Proposal "A" would have some important effects on protections offered to local units of government and all state taxpayers.
State Taxes and the "Headlee" Tax Limit
The "Headlee" amendment to the Michigan constitution, at Article IX, section 26, contains a limit on the total amount of taxes the state can take. as a percentage of personal income. Because of the peculiar economic circumstances at the time the amendment was adopted, the state has enjoyed a substantial cushion above the limit during most years since its adoption. "A" would increase state taxes by approximately $1.7 billion in 1994, which would be applied against the limit. The state currently has a substantial cushion of at least $3 billion below the limit, although this would fluctuate with the economic cycle even under current law. By using up about half of the current cushion, "A" would have the effect of preventing a future legislature from levying a substantial state tax increase.
State Aid to Local Government and the "Headlee" Minimum Local Share Requirement
As the additional sales and use tax revenue is counted against the "Headlee" state tax limit, the additional state aid to schools under "A" will count against the "Headlee" minimum local share requirement, established at Article IX, section 30 of the Michigan Constitution. Section 30 of the Headlee amendment requires the state to send at least 41.6% of all its spending to local units of government taken as a group. "A" has the intended effect of increasing state aid to local schools while reducing local property taxes. It also has the unintended effect of reducing the effective protection of other units of local government under the Headlee amendment. While local units of government would still have section 29 of "Headlee" which requires state funding of any mandated program of local governments, non-school local governments would not have the same protection against reductions in the total amount of state aid.