Court partially sides with Michigan cities over state in Headlee suit

Michigan Capitol | Susan J. Demas

Municipal leaders in Michigan are cheering a Wednesday ruling by the state’s Court of Appeals pertaining to funding for local governments, but it’s unclear how big a windfall cities and towns could see. 

The ruling stems from a 2016 lawsuit filed by a group of Michigan municipal stakeholders against the state’s Department of Technology, Management and Budget (DTMB). Taxpayers for Michigan Constitutional Government argued that the state has been “purposefully and continually miscalculating the minimum mandatory payment to local governments, as required by the Headlee Amendment [a 1978 state constitutional amendment], which has resulted in a shortfall of payments to local governments that is well in excess of $1 Billion.”

The Headlee Amendment mandates that almost 49% of state tax revenue be shared with local governments. 

Flint, unemployment insurance, Headlee lawsuits cast shadow over state budget

The Court of Appeals, in part, agreed with the municipal group, writing that payments by the state to help fund new mandates and regulations don’t count toward the required revenue sharing payments from the state.

To Dan Gilmartin, CEO of the Ann Arbor-based Michigan Municipal League (MML), which lobbies on behalf of state municipal governments, the ruling reinforces the group’s long-standing message that the state has disinvested from local units. 

MML CEO Dan Gilmartin with Melanie Piana, MML board chair | Nick Manes

“We appreciate the court recognizing what we have said for years: The state has breached its duty to fully fund mandates, forcing our communities to choose between cutting the services our residents want and deserve, or raising taxes,” Gilmartin said in a statement. “These choices have harmed our roads, denied emergency services and caused other valuable services to be denied to the residents who need them the most.”

The Appeals Court, however, did side with the state on two other counts in the lawsuit, most notably that payments to school districts count toward the state’s revenue-sharing obligations with local municipalities. 

Both the municipal plaintiffs and the state say that appeals to the Michigan Supreme Court remain a possibility. 

As the Advance reported in June, the then-pending ruling was anxiously awaited by many as one of several potential lawsuit settlements — including those related to the Flint water crisis and unemployment insurance fraud — that could potentially blow a major hole in upcoming fiscal year budgets. 

Rick Haglund: Michigan’s finances are still reeling from recession, outdated tax code

DTMB spokesman Kurt Weiss, however, told the Advance that he doesn’t expect Wednesday’s ruling to affect next year’s Fiscal Year 2020 budget,, which begins on Oct. 1, and continues to be negotiated between GOP legislative leaders and Democratic Gov. Gretchen Whitmer.

“We will take some time to review the ruling and work with the Attorney General’s office for their legal guidance, but it’s too soon at this point to know what our next steps will be or whether the state will appeal the decision,” Weiss wrote in an email. “The ruling doesn’t have any direct impact on budget negotiations and we look forward to beginning the more formal budget negotiation process very soon.”

Nick Manes
Nick Manes covers West Michigan, business and labor, health care and the safety net. He previously spent six years as a reporter at MiBiz covering commercial real estate, economic development and all manner of public policy at the local and state levels. His byline also has appeared in Route Fifty and The Daily Beast. When not reporting around the state or furiously tweeting, he enjoys spending time with his girlfriend, Krista, biking around his hometown of Grand Rapids and torturing himself rooting for the Detroit Lions.

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