the court, if in a court having a seal. The party obtaining the certified transcript may file it with the supervisor of the township, if the judgment is against the township, or with the assessing officer or officers of the city or village, if the judgment is against a city or village. The supervisor or assessing officer receiving the certified transcript or transcripts of judgment shall proceed to assess the amount thereof with the costs and interests from the date of rendition of judgment to the time when the warrant for the collection thereof will expire upon the taxable property of the township, city, or village upon the then next tax roll of such township, city, or village, without any other or further certificate than the certified transcript as a part of the township, city, or village tax, adding the total amount of the judgment to the other township, city, or village taxes and assessing it in the same column with the general township, city, or village tax. The supervisor or assessing officer shall set forth in the warrant attached to the tax roll each judgment separately, stating the amount thereof and to whom payable, and it shall be collected and returned in the same manner as other taxes. The supervisor or assessing officer, at the time when he delivers the tax roll to the treasurer or collecting officer of any township, city, or village, shall deliver to the township clerk or to the clerk or recording officer of the city or village, a statement in writing under his hand, setting forth in detail and separately the judgment stating the amount with costs and interest as herein provided, and to whom payable. The treasurer or collecting officer of the township, city, or village, shall collect and pay the judgment to the owner thereof or his attorney, on or before the date when the tax roll and warrant shall be returnable. In case any supervisor, treasurer, or other assessing or collecting officer neglects or refuses to comply with any of the provisions of this section he shall be guilty of a misdemeanor, and on conviction thereof, shall be punished by a fine of not more than $1,000.00 and costs of prosecution, or imprisonment in the county jail for a period not exceeding 3 months, or by both fine and imprisonment in the discretion of the court. Nothing herein contained shall be construed to exclude other remedies given by law for the enforcement of the judgment.

 

(2) In any case where a judgment is recovered against a village which, by reason of holding no municipal elections, or for any other reason has no available assessing officer within the jurisdiction of the court wherein the judgment is rendered, the owner of the judgment or any person knowing the facts, acting on behalf of the owner, may make an affidavit showing that the village against which a judgment is pending and unsatisfied, has no available assessing officer within the jurisdiction, and file it with the clerk of the court wherein the judgment is written. The officer who makes the certified transcript shall attach thereto a copy of the affidavit, the correctness of which copy shall also be certified to in the certificate. Any party receiving the certified transcript of judgment and affidavit may file it with the supervisor of the township in which the village, having no assessing officer is located. The supervisor shall assess the amount of the judgment with costs and interest, upon the taxable property of the village, which is without an assessing officer, and thereafter the same steps and proceedings shall be had in the premises as though it were a judgment against the township within which the village is located, except that it shall be assessed against the property within the corporate limits of the village only.

 

(3) When judgment is recovered against any county or the board of supervisors or any county officer in an action prosecuted by or against him in his name of office, the judgment unless reversed shall be levied and collected as other county charges, and when collected shall be paid by the county treasurer to the person to whom the judgment has been adjudged upon the delivery of a proper voucher therefor.

 

M.C.L. § 600.6097. Municipal judgment bonds

 

(1) If a judgment of a court or administrative agency is rendered against any municipality, the legislative body of that municipality, unless otherwise provided, may issue certificates of indebtedness or bonds of that municipality for the purpose of raising money to pay the judgment, in an amount not exceeding the sum of the judgment, the costs and interest on the judgment, and all cost in connection with issuing the certificates of indebtedness or bonds, which certificates of indebtedness or bonds may be made payable at such time and place, and such rate of interest not exceeding the maximum rate of interest permitted by the municipal finance act, Act No. 202 of the Public Acts of 1943, being sections 131.1 to 139.3 of the Michigan Compiled Laws. The certificates of indebtedness or bonds shall be sold and issued in accordance with the municipal finance act, except that they may be issued for a period of up to 15 years.

 

(2) The authorization, issuance, and selling of the bonds are not subject to section 5(g) of Act No. 279 of the Public Acts of 1909, as amended, being section 117.5 of the Michigan Compiled Laws.

 

(3) As used in this section, "municipality" means a county, township, city, village, school district, intermediate school district, community college district, metropolitan district, port district, drainage district established under the drain code of 1956, Act No. 40 of the Public Acts of 1956, being sections 280.1 to 280.630 of the Michigan Compiled Laws, or another governmental authority or agency in this state which has the power to levy ad valorem property taxes.

 

 

 

Appendix B

 

 

M.C.L. § 211.34d. Millage reduction; definitions, tabulation of tentative taxable value, computations of taxable values, calculation of millage reduction fractions, computation of tax rate, compounded millage reduction fraction, tax rates in excess of limit, bonds or other evidence of indebtedness, summer tax bills, incorrect fractions, change in taxable values

 

Sec. 34d. (1) As used in this section or section 27a, [FN1] or section 3 or 31 of Article IX of the state constitution of 1963:

(a) For taxes levied before 1995, "additions" means all increases in value caused by new construction or a physical addition of equipment or furnishings, and the value of property that was exempt from taxes or not included on the assessment unit's immediately preceding year's assessment roll.

 

(b) For taxes levied after 1994, "additions" means, except as provided in subdivision (c), all of the following:

 

(i) Omitted real property. As used in this subparagraph, "omitted real property" means previously existing tangible real property not included in the assessment. Omitted real property shall not increase taxable value as an addition unless the assessing jurisdiction has a property record card or other documentation showing that the omitted real property was not previously included in the assessment. The assessing jurisdiction has the burden of proof in establishing whether the omitted real property is included in the assessment. Omitted real property for the current and the 2 immediately preceding years, discovered after the assessment roll has been completed, shall be added to the tax roll pursuant to the procedures established in section 154. [FN2] For purposes of determining the taxable value of real property under section 27a, the value of omitted real property is based on the value and the ratio of taxable value to true cash value the omitted real property would have had if the property had not been omitted.

 

(ii) Omitted personal property. As used in this subparagraph, "omitted personal property" means previously existing tangible personal property not included in the assessment. Omitted personal property shall be added to the tax roll pursuant to section 154.

 

(iii) New construction. As used in this subparagraph, "new construction" means property not in existence on the immediately preceding tax day and not replacement construction. New construction includes the physical addition of equipment or furnishings, subject to the provisions set forth in section 27(2)(a) to (o). [FN3] For purposes of determining the taxable value of property under section 27a, the value of new construction is the true cash value of the new construction multiplied by 0.50.

 

(iv) Previously exempt property. As used in this subparagraph, "previously exempt property" means property that was exempt from ad valorem taxation under this act on the immediately preceding tax day but is subject to ad valorem taxation on the current tax day under this act. For purposes of determining the taxable value of real property under section 27a:

(A) The value of property previously exempt under section 7u [FN4] is the taxable value the entire parcel of property would have had if that property had not been exempt, minus the product of the entire parcel's taxable value in the immediately preceding year and the lesser of 1.05 or the inflation rate.

 

(B) The taxable value of property that is a facility as that term is defined in section 2 of Act No. 198 of the Public Acts of 1974, being section 207.552 of the Michigan Compiled Laws, that was previously exempt under section 7k [FN5] is the taxable value that property would have had under this act if it had not been exempt.

 

(C) The value of property previously exempt under any other section of law is the true cash value of the previously exempt property multiplied by 0.50.

(v) Replacement construction. As used in this subparagraph, "replacement construction" means construction that replaced property damaged or destroyed by accident or act of God and that occurred after the immediately preceding tax day to the extent the construction's true cash value does not exceed the true cash value of property that was damaged or destroyed by accident or act of God in the immediately preceding 3 years. For purposes of determining the taxable value of property under section 27a, the value of the replacement construction is the true cash value of the replacement construction multiplied by a fraction the numerator of which is the taxable value of the property to which the construction was added in the immediately preceding year and the denominator of which is the true cash value of the property to which the construction was added in the immediately preceding year, and then multiplied by the lesser of 1.05 or the inflation rate.

 

(vi) An increase in taxable value attributable to the complete or partial remediation of environmental contamination existing on the immediately preceding tax day. The department of environmental quality shall determine the degree of remediation based on information available in existing department of environmental quality records or information made available to the department of environmental quality if the appropriate assessing officer for a local tax collecting unit requests that determination. The increase in taxable value attributable to the remediation is the increase in true cash value attributable to the remediation multiplied by a fraction the numerator of which is the taxable value of the property had it not been contaminated and the denominator of which is the true cash value of the property had it not been contaminated.

 

(vii) An increase in the value attributable to the property's occupancy rate if either a loss, as that term is defined in this section, had been previously allowed because of a decrease in the property's occupancy rate or if the value of new construction was reduced because of a below-market occupancy rate. For purposes of determining the taxable value of property under section 27a, the value of an addition for the increased occupancy rate is the product of the increase in the true cash value of the property attributable to the increased occupancy rate multiplied by a fraction the numerator of which is the taxable value of the property in the immediately preceding year and the denominator of which is the true cash value of the property in the immediately preceding year, and then multiplied by the lesser of 1.05 or the inflation rate.

 

(viii) Public services. As used in this subparagraph, "public services" means water service, sewer service, a primary access road, natural gas service, electrical service, telephone service, sidewalks, or street lighting. For purposes of determining the taxable value of real property under section 27a, the value of public services is the amount of increase in true cash value of the property attributable to the available public services multiplied by 0.50 and shall be added in the calendar year following the calendar year when those public services are initially available.

 

(c) For taxes levied after 1994, additions do not include increased value attributable to any of the following:

 

(i) Platting, splits, or combinations of property.

 

(ii) A change in the zoning of property.

 

(iii) For the purposes of the calculation of the millage reduction fraction under subsection (7) only, increased taxable value under section 27a(3) after a transfer of ownership of property.

 

(d) "Assessed valuation of property as finally equalized" means taxable value under section 27a.

 

(e) "Financial officer" means the officer responsible for preparing the budget of a unit of local government.

 

(f) "General price level" means the annual average of the 12 monthly values for the United States consumer price index for all urban consumers as defined and officially reported by the United States department of labor, bureau of labor statistics.

 

(g) For taxes levied before 1995, "losses" means a decrease in value caused by the removal or destruction of real or personal property and the value of property taxed in the immediately preceding year that has been exempted or removed from the assessment unit's assessment roll.

 

(h) For taxes levied after 1994, "losses" means, except as provided in subdivision (i), all of the following:

 

(i) Property that has been destroyed or removed. For purposes of determining the taxable value of property under section 27a, the value of property destroyed or removed is the product of the true cash value of that property multiplied by a fraction the numerator of which is the taxable value of that property in the immediately preceding year and the denominator of which is the true cash value of that property in the immediately preceding year.

 

(ii) Property that was subject to ad valorem taxation under this act in the immediately preceding year that is now exempt from ad valorem taxation under this act. For purposes of determining the taxable value of property under section 27a, the value of property exempted from ad valorem taxation under this act is the amount exempted.

 

(iii) An adjustment in value, if any, because of a decrease in the property's occupancy rate, to the extent provided by law. For purposes of determining the taxable value of real property under section 27a, the value of a loss for a decrease in the property's occupancy rate is the product of the decrease in the true cash value of the property attributable to the decreased occupancy rate multiplied by a fraction the numerator of which is the taxable value of the property in the immediately preceding year and the denominator of which is the true cash value of the property in the immediately preceding year.

 

(iv) A decrease in taxable value attributable to environmental contamination existing on the immediately preceding tax day. The department of environmental quality shall determine the degree to which environmental contamination limits the use of property based on information available in existing department of environmental quality records or information made available to the department of environmental quality if the appropriate assessing officer for a local tax collecting unit requests that determination. The department of environmental quality's determination of the degree to which environmental contamination limits the use of property shall be based on the criteria established for the classifications set forth in section 20120a(1) of part 201 (environmental remediation) of the natural resources and environmental protection act, Act No. 451 of the Public Acts of 1994, being section 324.20120a of the Michigan Compiled Laws. The decrease in taxable value attributable to the contamination is the decrease in true cash value attributable to the contamination multiplied by a fraction the numerator of which is the taxable value of the property had it not been contaminated and the denominator of which is the true cash value of the property had it not been contaminated.

 

(i) For taxes levied after 1994, losses do not include decreased value attributable to either of the following:

(i) Platting, splits, or combinations of property.

(ii) A change in the zoning of property.

(j) "New construction and improvements" means additions less losses.

 

(k) "Current year" means the year for which the millage limitation is being calculated.

 

(l) "Inflation rate" means the ratio of the general price level for the state fiscal year ending in the calendar year immediately preceding the current year divided by the general price level for the state fiscal year ending in the calendar year before the year immediately preceding the current year.

 

(2) On or before the first Monday in May of each year, the assessing officer of each township or city shall tabulate the tentative taxable value as approved by the local board of review and as modified by county equalization for each classification of property that is separately equalized for each unit of local government and provide the tabulated tentative taxable values to the county equalization director. The tabulation by the assessing officer shall contain additions and losses for each classification of property that is separately equalized for each unit of local government or part of a unit of local government in the township or city. If as a result of state equalization the taxable value of property changes, the assessing officer of each township or city shall revise the calculations required by this subsection on or before the Friday following the fourth Monday in May. The county equalization director shall compute these amounts and the current and immediately preceding year's taxable values for each classification of property that is separately equalized for each unit of local government that levies taxes under this act within the boundary of the county. The county equalization director shall cooperate with equalization directors of neighboring counties, as necessary, to make the computation for units of local government located in more than 1 county. The county equalization director shall calculate the millage reduction fraction for each unit of local government in the county for the current year. The financial officer for each taxing jurisdiction shall calculate the compounded millage reduction fractions beginning in 1980 resulting from the multiplication of successive millage reduction fractions and shall recognize a local voter action to increase the compounded millage reduction fraction to a maximum of 1 as a new beginning fraction. Upon request of the superintendent of the intermediate school district, the county equalization director shall transmit the complete computations of the taxable values to the superintendent of the intermediate school district within that county. At the request of the presidents of community colleges, the county equalization director shall transmit the complete computations of the taxable values to the presidents of community colleges within the county.

 

(3) On or before the first Monday in June of each year, the county equalization director shall deliver the statement of the computations signed by the county equalization director to the county treasurer.

 

(4) On or before the second Monday in June of each year, the treasurer of each county shall certify the immediately preceding year's taxable values, the current year's taxable values, the amount of additions and losses for the current year, and the current year's millage reduction fraction for each unit of local government that levies a property tax in the county.

 

(5) The financial officer of each unit of local government shall make the computation of the tax rate using the data certified by the county treasurer and the state tax commission. At the annual session in October, the county board of commissioners shall not authorize the levy of a tax unless the governing body of the taxing jurisdiction has certified that the requested millage has been reduced, if necessary, in compliance with section 31 of Article IX of the state constitution of 1963.

 

(6) The number of mills permitted to be levied in a tax year is limited as provided in this section pursuant to section 31 of Article IX of the state constitution of 1963. A unit of local government shall not levy a tax rate greater than the rate determined by reducing its maximum rate or rates authorized by law or charter by a millage reduction fraction as provided in this section without voter approval.

 

(7) A millage reduction fraction shall be determined for each year for each local unit of government. For ad valorem property taxes that became a lien before January 1, 1983, the numerator of the fraction shall be the total state equalized valuation for the immediately preceding year multiplied by the inflation rate and the denominator of the fraction shall be the total state equalized valuation for the current year minus new construction and improvements. For ad valorem property taxes that become a lien after December 31, 1982 and through December 31, 1994, the numerator of the fraction shall be the product of the difference between the total state equalized valuation for the immediately preceding year minus losses multiplied by the inflation rate and the denominator of the fraction shall be the total state equalized valuation for the current year minus additions. For ad valorem property taxes that are levied after December 31, 1994, the numerator of the fraction shall be the product of the difference between the total taxable value for the immediately preceding year minus losses multiplied by the inflation rate and the denominator of the fraction shall be the total taxable value for the current year minus additions. For each year after 1993, a millage reduction fraction shall not exceed 1.

 

(8) The compounded millage reduction fraction for each year after 1980 shall be calculated by multiplying the local unit's previous year's compounded millage reduction fraction by the current year's millage reduction fraction. Beginning with 1980 tax levies, the compounded millage reduction fraction for the year shall be multiplied by the maximum millage rate authorized by law or charter for the unit of local government for the year, except as provided by subsection (9). A compounded millage reduction fraction shall not exceed 1.

 

(9) The millage reduction shall be determined separately for authorized millage approved by the voters. The limitation on millage authorized by the voters on or before May 31 of a year shall be calculated beginning with the millage reduction fraction for that year. Millage authorized by the voters after May 31 shall not be subject to a millage reduction until the year following the voter authorization which shall be calculated beginning with the millage reduction fraction for the year following the authorization. The first millage reduction fraction used in calculating the limitation on millage approved by the voters after January 1, 1979 shall not exceed 1.

 

(10) A millage reduction fraction shall be applied separately to the aggregate maximum millage rate authorized by a charter and to each maximum millage rate authorized by state law for a specific purpose.

 

(11) A unit of local government may submit to the voters for their approval the levy in that year of a tax rate in excess of the limit set by this section. The ballot question shall ask the voters to approve the levy of a specific number of mills in excess of the limit. The provisions of this section do not allow the levy of a millage rate in excess of the maximum rate authorized by law or charter. If the authorization to levy millage expires after 1993 and a local governmental unit is asking voters to renew the authorization to levy the millage, the ballot question shall ask for renewed authorization for the number of expiring mills as reduced by the millage reduction required by this section. If the election occurs before June 1 of a year, the millage reduction is based on the immediately preceding year's millage reduction applicable to that millage. If the election occurs after May 31 of a year, the millage reduction shall be based on that year's millage reduction applicable to that millage had it not expired.

 

(12) A reduction or limitation under this section shall not be applied to taxes imposed for the payment of principal and interest on bonds or other evidence of indebtedness or for the payment of assessments or contract obligations in anticipation of which bonds are issued that were authorized before December 23, 1978, as provided by former section 4 of chapter I of the municipal finance act, Act No. 202 of the Public Acts of 1943, or to taxes imposed for the payment of principal and interest on bonds or other evidence of indebtedness or for the payment of assessments or contract obligations in anticipation of which bonds are issued that are approved by the voters after December 22, 1978.

 

(13) If it is determined subsequent to the levy of a tax that an incorrect millage reduction fraction has been applied, the amount of additional tax revenue or the shortage of tax revenue shall be deducted from or added to the next regular tax levy for that unit of local government after the determination of the authorized rate pursuant to this section.

 

(14) If as a result of an appeal of county equalization or state equalization the taxable value of a unit of local government changes, the millage reduction fraction for the year shall be recalculated. The financial officer shall effectuate an addition or reduction of tax revenue in the same manner as prescribed in subsection (13).

 

(15) The fractions calculated pursuant to this section shall be rounded to 4 decimal places, except that the inflation rate shall be computed by the state tax commission and shall be rounded to 3 decimal places. The state tax commission shall publish the inflation rate before March 1 of each year.

 

(16) Beginning with taxes levied in 1994, the millage reduction required by section 31 of Article IX of the state constitution of 1963 shall permanently reduce the maximum rate or rates authorized by law or charter. The reduced maximum authorized rate or rates for 1994 shall equal the product of the maximum rate or rates authorized by law or charter before application of this section multiplied by the compound millage reduction applicable to that millage in 1994 pursuant to subsections (8) to (12). The reduced maximum authorized rate or rates for 1995 and each year after 1995 shall equal the product of the immediately preceding year's reduced maximum authorized rate or rates multiplied by the current year's millage reduction fraction and shall be adjusted for millage for which authorization has expired and new authorized millage approved by the voters pursuant to subsections (8) to (12).


 

[FN1] Section 211.27a.

[FN2] Section 211.154.

[FN3] Section 211.27.

[FN4] Section 211.7u.

[FN5] Section 211.7k.

1. This report was prepared by Professor Kevin Kennedy, Executive Secretary, Michigan Law Revision Commission.

2. Article IX, §§ 25-34 of the Michigan Constitution.

3. Durant v. State Bd. of Educ., 424 Mich. 364, 378, 381 N.W.2d 662 (1985).

4. Section 25 provides:

Property taxes and other local taxes and state taxation and spending may not be increased above the limitations specified herein without direct voter approval. The state is prohibited from requiring any new or expanded activities by local governments without full state financing, from reducing the proportion of state spending in the form of aid to local governments, or from shifting the tax burden to local government. A provision for emergency conditions is established and the repayment of voter approved bonded indebtedness is guaranteed. Implementation of this section is specified in Sections 26 through 34, inclusive, of this Article.

The Michigan Supreme Court has stated that Section 25 "is merely an introduction to the provisions contained in §§ 26-34 and is not an independent statement of rights and duties." Durant v. State Bd. of Educ., 424 Mich. 364, 376 n. 4, 381 N.W.2d 662, 666 n.4 (1986).

5. See Headlee Blue Ribbon Commission, Report to Governor John Engler, at 9 (1994)[hereinafter Headlee Commission Report].

6. M.C.L. §§ 18.1350b(3), 18.1350e, 205.30b. The State Budget Director also is required to submit monthly financial reports to the Legislature that state, inter alia, the amount of monthly revenue collection by the state. M.C.L. § 18.1386 provides:

(1) The state budget director shall prepare monthly financial reports.

(2) Within 30 days after the end of each month, the state budget director shall transmit copies of the monthly financial report to all the appropriations committee members and the fiscal agencies. The monthly financial report due by November 30 shall be the first monthly financial report to include statements concerning the fiscal year which began on October 1.

(3) Each monthly financial report shall contain the following information:

(a) A statement of actual monthly and year-to-date revenue collections for each operating fund; the general fund/general purpose revenues, school aid fund revenues, and the tax collections dedicated to the transportation funds; including a comparison with prior year amounts, statutory estimates, and the most recent estimates from the executive branch.

(b) A statement of estimated year-end appropriations lapses and overexpenditures for the state general fund by principal department.

(c) A statement projecting the ending state general fund balance for the fiscal year in progress.

(d) A summary of current economic events relevant to the Michigan economy, and a discussion of any economic forecast or current knowledge of revenue collections or expenditure patterns that is the basis for a change in any revenue estimate or expenditure projection.

(e) A statement of estimated and actual total state revenues compared to the revenue limit provided for in section 26 of Article IX of the state constitution of 1963.

(f) A statement of the estimated fiscal year-end balance of state payments to units of local government pursuant to section 30 of Article IX of the state constitution of 1963.

(g) Any other information considered necessary by the state budget director or jointly requested by the chairpersons of the appropriations committees.

7. Although implementing legislation has not been enacted for this paragraph, it has been suggested that implementing legislation be enacted that would eliminate the taxing authority of the transferor agency or unit of government upon a transfer of funding responsibilities via constitutional amendment. See Headlee Commission Report, supra note 4, at 12.

8. See 1985-86 Mich. Op. Att'y Gen. 203, 1985-86 Mich. OAG No. 6332 (1986).

9. M.C.L. § 18.1350c.

10. As of 1996, 17 states have enacted unfunded state mandate legislation or ratified constitutional amendments prohibiting unfunded state mandates. See Robert M.M. Shaffer, Unfunded State Mandates and Local Governments, 64 U. Cin. L. Rev. 1057 (1996).

11. 441 Mich. 236, 490 N.W.2d 584 (1992).

12. Michael C. Fayz & Clara G. DeQuick, Annual Survey of Michigan Law: Constitutional Law, 40 Wayne L. Rev. 533, 546-47 (1994).

13. 228 Mich. App. 386, 579 N.W.2d 378, aff'd on other grounds sub nom. Judicial Attorneys Ass'n v. State of Michigan, ___ Mich. ___, ___ N.W.2d ___, 1998 WL 901772 (Dec. 28, 1998).

14. 228 Mich. App. at 405-06, 579 N.W.2d at 386.

15. Id. at 407, 579 N.W.2d at 387.

16. Wayne County Chief Executive v. Engler, 583 Mich. App. 512, 514, 583 N.W.2d 512, 514 (1998).

17. M.C.L. § 21.235(5). Procedures that the Department is to follow when disbursing state funds to units of local government, and that units of local government are to follow when making a claim for disbursements, are set out in M.C.L. § 21.238.

18. M.C.L. § 21.235(1)-(4).

19. M.C.L. § 21.236. As of 1992, 28 states had adopted fiscal note requirements in an effort to raise legislators' awareness of the mandate problem and curb the passage of unfunded mandates. See Robert M.M. Shaffer, Unfunded State Mandates and Local Governments, 64 U. Cin. L. Rev. 1057, 1066 (1996).

20. M.C.L. § 21.237.

21. The Senate and House Fiscal Agencies are nonpartisan agencies whose primary mission is the provision of expert assistance to the Michigan Senate and House, respectively, regarding state fiscal issues. Both agencies also provide their respective Houses with detailed projections of estimated state revenues and expenditures. Governing Boards of the Senate and House oversee the operation and procedures of their respective Fiscal Agency. Reports of the Senate and House Fiscal Agencies are available from their websites, <http://www.state.mi.us/sfa> and <http://www.state.mi.us/hfa>.

22. M.C.L. § 21.241.

23. M.C.L. § 21.240.

24. M.C.L. § 21.240(4).

25. M.C.L. § 21.244.

26. Headlee Commission Report, supra note 4, at 16.

27. M.C.L. § 21.233(6).

28. M.C.L. § 21.232(4).

29. 424 Mich. 364, 381 N.W.2d 662 (1985).

30. See Durant v. State Bd. of Educ., 424 Mich. at 391, 381 N.W.2d at 673.

31. Id.

32. See Durant v. Dep't of Educ., 203 Mich. App. 507, 514-15, 513 N.W.2d 195, 198-99 (1994).

33. Id. at 519, 513 N.W.2d at 201.

34. See Durant v. Dep't of Education, 213 Mich. App. 500, 541 N.W.2d 278 (1995).

35. See Durant v. Dep't of Education, 186 Mich. App. 83, 463 N.W.2d 461 (1990).

36. Id. at 392, 381 N.W.2d at 673-74.

37. M.C.L. § 21.234(5).

38. These terms are defined as follows:

"Court requirement" means a new activity or service or an increase in the level of activity or service beyond that required by existing law which is required of a local unit of government in order to comply with a final state or federal court order arising from the interpretation of the constitution of the United States, the state constitution of 1963, an existing law, or a federal statute, rule, or regulation. Court requirement includes a state law whose enactment is required by a final state or federal court order. M.C.L. § 21.232(3).

"Due process requirement" means a statute or rule which involves the

administration of justice, notification and conduct of public hearings, procedures for administrative and judicial review of action taken by a local unit of government or the protection of the public from malfeasance, misfeasance, or nonfeasance by an official of a local unit of government, and which involves the provision of due process as it is defined by state and federal courts when interpreting the federal constitution or the state constitution of 1963. M.C.L. § 21.232(7).

"Federal requirement" means a federal law, rule, regulation, executive

order, guideline, standard, or other federal action which has the force and effect of law and which requires the state to take action affecting local units of government. M.C.L. § 21.233(2).

"Implied federal requirement" means a federal law, rule, regulation, executive order, guideline, standard, or other federal action which has the force and effect of law and which does not directly require the state to take action affecting units of local government, but will, according to federal law, result in a loss of federal funds or federal tax credits if state action is not taken to comply with the federal action. M.C.L. § 21.233(3).

39. See Durant II, 424 Mich. at 378, 381 N.W.2d at 667.

40. Id. at 380, 381 N.W.2d at 668.

41. Id. The Court refused to place any reliance on the Drafters' Notes to the Headlee Amendment, inasmuch as they were published after the Amendment was passed and were, in any event, internally inconsistent on this issue. Id. at 381 n.12, 381 N.W.2d at 669 n.12.

42. See Kramer v. City of Dearborn Heights, 197 Mich. App. 723, 496 N.W.2d 301 (1992).

43. See Durant v. Michigan, 456 Mich. 175, 198-99, 566 N.W.2d 272, 282 (1997); Schmidt v. Dep't of Educ., 441 Mich. 236, 490 N.W.2d 584 (1992).

44. See City of Ann Arbor v. Michigan, 132 Mich. App. 132, N.W.2d (1984).

45. See Saginaw Firefighters Ass'n, Local 422 v. City of Saginaw, 137 Mich. App. 625, 357 N.W.2d 908 (1984).

46. See Livingston County v. Dep't of Management & Budget, 430 Mich. 635, 425 N.W.2d 65 (1988).

47. See Kramer v. City of Dearborn Heights, 197 Mich. App. 723, 496 N.W.2d 301 (1992).

48. See Mich. Att'y Gen. Op. No. 6237 (1984).

49. See Mich. Att'y Gen. Op. No. 6576A (1989).

50. 222 Mich. App. 325, 564 N.W.2d 104 (1997).

51. See Mahaffey, 222 Mich. App. at 342, 564 N.W.2d at 112.

52. See Oakland County v. Dep't of Mental Health, 178 Mich. App. 48, 55, 443 N.W.2d 805, 808 (1989), appeal dismissed, 437 Mich. 1047, 471 N.W.2d 619 (1991).

53. Those terms are defined as follows:

"State spending paid to units of local government" means the sum of total state spending from state sources paid to a unit of local government. State spending paid to a unit of local government does not include a payment made pursuant to a contract or agreement entered into or made for the provision of a service for the state or to state property, and loans made by the state to a unit of local government. M.C.L. § 18.1304(3).

"Total state spending" means the sum of state operating fund expenditures, not including transfers for financing between funds. M.C.L. § 18.1305(1).

"Total state spending from state sources" means the sum of state operating fund expenditures not including transfers for financing between funds, federal aid, and restricted local and private sources of financing. M.C.L. § 18.1305(2).

"Unit of local government" means a political subdivision of this state, including school districts, community college districts, intermediate school districts, cities, villages, townships, counties, and authorities, if the political subdivision has as its primary purpose the providing of local governmental service for citizens in a geographically limited area of the state and has the power to act primarily on behalf of that area. M.C.L. § 18.1115(6).

Article IX, § 33 defines the term "Local Government" as follows:

"Local Government" means any political subdivision of the state, including, but not restricted to, school districts, cities, villages, townships, charter townships, counties, charter counties, authorities created by the state, and authorities created by other units of local government.

54. M.C.L. § 18.1497(1) provides:

The director shall transmit to the auditor general for review and comment, not later than May 31 of each year, an itemized statement of the state spending paid to units of local government and total state spending from state sources for the fiscal year in which this act takes effect, and each fiscal year thereafter, including a calculation of the proportion of state spending paid to units of local government to total state spending from state sources. The report shall be published by submission to the legislature not later than June 30 of each year.

55. M.C.L. § 18.1497(2)-(3) provides:

(2) If the proportion calculated pursuant to subsection (1) [M.C.L. § 18.1497(1), quoted in footnote 28] is less than required by section 349 [M.C.L. § 18.1349], the statements required by this section shall report the amount of additional payments to units of local government which would have been necessary to meet the requirements of section 349. This amount shall be payable to units of local government not later than in the fiscal year following the fiscal year in which the deficiency in payments to units of local government was ascertained and reported to the legislature.

(3) Any appropriations to the fund which are intended to make up a shortfall in payments to units of local government for a prior fiscal year shall not be considered as state spending from state resources or as state payments to units of local government in the fiscal year in which the amounts are appropriated.

56. M.C.L. § 18.1498 provides:

(1) The local government payment fund is hereby created. Money appropriated to the fund by the legislature shall be reserved for use in a fiscal year when additional state payments to units of local government are necessary to meet the requirements of section 349.

(2) The amounts recommended by the governor or appropriated by the legislature into the fund described in subsection (1) shall be considered, for purposes of fulfilling the requirements of section 349, as state spending to be paid to units of local government.

57. Durant II, 424 Mich. at 393, 381 N.W.2d at 674 (citations omitted).

58. See Waterford School District v. State Board of Education, 130 Mich. App. 614, 344 N.W.2d 19 (1983), aff'd sub nom. Durant v. State Board of Education, 424 Mich. 364, 381 N.W.2d 662 (1986).

59. See Oakland County v. Dep't of Mental Health, 178 Mich. App. 48, 443 N.W.2d 805 (1989)(the provision of mental health care services is a state obligation), appeal dismissed, 437 Mich. 1047, 471 N.W.2d 619 (1991).

60. See Oakland County, 178 Mich. App. at 60, 443 N.W.2d at 811.

61. Article IX, § 33 defines the term "General Price Level" as "the Consumer Price Index for the United States as defined and officially reported by the United States Department of Labor or its successor agency."

62. See 1979-1980 Mich. OAG Op. No. 5562, 1979 WL 36,893 (1979).

63. See Headlee Commission Report, supra note 4, at 54; Sessa v. County of Macomb, 220 Mich. App. 279, 290-95, 559 N.W.2d 70, 74-76 (1997)(Markman, J., concurring).

64. The City Utility Users Tax was first enacted in 1972, thus predating the Headlee Amendment. It expired, but was reenacted in 1988. The revised version of this Act was successfully defended against a Section 31 challenge. See Taxpayers United for Michigan Constitution, Inc. v. City of Detroit, 450 Mich. 119, 537 N.W.2d 596 (1995). The Court concluded that because the Act was in effect at the time the Headlee Amendment was ratified, there could be no Section 31 violation. The Legislature responded to the litigation with following statute enacted in 1990:

Sec. 8. This act is intended to eliminate the confusion surrounding the legal status of Act No. 198 of the Public Acts of 1970 resulting from an opinion of the attorney general regarding the validity of enactment of various public acts, OAG, 1987-1988, No 6438, p 80 (May 21, 1987) and a circuit court decision in the matter of Ace Tex Corp v Detroit rendered on February 2, 1990 (Wayne County Circuit Court Case No. 88-807858-CZ), as to which an appeal is pending, and to resolve legislatively the issues raised by the appeal. Before that circuit court decision, the legislature had been advised by the attorney general's office in May 1987 that legislative action was not necessary to authorize the collection of the city utility users tax after July 1, 1988 under Act No. 198 of the Public Acts of 1970. In light of the circuit court decision of February 2, 1990, which is presently on appeal, it appears that legislative action is advisable to clarify the authorization for and to ratify the collection of the tax from July 1, 1988, to authorize the continued collection of the tax, and to resolve legislatively the issues raised by appeal. The legislature by enactment of this act intends to validate, ratify, and revive effective from July 1, 1988 a city utility users tax. This act is remedial and curative and is intended to revive and assure an uninterrupted continuation of the authority to collect a city utility users tax. The legislature finds the city utility users tax was authorized by law on the date when section 31 of Article IX of the state constitution of 1963 was ratified.

M.C.L. § 141.1158 (footnotes omitted).

65. 452 Mich. 527, 550 N.W.2d 490 (1996).

66. Metro is the only airport that fits the statutory definition of "a regional airport facility," i.e., "an airport that services 4,000,000 or more emplacements annually." M.C.L. § 207.372(h).

67. Airport Parking, Inc., 452 Mich. at 534, 550 N.W.2d at 493.

68. M.C.L. § 600.6093. It is reproduced in Appendix A.

69. M.C.L. § 600.6097(1). It is reproduced in Appendix A.

70. See City of Detroit v. City of Highland Park, 878 F. Supp. 87 (E.D. Mich. 1995).

71. See id.

72. See Sessa v. Macomb County, 220 Mich. App. 279, 284, 559 N.W.2d 70, 72 (1997).

73. See Headlee Commission Report, supra note 4, at 37.

74. Missouri's Hancock Amendment, which is modelled after the Headlee Amendment, uses the phrase "tax, license or fees." One commentator has concluded that "[t]he decisions defining the phrase 'tax, license or fees' have created a hodgepodge of results with no clear guiding standard." Joanne L. Graham, Toward a Workable Definition of "Tax, License, or Fees": Local Governments in Missouri and the Hancock Amendment, 62 U. Mo.-Kansas L. Rev. 821, 824 (1994).

75. 221 Mich. App. 79, 561 N.W.2d 423 (1997).

76. Bolt, 221 Mich. App. at 86, 561 N.W.2d at 427.

77. The case relied on is Ripperger v. City of Grand Rapids, 338 Mich. 682, 62 N.W.2d 585 (1954).

78. Bolt v. City of Lansing, ___ Mich. ___, ___ N.W.2d ___, 1998 WL 898865 (dec. 28, 1998).

79. Id. at 4.

80. Id. at 6. Compare County of Saginaw v. John Sexton Corp. of Michigan, ___ Mich. App. ___, ___ N.W.2d ___, 1998 WL 723881 (Oct. 16, 1998)(landfill surcharge qualifies as a regulatory fee for purposes of Section 31 of the Headlee Amendment because it is reasonably related to the costs involved in managing the county's disposal of solid waste).

81. See generally George Marti, Special Assessments, in 2 Michigan Municipal Law §§ 11.01-11.27 (1980).

82. See M.C.L. § 333.20346, M.S.A. § 14.15 (20346).

83. Fluckey v. City of Plymouth, 358 Mich. 447, 100 N.W.2d 486 (1960).

84. 247 Mich. 73, 225 N.W. 587 (1939).

85. Blake, 247 Mich. at 76, 225 N.W. at 588.

86. 351 Mich. 524, 88 N.W.2d 543 (1958).

87. St. Joseph Township, 351 Mich. at 532-33, 88 N.W.2d at 547-48 (emphasis added).

88. See 1979-1980 Mich. OAG Op. No. 5562, 1979 WL 36,893 (1979).

89. See 1979-1980 Mich. OAG Op. No. 5706, 1980 WL 113,860 (1980).

90. See Headlee Commission Report, supra note 4, at 26-29.

91. See Allied Supermarkets, Inc. v. City of Detroit, 391 Mich. 460, 216 N.W.2d 755 (1974).

The Truth in Assessing Act, enacted in 1981, see M.C.L. § 211.34, requires that if the state equalized valuation of a city or township exceeds its assessed valuation, then the city or township must reduce its maximum authorized millage rate so that the amount of taxes collected does not exceed the amount that would have been collected had the city or township levied upon its assessed valuation.

The Truth in Taxation Act, enacted in 1982, see M.C.L. § 211.24e, provides that a local unit of government shall not benefit from an increase in state equalized valuation unless the unit's governing body holds a public hearing designed to acquaint the public with the fact that the total tax dollars collected from existing authorized millage rate will be increased due to increases in the state equalized value of taxable property. Units of local government that levy one mill or less are exempted.

See generally Richard D. Reed, Property Taxation, in 2 Michigan Municipal Law §§ 10.01-10.24 (1980).

92. See M.C.L. § 211.34c. The classes of real property are agricultural, commercial, developmental, industrial, residential, and timber cutover. The classes of taxable personal property are agricultural, commercial, industrial, residential, and utility. Id.

93. 116 Mich. App. 582, 323 N.W.2d 493 (1982).

94. Headlee Commission Report, supra note 4, at 34.

95. For example, in the Durant litigation, the Court of Appeals appointed special masters on two occasions, both of whom were circuit court judges.

96. See M.C.L. § 600.308a(5); M.C.R. 7.206(D)(3).

97. Because local governmental units are not "taxpayers," the provisions of Section 32 are inapplicable to them. Claims by units of local government brought under the Headlee Amendment may be filed with the Local Government Claims Review Board, and from there to the circuit court. The Local Government Claims Review Board is discussed above in Part V.

98. See, e.g., Macomb County Taxpayers Ass'n v. L'Anse Creuse Public Schools, (99)

99. 455 Mich. 1, 564 N.W.2d 457 (1997). ' §

100. See Taxpayers Allied for Constitutional Taxation v. County of Wayne, 450 Mich. 119, 537 N.W.2d 596 (1995). In that case, plaintiffs brought an action nearly ten years after the tax increase went into effect.

101. See Sessa v. County of Macomb, 220 Mich. App. 279, 286-87, 559 N.W.2d 70, 73 (1997).

102. See M.C.L. § 123.958b(3).

103. 455 Mich. 1, 564 N.W.2d 457 (1997).

104. 186 Mich. App. 83, 463 N.W.2d 461 (1990).

105. Durant, 186 Mich. App. at 118.