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Supremes: State ‘Properly Counted’ Prop A Spending To Local Governments

August 3, 2021

State payments under Proposal A revenues paid under the Headlee Amendment count as state aid to local governments, the Michigan Supreme Court ruled Wednesday in a decision that mostly favored the state. 

The majority’s opinion from Justice Megan Cavanagh also concluded the Court of Appeals erred when it held public school academies (PSA) are “school districts” as used in the Headlee Amendment and that PSAs are not political subdivisions of the state for the purposes of the amendment. 
 
The question, arising in Taxpayers for Michigan Constitutional Government v. State of Michigan, returns to the appeals court to consider whether PSA funding should be counted as spending paid to a unit of “local government” if the authorizing body of the PSA is a school district, intermediate school district, or community college. 
 
“This ruling is a win for the people of this state,” Attorney General Dana Nessel said. 
 
Nessel said public school funding is about 25% — or an estimated $12 billion to $13 billion — of the state’s annual budget, and a significant portion of that annual funding was in question in this case. 
 
If the court had ruled differently, it could have meant “higher taxes and/or fewer state-level services for Michigan’s residents,” Nessel said. 
 
The Michigan Municipal League (MML), however, is disappointed in the court’s ruling, but says it “remains committed as ever to reforming Michigan’s broken municipal funding system.” 
 
“We must reform the way our state funds our communities, and this includes how Proposal A and the Headlee Amendment interact,” said MML Board President, William Wild, who is also Westland mayor. 
 
Under the Headlee Amendment, the state is required to pay 48.97% of revenues to local government, but Taxpayers for Michigan, who filed a lawsuit in September 2016, alleges the state miscalculated its obligation by including prohibited payments in the mix — to school districts through Proposal A, PSA and state-mandated activities and services — resulting in underpayment. 
 
A law professor, speaking on behalf of the plaintiffs, told the Supreme Court in March that the state’s actions placed local governments “under severe stress” in violation of the Headlee Amendment while the Attorney General’s office likened the situation to a pie, saying the whole pie is state spending and one portion of the pie is spent on local governments. 
 
“That piece is 48.97% as a minimum,” said Assistant Attorney General Matthew Hodges, adding that public school spending counts in the “total.” 
 
The plaintiffs allege the state is violating the Michigan Constitution by overstating spending paid to local governments and engaging in an “illegal tax shift.” 
 
Chief Justice Bridget McCormack and Justices Richard Bernstein and Elizabeth Welch joined Cavanaugh while Justice Elizabeth Clement joined all but the court’s decision of the state’s challenge to the appeals court’s writ of mandamus. 
 
“While I concur with the court’s decision to vacate the entire mandamus portion of the Court of Appeals opinion, because this aspect of plaintiffs’ case was inadequately pleaded, I would not direct that Court to continue struggling on remand with an issue that is not adequately framed,” Clement said. 
 
Justice David Viviano, joined by Justice Brian Zahra, concurred in part, but dissented regarding funding for PSAs. They held state spending for PSAs qualifies as part of the “total state spending paid to all units of local government.” 

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