Editor’s report: HEADLEE AMENDMENT
(from Anderson Economic Group, www.andersoneconomicgroup.com.)
PURPOSES OF THE AMENDMENT:
The tax limitation amendment to the Michigan Constitution, commonly known as the “Headlee” amendment, protects Michigan taxpayers against excessive state and local taxation in a variety of ways. The amendment, adopted by Michigan voters as Proposal E on November 7, 1978, was described on the ballot as follows:
“PROPOSAL FOR TAX LIMITATION.
THE PROPOSED AMENDMENT WOULD:
1. Limit all state taxes and revenues, excepting federal aid, to its current proportion of total state personal income and to provide for exception for a declared emergency.
2. Prohibit local government from adding new or increasing existing taxes without voter approval.
3. Prohibit the state from adopting new or expanding present local programs without full state funding.
4. Prohibit the state from reducing existing level of aid to local governments, taken as a group.
5. Require voter approval of certain bonded indebtedness.
Should this amendment be adopted?
Headlee” amended Article IX, section 6 of the “1963 Constitution of Michigan, and added sections 26 through 34. The first two sentences of section 25 clearly establish the purpose of the amendment:
Property taxes and other local taxes and state taxation and spending may not be increased above the limitations specified herein without direct voter approval. The state is prohibited from requiring any new or expanded activities by local governments without full state financing, from reducing the proportion of state spending in the form of aid to local governments, or from shifting the tax burden to local government.
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Editor’s Report: HEADLEE AMENDMENT
Information from the MICHIGAN OFFICE of the STATE BUDGET.
(See: www.michigan.gov.)
BUDGET FAQ’S (Frequently Asked Questions)
What is the Headlee Amendment and what is its significance to the state budget? ANSWER:
In 1978, Michigan voters approved the “Headlee” tax limitation amendments to the Michigan Constitution of 1963 (Article IX, Sections 24 – 34). Article IX, Section 26 establishes an overall limitation on total state spending each fiscal year. The “Hadlee” Amendment also creates two significant limitations on the fiscal relationship between state and local units of government.
Article IX, Section 29 prohibits the state from reducing its share of existing state-mandated programs and requires the state to reimburse local government units for any new state-mandated programs.
Article IX, Section 30 prohibits the state from reducing the proportion of total state spending paid to all units of local government as a group below the proportion in effect in fiscal year 1979.
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Editor’s Report: HEADLEE AMENDMENT.
(See: www.mighiganinbrief.org/edition06/text/issues/issue-31.
Download Acrobat file.)
BACKGROUND:
(April 1, 1998) In November 1978 Michigan voters approved the so-called Headlee Amendment, which added several provisions—sections 25 through 33—to Article IX of the state constitution. The key provisions are presented below.
Section 26:
Section 26 limits the revenue collected by the state (except federal aid) to no more than the share it was of total personal income in FY 1978-79. If revenue exceeds this limit by more than one percent, the excess is to be refunded to taxpayers, pro rata (in proportion to the amount each person and business paid), based on the taxpayer’s liability under the single business tax and the income tax. If the excess is less than one percent, it may be transferred instead to the Budget Stabilization Fund (the state’s “rainy day” fund).
The revenue limit is 9.49 percent of personal income (based on a 1985 recalculation). In the first 15 years the revenue limit was in effect it never was exceeded…however, state revenue exceeded the limit by about $109 million (roughly 0.5 percent—not enough to trigger a distribution of the excess). This was caused by the 1994 school-finance reform legislation (Proposal A), which replaced local property taxes with state level taxes, principally the sales tax. Current projections, principally by the Senate Fiscal Agency, are that revenue will not exceed the limit in either FY 1997-98 or FY 1998-99; in fact, in the latter, state revenue is predicted to fall $1.4 billion below the limit because of slower economic growth plus the fact that several enacted tax cuts will be taking effect.
Section 29:
Section 29 prohibits the state from mandating that local governments provide new services unless the state reimburses the locals for any necessary increased costs they may incur. The state also is prohibited from reducing the state-financed proportion of the necessary costs of any existing activity or service that state law requires of local governments.
This section has had a restraining effect on state government mandates to local governments, but the state nevertheless has found itself in court several times, charged by local government with violating this section. The most significant instance is the Durant case, brought by 84 school districts that argued that the state had violated section 29 by reducing its share of the costs for special education (and two small programs) from the share provided in FY 1978-79; in 1997 the Michigan Supreme Court found for the school districts and, after extensive negotiations, the state agreed to pay these districts—and those who did not file suit, as well, to forestall their bringing suit too—about $1 billion.
Section 30:
Section 30 provides that the proportion of state spending devoted to local governments shall not be less than the proportion in effect in FY 1978-79, the year in which the Headlee amendment passed. That year, local aid as a share of state spending was 41.6 percent; some years later, in the aftermath of a suit brought by Oakland County, the local share was recalculated and set at 48.97 percent. In FY 1994-95 this section effectively was rendered moot by school-finance reform (Proposal A), which sharply increased state support for K-12 education, pushing local aid as a share of state spending to more than 60 percent. This change has made this section ineffective and has allowed the state in recent years to make reductions in state revenue-sharing payments to local governments.
Until school-finance reform significantly increased the local share, section 30 had restrained the state from reducing aid to local governments and also had a major influence on state budgeting. Because the state was close to the limit most years, the budget had to be carefully calculated to as to allocate the proper share of all new monies to local governments. Also, when the state budget had to be reduced (due to a revenue shortfall) during the fiscal year, local governments had to endure a share of cuts equal to that being imposed on other programs, even if priorities argued otherwise.
Section 31:
This section pertains to local government. It required that voters approve local government tax increases not authorized by law or charter prior to November 1978 (that is, any local taxes not already in place at the time the Headlee amendment was adopted have to be approved by the people who will pay them). This section also provides that if the definition of the base of an existing tax is broadened, the maximum authorized tax rate on the new base must be reduced to yield the same revenue as the tax on the prior base; for example, if the tax if the tax base was increased from $1,000,000 to $1,100,000, and the tax rate was one mill, the millage would have to be reduced to .909 mill, so that the yield would be the same–$1000—as that generated by the one mill on the original
tax base.
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 applied 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 or assessment increases that is more restrictive than that imposed by the Headlee amendment.
DISCUSSION:
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 encourage 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.
SEE ALSO: Community Colleges; K-12 Funding; Revenue Sharing; Special Education; State-Local Relations.
FOR ADDITIONAL INFORMATION:
1. Citizens Research Council, www.crcmich.org.
2. Michigan Department of Management and Budget, www.michigan.gove/dmb/.
3. Michigan Department of Treasury, www.treas.state.mi.us.
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Editor’s report: HEADLEE AMENDMENT.
(See Cadillac News /archives: www.cadillacnews.com/articles.)
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Here are a few fairly recent times when the Headlee Amendment has been mentioned in the local newspaper:
(Cadillac News, 06/20/2002)
WEXFORD COUNTY BOARD DISCUSSES AUDIT REPORT.
Cadillac Finances, money, interests and earning were the power words being tossed around at the Wexford County Board of Commissioners meeting on Wednesday.
The county board received the audit report for the 2001 fiscal year (FY) from auditor Les Pulver, Plante and Moran.
The county received an unqualified opinion from the auditors.
“In English, it says the reports are complete, they’re accurate and done according to the (acceptable accounting practices),” said Pulver. “You can rest assured the number are reliable when you make your analysis.”
The audit showed a slight growth, less than one percent, in the general revenue and a little larger increase in revenue from the special revenue fund.
“In prior years, I think, your growth has been greater that that,” said Pulver. The rather flat growth was due to the end of a one-year federal grant and a decrease in interest earnings. Revenue from property tax continues to grow slightly despite rollbacks on the amount that can be levied due to the Headley (Headlee) Amendment…
(Cadillac News, 07/09/2002)
HARING TO BUY FIRE TRUCK.
Haring Township Fire Department will be seeing red soon.
The township board agreed Monday to purchase a new fire truck to replace the department’s two aging models…
In other news, the board discussed:
The townships July 27 Clean-Up Day. It is scheduled for 9 a.m. to 6 p.m. at the Wexford County Landfill.
the upcoming 2003 millage. The board will discuss how much to request for that millage during its August meeting. Haring Township Board Supervisor Bob Raden said that the Headley (Headlee) Amendment requires rollback in millages, but the township will still be receiving more than they did last year. However, reduced revenue sharing will make for lowered income on the millage, Raden said…
(Cadillac News, 05/24/2002)
CONCERNS RAISED OVER FUNDS FOR COURTHOUSE.
The Wexford County Board of Commissioners plans to pay for an addition to the county courthouse using interest earned by the landfill fund. That plan has raised concerns about its legality and long-term financial impact on the county.
Local accountant Jay Thiebaut has been the most vocal in his criticisms. He has warned board members that, in his opinion, their actions will bankrupt the county.
Despite his warnings, the county board has continued with plans to build a 28,000-square-foot addition to the county courthouse.
Thiebaut has met with the county’s bond attorney, auditor and others to address his concerns. He believes the county could open itself up to a lawsuit similar to Bolt v. City of Lansing, which was heard by the Michigan Supreme Court in 1999.
Frederick Baker of Honigman, Miller, Schwartz, and Cohn, was the attorney who argued the case in front of the state Supreme Court.
Baker wouldn’t comment on Wexford County’s plans to use landfill interest to fund the county’s courthouse addition, but he did talk in general terms about the impact of Bolt v. City of Lansing.
“The general rule under the Constitution in Michigan, and I’m referring specifically to Article IX, section 31, is that before a tax may be imposed, it must be approved by the majority of the electors,” Baker said.
“In the case of fees imposed for a specific purpose, either to render a service or for a regulatory program, the revenues generated are ear-marked for that program or service,” Baker said. “As an abstract proposition, if fee revenues are diverted to another purpose, one that is for the common good, then the fee probably would be regarded by the courts as being a tax under the three-point test announced in Bolt v. City of Lansing in 1999”
In the suit, Lansing resident Alexander Bolt challenged the city’s storm water service charge, arguing it was a tax, not a used fee. The Supreme Court ruled in a 4-to-3 decision that the charge was indeed a tax, which requires a vote of approval by the people.
The Court said the service charge violated the Headlee Amendment. As defined by the court, the Headlee Amendment grew out of the spirit of tax revolt and was designed to place specific limitations on state and local revenues. The ultimate purpose was to place public spending under direct control.
The matter comes down to a definition of “tax” versus “fee”, an issue not addressed in the Headlee Amendment but interpreted through several lawsuits. A fee has been defined as being exchanged for a service rendered or a benefit conferred. It must be reasonable to the value of the service or benefit. A tax is used to raise revenue.
To resolve this issue, the court, its auditor, Les Pulver, issued his thoughts on the use of the surplus monies being generated by the landfill’s enterprise fund. He warned that his thoughts, while based on his experience as an auditor, do not carry the authority of a legal opinion…
(Cadillac News, 02/19/2003)
LANDFILL FEES UP FOR DISCUSSION BY WEXFORD COUNTY COMMISSIONERS.
Additional landfill fees and an increase in tire-dumping fees top the agenda for the Wexford County Board of Commissioners’ meeting tonight.
Referred from the finance and appropriations committee, the proposed increases and additions will not affect residential and commercial waste, according to Department of Public Works Director John DiVozzo.
He is proposing a new demolition waste fee of $9 per yard for Wexford County dumpers and $10 a yard for Missaukee County dumpers. Demolition waste is any building waste, roofing material, or broken concrete.
The proposal also includes raising tire dumping fees by 50 cents for passenger tires to $2, doubling the fee for truck/tractor tires to $10 and reducing heavy equipment tire fees by half to $25. He said area landfills are charging around $25 for heavy equipment fees when Wexford County was charging $50.
Special handling by landfill workers also is proposed to be sectioned out into digouts and pulloffs instead of a flat $16 per container or item charge. DiVozzo proposes digouts to cost a flat $25 and pulloffs to cost $10 per trailer visit.
Changes in the fees would bring an annual $50,000 to the landfill fund from demolition waste. Tire fees would increase $5,000 annually while special tire handling charges would decrease $500 per year with the proposed changes, DiVozzo said.
Commissioner Larry Copely opposed sending the proposed fee changes to the full board.
“I feel the fees are taxes and I think it is somewhat in violation of the Headlee Amendment. I assume they (the board) will ignore me again,” he said…
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