[APRIL 1, 1998] In November 1978 Michigan voters approved the
so-called Headlee Amendment, which added several provisionssections 25 through
33to Article IX of the state constitution. The key provisions are presented below.
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 197879. 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 taxpayers
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
states "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 (in fact, in FY 199394, state revenue was more than $3
billion below the limit). In FY 199495, however, state revenue exceeded the
limit by about $109 million (roughly 0.5 percentnot 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 199798 or FY 199899; 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 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 smaller programs) from the share provided in FY 197879;
in 1997 the Michigan Supreme Court found for the school districts and, after extensive
negotiations, the state agreed to pay these districtsand those who did not file
suit, as well, to forestall their bringing suit tooabout $1 billion.
Section 30 provides that the proportion of state spending devoted to local governments
shall not be less than the proportion in effect in FY 197879, 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 199495 this section
effectively was rendered moot by school-finance reform (Proposal A), which sharply
increased state support for K12 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
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 so 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
This section pertains to local government. It requires 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 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 $1,000as 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 units 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
locals 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 provisions 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 1978principally Proposal A, which put in place school
finance reformseveral 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; K12 Funding; Revenue
Sharing; Special Education; State-Local
Citizens Research Council
38200 West Ten Mile Road, Suite 200
Farmington Hills, MI 48335-2806
(248) 474-0090 FAX
Michigan Department of Management
P.O. Box 30026
Lansing, MI 48909
(517) 373-7268 FAX
Michigan Department of Treasury
430 West Allegan Street
Lansing, MI 48922
(517) 373-8414 FAX
Senate Fiscal Agency
201 North Washington Square
Victor Center, Suite 800
P.O. Box 30036
Lansing, MI 48909-7536
(517) 373-1986 FAX
CONTENT CURRENT AS OF
APRIL 1, 1998.
Public Sector Consultants, Inc.