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Bridge Michigan
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Opinion | The State of Michigan legally undermined local governments

The Michigan Supreme Court recently held in Taxpayers for Michigan Constitutional Government v. State that there is nothing in the Michigan Constitution that prevents the state from orchestrating a financial swindle of local governments and their taxpayers amounting to billions. The decision exposes a gaping hole in the fiscal protections of local governments thought to exist when the Headlee Amendment to the Constitution was passed in 1978.

John Mogk
John Mogk is a Distinguished Service Professor at Wayne State University Law School. (Courtesy photo)

That Amendment requires that nearly half of all state revenue (48.97 percent) be spend on local governments, as a group, to provide services to their residents, such as police, fire, public schools, waste disposal, recreation and the like, essential to the daily life of Michigan residents.

With respect to local schools, however, until 1994 the state provided minimal school support with the bulk coming from payments of local property taxes within each school district. Under this system, rich districts were able to raise more tax revenue to support their schools than poor districts, resulting in a statewide disparity in the quality of education for Michigan children.

In 1993, the legislature determined to eliminate this inequality by abolishing the authority of local school districts to collect real property taxes to support school operations. This left them facing insolvency. When the Legislature could not agree on a substitute source of revenue to avoid the crisis, it placed Prop. A on the statewide ballot for voters to approve a mix of state taxes that would fill the void.

The first attempt in 1993 to pass Prop. A failed. The Legislature then tweaked the language and placed it back on the ballot in 1994. The public was told that passage of Prop. A would avoid a potential public educational calamity and assure greater fairness of K-12 education throughout Michigan. A majority of voters were sold on the arguments a second time and passed it.

However, what the voters were not told is that if they approved Prop. A, shifting their local property tax to a mix of state taxes, those payments would be used to reduce state financial support for their local governments. If they had been informed, it is almost assured that the proposal would have been defeated a second time.

This was a classic bait and switch scheme preying upon the credulity of the voters. The "school taxes" formerly paid directly to local school districts by taxpayers were deemed "school taxes" paid by the state and counted in the 48.97 percent of state revenue to be shared with local governments. This allowed the state to divert large amounts of state revenue previously shared with cities, villages, townships and counties to its own use and still comply with the requirement.

After the passage of Prop. A in 1994 the state diverted $1.5 billion of revenue that was to be to be spent on these local governments, placing an unexpected financial burden on them and their local taxpayers to fill the gap by raising local taxes, fees and assessments or cutting services. This diversion has grown over the past 25 years to be more than $3 billion annually today.

In the meantime, the financial distress of local governments has spread statewide. In some cases it has been acute, with 17 local governments having been placed into state receivership, more than in any other state.

Many states have a history of placing financial burdens on local governments. Few have been so brazen, devious and destructive as has Michigan in executing the swindle of local governments and their taxpayers involved in the Prop. A tax shift to further equality within the state's public school system.

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