Local school districts may see a change in funding after the Michigan Court of Appeals released its recent decision in Taxpayers for Mich Constitutional Gov’t v Michigan, Case No. 33463, which may be accessed here. There, the Plaintiffs alleged that Michigan violated Section 30 of the Headlee Amendment by using Proposal A funds to pay local school districts and charter schools, and that Michigan could not use Section 30 funds to satisfy new state mandates that arose after the Headlee Amendment passed.
The Headlee Amendment was passed in 1978, and Section 30 of the Amendment provides that the total state spending paid to all units of local government, collectively, may not be reduced below the proportion in effect during the 1978‑1979 fiscal year. Proposal A, passed in 1994, provides some of the means for funding of local school districts. The Plaintiffs argued that, by using Proposal A funds to satisfy its burden under Section 30 of the Headlee Amendment, Michigan impermissibly shifted the tax burden from the State to local schools. Specifically, the Plaintiffs reasoned that use of Proposal A funds toward the Headlee obligation replaced the previous use of State funds to satisfy the same obligation, “placing a tax burden on Local Governments to further raise local taxes in order to offset lost State revenue.” Id. at p 7. The Plaintiffs also argued aid to charter schools should not be counted as funds that satisfy the State’s obligation under Headlee.
The court disagreed with both arguments. First, it determined that the “inclusion of Proposal A funding in [Section] 30 spending reflects a constitutionally‑sanctioned rebalancing of the distribution” of funds owed to local governments collectively. In other words, Proposal A changed how revenue was shared among local governments under the Headlee Amendment, but it did not reduce the overall percentage allotment of State budget dollars that local governments as a group received. Second, a majority of the court determined that charter schools fell within the definition of “local government” under the Headlee Amendment, so State funds allotted to them counted toward the State’s obligation under Section 30.
The court did, however, agree with the Plaintiffs in one respect. Section 29 of the Headlee Amendment required the State to make an appropriation to pay local government units for any necessary increased costs relative to new activities or services that arose after 1978. Together, Sections 29 and 30 required the State to fully fund implementation costs of new requirements imposed on local government units and to provide that funding in addition to its funding obligation under Section 30. Plaintiffs argued, and the court agreed, that new State mandates that were funded by monies also counted toward the State’s Section 30 obligation resulted in an unlawful double‑dipping of funds. In other words, if new activities or services were funded with money also counted as Section 30 money, then the proportion of total state spending to local government units would fall below the proportion that existed in 1978 – violating Section 30 of the Headlee Amendment.
In the future, the State will not be permitted to use Section 30 funds toward new activities or services under Section 29. In theory, that means a stream of funding for public schools will not be siphoned away to pay for new activities or services. However, local school districts should not expect to see any compensation from past violations of Section 30, as the court determined that the relief given to Plaintiffs is only applicable moving forward. Additionally, the court’s decision may be appealed to the Michigan Supreme Court, where any part of the appellate court’s decision can be altered – if the Supreme Court finds that Proposal A funds could not be used to satisfy the State’s Section 30 obligation, the decision would have a massive impact. For that reason, the law on this topic is not set. Lusk Albertson will continue to monitor the case and provide any pertinent updates. Stay tuned