State Failing to Comply with Headlee Amendment, Local Governments Charge
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(EDITORIAL COMMENT: It seems that Michigan's brilliant idea, crafted by conservative insurance executive Richard Headlee, to control state costs has worked wonderfully well -- for the state. But guess who, we find out 30 plus years later, has paid the bill -- we, the local taxpayers.)
Bay County Commissioners are expected to put their feet down, hard, Tuesday and join with other local units of government against the State of Michigan.
Why?
MONEY!
Of course.
The state has failed to comply with the 1978 Headlee Amendment and has continued to require costly services without reimbursing the increased costs.
The local units charge that these costs in 2009 exceeded $2 billion a year statewide.
And, the passage of Proposal A in 1993 has infinitely complicated the effects of the Headlee Amendment. The unintended consequences of the interaction of these two "reforms" has effectively nullified any revenue gains from property taxes to local governments, according to several independent analyses.
A Michigan Department of Treasury report on the effects of Proposal A states: "Because state taxes mainly replaced the local property taxes levied for local school operating revenues, the amount of state taxes collected since Proposal A has increased while the amount of local taxes has decreased significantly."
Before Proposal A, Michigan's property tax burden was more than 33 percent above the national average with the sales tax 32 percent below the national average. Both are now near the national average.
According to a resolution proposed by Commissioner Donald J. Tilley, chair of the ways and means committee, local units including counties, townships, cities, schools, community colleges and road commission have joined to fight the state on this issue.
Headlee amended Article IX of the Michigan Constitution as follows:
From all of its taxes, fees and other sources, the state's total revenue cannot exceed 9.49 percent of personal income in Michigan;
If the state mandates that local governments provide any new or expanded programs, the state must provide full funding;
Local governments cannot add new taxes or increase existing ones, or increase certain bonded indebtedness, without securing approval of voters;
The state cannot reduce the portion of its outlays that goes to local governments below 41.62 percent, the level when the amendment passed.
In 2004, a report from the President of the Mackinac Center for Public Policy said: "Without the restrains on government provided for in the Headlee Amendment, Michigan workers and families would be struggling today to make do with less. Both the tax burden and the Lansing bureaucracy would be larger at the cost of an exodus of people and their businesses from Michigan....In keeping with the spirit of the amendment, the Legislature should act to prevent subterfuges intended to get around it."
That was in 2004. In 2007 the Legislative Commission on Statutory Mandates was formed to review implementation of the Headlee Amendment. Guess what it found? Headlee was a fraud on local taxpayers because the state had failed to live up to its legal obligations!
Plante Moran's analysis is summarized: "The survey results demonstrate that the financial impact of the legislation changing the General Property Tax Act following Proposal A is punitive in nature. The combination of treating uncapped values as growth on existing property with limiting individual property taxable value growth to the rate of inflation produces a double reduction that was never intended by the voters on Proposal A in 1994. Further, the elimination of Headlee roll ups takes away a self correcting tool that was historically viewed as part of the Headlee formula until 1994. As a result, millage capacity is being effectively eliminated."
The proposed Bay County resolution supports the findings and recommendations of the Legislative Commission on Statutory Mandates (LCSM), which analyzed the Headlee mandates in cooperation with the Citizens Research Council.
Joining in the process of analysis were:
Michigan Association of Counties;
Michigan Municipal League;
Michigan Townships Association;
Michigan School Business Officials;
Michigan Association of School Administrators;
Michigan Community College Association; and
County Road Association of Michigan.
State voters approved the Headlee Amendment in November 1978 that required the state to fund mandates imposed on local units of government, the resolution states.
The provision approved by voters reads:
"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 remedy now sought by local units includes an action before the Michigan Court of Appeals to be heard by a special master to rule on whether the matter is a mandate and if the mandate is underfunded. Correctives would be required, including procedures that would prevent new unfunded mandates from being imposed on local units.
Should the Court of Appeals fail to rule on the matter within six months, the local unit would have no obligation to continue to provide the services until the state complies with Headlee.
Here is a sampling of unfunded mandates and their estimated cost in 2009:
Optical-scan voting machines required by the state: $11.1 million to $16.8 million;
County road construction costing more than $100,000 must be bid out rather than use county road personnel: $6.6 million to $9.9 million;
School districts' contribution to school employee retirement plan: $1.5 billion;
New high school graduation requirements: $78.6 million to $117.9 million;
Assessment tests in K-12 districts: $61.9 million to $92.3 million;
The Citizens Research Council summarizes:
"A key provision of this section limits revenue from property-assessment increases. If the assessed value of a local unit's total taxable property, excluding new construction and improvements, increases by more than the inflation rate, the maximum authorized property tax rate must be reduced so that the local's total taxable property yields the same gross revenue, adjusted for inflation, as collected on it at its prior assessed value. (However, the assessment on individual property still could increase more than the inflation rate, because the limit applies to all property combined, not each parcel.)
"This section has had a restraining effect on local revenue. Most units have been required on several occasions to roll back millage rates so as to offset assessment increases. Many government units, particularly school districts, have asked voters to override "Headlee rollbacks" they have only sometimes been successful. This provision's importance has been reduced by Proposal A, because the latter imposes a limit on assessment increases that is more restrictive than that imposed by the Headlee amendment.
"The Headlee amendment clearly has significantly affected state-local finances, but it has not had the dire consequences predicted by its opponents. For example, it has neither caused large reductions in needed public services nor seriously hindered local government operations. It has modestly restrained increases in state and local taxes and spending and probably encouraged some government efficiencies; it also has encouraged creative management and accounting, to enable state and local governments to comply with some of its provisions.
"Because there have been many state-local financing changes since 1978 -- principally Proposal A, which put in place school finance reform, several Headlee provisions no longer are relevant. Whether the amendment should be updated may become an issue in the next few years."
It seems to this corner that the combination of Headlee and Proposal A have created an incomprehensible nightmare of legal entanglements. Few ordinary citizens can even figure out their tax assessments and obviously the checks and balances of government have been compromised by government legalese, jargon and obfuscation.
Don't count on this issue being resolved easily, or quickly. The last matter, in which school districts sued the state for special education costs, took 17 years to resolve.
Lawrence W. Reed, former president of the Mackinac Center, wrote these words of wisdom a few years ago:
"Richard Headlee, now retired and a resident of Utah, has earned a permanent and prominent place in Michigan history as the prime mover of a state constitutional amendment that bears his name. Michiganians made the right decision when they endorsed it in 1978; they just need to remain vigilant and do their part to help it make government better and smaller." (Note: a reader reminds us Mr. Headlee died in 2004).
It seems, in our humble opinion, that judgment is now, in the light of history, seriously open to debate. ###
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rmhoepfner Says:
On February 02, 2010
at 04:37 PM
Richard Headlee died in Utah, 2004. Long live Headlee!
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Dave Rogers |
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