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Litigation Alleging Multi-Billion Headlee Miscalculation Moving Forward

June 6, 2017

Courtesy MIRS News

Litigation in the state Court of Appeals alleges the state has been miscalculating its obligations to local government under the Headlee Amendment to the tune of billions of dollars a year.

Attorneys for the state sought to have the case dismissed, but earlier this month an appellate panel ruled against several of their defenses, clearing the way for a full hearing. 

Under a 1978 amendment to the Michigan Constitution, the state is required to pay back 48.97 percent of taxpayer revenue to local government, with some exclusions, including money raised through tax shifts, performing obligations of the state and to agencies that are not political subdivisions of the state. 

A grassroots organization called Taxpayers for Michigan Constitutional Government was formed over conversations longtime municipal manager Steve Duchane had with his former law professor, John Mogk, lamenting how revenue sharing has incrementally shifted toward the state. 

DuChane said he believes a suit like this has not been tried before because the losses in municipal funding were largely seen as a “political battle.” 

“People are so busy draining the swamp that where the alligators come from is a little hard to get back to,” he said. 

While other litigation has gone after Headlee funding for public schools, their research took a more holistic approach, DuChane said. The COA’s order also notes the case avoids many of the Adair (Headlee funding for schools) suits’ pitfalls. 

Working with one of Mogk’s then graduate students, they spent six months parsing out how the rate was calculated, and came up with four primary culprits for the shifting revenue that they argue fall under the amendment’s exceptions. 

The foremost one is the inclusion of Proposal A-derived funding. They argue that the more than $4 billion that Proposal A generates for school districts counts as a tax shift, and should be excluded from Headlee calculations. 

The next component is the inclusion of payments to charter schools, which the state classifies as a political subdivision. 

“Charter schools today do not qualify as a political subdivision of the state as the people in 1978 would understand that term to be,” Mogk said, explaining that’s the standard for interpretation. 

DuChane emphasized, though, that this is not an attempt to weigh in on the debate around charter school funding. 

Another is the inclusion of local maintenance of trunk line roads, which the state pays local governments to do. They argue this is a state function and the state government’s responsibility, and must be exempt from the calculation. The suit puts that figure at around $1.4 billion in the most recent fiscal year. 

The fourth item regards funded mandates, but Mogk said the funding involved in less significant. 

Mogk said the four-page order from the court showed the judges are taking the claims. 

“It shows that the panel is taking the case very seriously and believes that this is a case that may have important consequences for the relationship between the state and local governments,” he said.

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