Proposal A's biggest change in dollar terms would be its reduction and
limitation of property taxes. (Appendix I explains the Michigan property tax
system.)
School and Local Government Millage Limits
The
Constitution, at Article IX section 6, limits the property taxes that local
governments
can levy on their taxpayers. The limit applies to "all purposes," but also
provides a specific exception for taxes levied to pay principal and interest on
bonded indebtedness, which must be specifically approved by the voters and can
be levied in unlimited amounts. Millage is called "operating" millage unless it
is levied to repay voter-approved debt.
Currently, between 15 and 18 mills are "allocated" in
each county between schools, townships. and the county. These allocated mills
are not approved by the voters.[1] Additional mills, called "extra voted," are
approved by voters for periods of up to twenty years at a time. The total
millage, both allocated and extra-voted, is subject to a 50-mill limit. Cities,
villages, and other charter authorities have separate tax limitations. and are
not subject to the 50-mill limit.
Proposal A would create a new system of limits:
The first 18 mills of school millage could be levied by local school
boards without voter approval. These would operate similarly to "allocated"
mills under the current system.
The "allocated" mills would be reduced in each county by the number
of mills allocated to school districts in 1992, thus removing any possibilityof other units of government
capturing that allocation.
Voters could approve up to 9 additional mills for school district
operations. As under the current system, voters could also approve unlimited
debt millage above the operating millage limits.
The current 50-mill limit would be reduced to 40 mills, again to
reduce the opportunity of other units of local government capturing the millage
previously levied by school districts.
The first 18 mills of "allocated" school millage, and any of the 9
allowed "extra-voted" millage, would be subject to the same "Headlee" rollbacks
required by Article IX section 31.
In 1993,
school districts would be allowed to levy the number of mills necessary to fund
their operations at the same per-pupil rate as the previous year, plus at least
a 3% increase. With $4,800 per-pupil guaranteed at 18 mills, this would place
over three-quarters of the school districts at 18 mills.
Implementation Issues: Millage Limits
The
proposal limits school millage for "operating purposes," and again guarantees
school funding for "operating purposes." The term "operating" has a long history
of being used to define all expenditures other than debt. Since capital
investment in buildings and equipment is both expensive and yields long-term
benefits, capital expenditures are often financed through long-term borrowings,
thus spreading the cost over the period of benefits. Both Michigan's
Constitution and its statutes have long segregated "operating" funds from those
to repay debt, and required specific voter approval for debt, for both state and
local units of government.
A
straightforward reading of Proposal A places it within this tradition.
Nonetheless, the specific wording admits some ambiguity, which must be examined
for both the school millage limits and the guarantee of per-pupil expenditures.
"Operating Purposes" Millage
The
proposal limits school millage to 18 mills, plus 9 additional extra-voted
mills for "operating purposes." The term "operating purposes" does not exactly
match the "[e]xcept as otherwise provided ... all purposes" language earlier
used in Article IX section 6 to limit operating millage. which provides an
exception only for voter-approved debt.[2] This raises the concern that school
districts may attempt to avoid the 18-p1us-9 millage limit through the
imaginative use of a different type of millage.
Draft
implementation bills circulated the week of April 29 excluded from the operating
miilage limits the following:[3]
Building and site sinking fund millage previously authorized by the
voters. The legislature exempted building and site millage from the definition
of "operating" millage in the Truth in Taxation law, 1982 PA 5 at MCL 211.24e,
even though the maintenance and repair of buildings are clearly operating
expenditures. "Sinking fund" millage is closer to bonded debt for capital
improvements, since it can be used for the "purchase of real estate for sites
for, and the construction and repair of, school buildings." The draft bill would
allow existing sinking fund millage to continue until its authorization expires,
but allow no more authorizations after Proposal A was adopted. Although "repair"
expenditures are operating expenditures, and would be allowed under such
legislation, the bill would over time eliminate such problems by not allowing
any new authorizations.
"Taxes levied … for eliminating an operating deficit." This is a
more serious problem, since it invites school districts to run deficits, and
then levy taxes above the limit to cover tile deficit. Excluding from the limit
on "operating" millage taxes levied to fund an "operating deficit" is a clear
circumvention of the language and intent of the amendment.
Within its context, the amendment is reasonably clear that its limit on school
"operating" millage is meant to apply to millage levied for "all purposes …
except" voter-approved debt repayment. First. the section still would begin
"[e]xcept as otherwise provided inthis
constitution, the total amount of ad valorem taxes imposed on real and personal
property for all purposes in any one year shall not exceed 15 mills ..." The
Subsequent provision for school millage would remain under the authority of this
sentence. Second, section 31 of the same article, which applies "Headlee"
rollbacks to millage authorized in section 6, exempts only voter authorized debt
millage[4] and the proposal specifically states that school millage is subject
to these same rollbacks. Third, the amendment goes on to restate the total limit
on operating school millage as 27 mills, after previously limiting it to 18
allocated plus 9 extra-voted, and then further confirms that these mills fall
within the 40-mill limit. Finally, the Property Tax Limitation Act. 1933PA 62 at MCL 211.201, follows the convention
of "operating" meaning "all purposes other than debt "
Voter Caution: Legislative Implementation of Millage Limits
The
allowance for the legislature to define "operating" is troubling, since it opens
the possibility that their constitutional millage limits would be circumvented.
The taxpayers' recourse would be limited to asking the courts to rule such taxes
unconstitutional, seeking remedial legislation, or constantly fighting local
millage elections. While success is possible – even probable – on these fronts,
this is a lot to ask of voters who would be simultaneously approving an
unambiguous, unchallengable sales tax increase. Should "A" pass, future judicial
interpretation of the property tax limits will hinge on the what the average
voter thought he or she was approving on June 2. 1993. Therefore, voters should
pay close attention to any implementation language passed by the legislature
prior to the election Judges wi11, in the future, likely place significant
weight on such previously-enacted statutes in determining what the " common man"
thought this constitutional amendment would do.
"Limited" Tax General Obligation Bonds
The
Michigan Constitution, at Article IX section 6, as amended by the 1978 "Headlee"
amendment, requires voter approval of bonded indebtedness that is the obligation
of the taxpayers. This ensures that taxpayers who must repay the debt through
future taxation give their consent to such taxation. Once consent to the debt is
granted by the voters, the Constitution allows taxes to be levied without
limit as to rate or amount to repay it. Proposal A would continue that
tradition, allowing voted debt to be repaid by millage above the new 27-mill
limit.
Since
passage of the Headlee amendment, some units of local government have
circumvented the constitutional requirement of voter approval of general
obligation debt, through the use of "limited tax general obligation" bonds
issued without the approval of the voters. Such debt is of doubtful
constitutionality.[5] "Limited" tax general obligation debt is identical to
general obligation debt, in that it must be repaid ahead of operating
expenditures. However, taxes can only be levied for its repayment up to the maximum authorized
millage rate – that is, the maximum millage authorized for operating purposes.
Under
the previous system, school districts could hide the repayment of "limited"
general obligation debt by simply repaying it with operating millage, with the
taxpayers often unaware. Proposal A would expose this behavior, for two reasons.
First, the operating expenditures of school districts would be more uniform, and
thus easier to compare. Second, the state would be guaranteeing a flat amount
per pupil for operating expenditures. Depending on the implementing language,
operating expenditures could exclude repayment of debt for capital investment as
the term "operating" normally implies. Such a definition would leave "limited"
debt without a dedicated funding source. Since the voters never approved the
debt. they could quite fairly balk at paying it.
Of
course. the legislature would be under pressure to allow the state guarantee
funds to be used to repay "limited" debt. Should it do so, it
would constitute a state taxpayer bailout of debt never approved by any voters,
state or local, and of obviously doubtful constitutionality. In this case, the
amendment is not clear, and the subject would be left to implementing
legislation and the courts
"Headlee"
Rollbacks and Other Millage Limit Issues
The
proposal also leaves the legislature other millage limit issues. First,
it is not clear on
how extra-voted school millage rates can be levied in 1993, although it implies
that enough can be levied to raise at least 103% of the amount raised the
previous year. A draft of Senate Bill 597 introduced on April 29 follows this
approach. However, the proposal could reasonably be interpreted to require new
voter authorizations for all extra-voted mills in 1993. Certainly, it leaves the
impression that am authorization for millage above that necessary to raise 103%
of the 1992 revenue. and any millage over 27 mills,
is immediately
repealed.
Second,
it is not clear
how, or if, school districts could raise their 18 allocated mills back to 18, if
reduced by section 31 of the "Headlee" amendment. Since the proposal states that
the state must make guarantee payments as if the district was still at 18, it
could be argued that allocated mills cannot be increased once reduced by the "Headlee"
amendment, even with a vote. Certainly, as is explicitly stated in the proposal,
such millage must be reduced when assessment increases on existing property
outstrip inflation, and could not be again raise without a vote.
