James Hohman testifying before the Senate Appropriations Committee on the need to close tax loopholes.

Every tax in Michigan is restricted in one way or another. At least that was the intention of the people when they approved the state’s Headlee Amendment. But some loopholes have popped up over the years. Now it’s up to state lawmakers to close them.

Every once in a while, a local unit of government gets sued and loses a monetary sum. In some cases, judges can mandate that the government raise its taxes to pay for damages. Senate Bill 630 proposes to close that loophole and require that a local government’s voters approve a judgment levy.

The Headlee Amendment made increases in taxes by a local government subject to voter approval. However, it only applied to new taxes. With the law allowing for judgment levies in place before the Headlee Amendment was approved, courts interpreted that judgment levies do not need a vote.

The trouble is to figure out what happens if voters do not approve millages to pay for damages. But Michigan already has an answer to that in statute — the most comprehensive anti-insolvency policy in the country. 

It requires balanced budgets, deficit elimination plans, offers temporary support and borrowing assistance, all with increasing state support. And if all of these fail, the state can appoint an emergency manager, who is given special powers to lower government expenses and fix mismanagement problems. If all of this fails, an emergency manager can take a government into bankruptcy, as we saw in Detroit.

Some governments may be tempted to stop paying bills, hoping that a court will give them a new revenue source. This apparently happened in Pontiac, where school board members stopped paying the district's health insurance premiums, were sued and then given a new property tax to levy.

Yet taxpayers may not be supportive of those levies. The failure to get support for the taxes levied by governments in the first place caused the movement that led to the Headlee Amendment. Popular support is an adequate and fair check on taxation powers, and Lansing should close one of the loopholes to unlimited taxation.