Adopting a “Lean Government” Model for Michigan

Revisiting the Executive Organization Act of 1965

(Editor’s Note: Few Michigan residents can match the extensive record of public service of attorney Richard D. McLellan. Widely known and respected as a leader in business, university, government, community and volunteer organizations, he has advised several governors, hundreds of legislators and judges, and many employees of state and local government. He has chaired boards for many public and private entities, including the Michigan Chamber of Commerce and the state’s Corrections Commission. His influence over the course of public policy in Michigan spans issues of procurement, regulation, elections, ethics, telecommunications, education and much more. The state’s very first law authorizing charter schools bears his strong personal and indelible imprint. He has served on the board of directors of the Mackinac Center for nearly 20 years, more than any other individual. In this piece about the structure of Michigan government, McLellan offers one citizen’s perspective on the opportunities to reorganize and streamline an important law dating back to 1965.)

Introduction

The State of Michigan is facing many of the fiscal pressures that it faced in the late 1950s and early 1960s. At that time, those pressures led to the adoption by the people of a new Constitution designed, in part, to improve the structure of state government and to make it more responsive to the citizenry. Those pressures include a complex government bureaucracy with a wide range of statutory governmental functions and mandates adopted at an earlier time of high government revenues.

Leaders from both political parties in the Legislature and the governor have made public statements indicating a willingness to "reform" Michigan state government as part of an overall budget and tax strategy. But none of the statements to date have addressed the tough decisions that must be made as part of a rethinking of the size and scope of state government.

One area where the Legislature has abdicated its authority but could and should reclaim it is the design of the structure of the executive branch as reflected in the Executive Organization Act and wide range of Executive Reorganization Orders promulgated by the governor with the acquiescence of the Legislature.

This paper recommends the Legislature assert its authority and adopt a lean government model for organization of the executive branch.

The Constitutional Structure of the Executive Branch

In adopting the Michigan Constitution of 1963, voters called for a sweeping reorganization of the executive branch of state government, which at that time was composed of more than 100 separate agencies with little coordination or control.

This was accomplished through a requirement that the executive branch be composed of no more than 20 "principal departments" as follows:

"Art. V, § 2 Principal departments.

"All executive and administrative offices, agencies and instrumentalities of the executive branch of state government and their respective functions, powers and duties, except for the office of governor and lieutenant governor and the governing bodies of institutions of higher education provided for in this constitution, shall be allocated by law among and within not more than 20 principal departments. They shall be grouped as far as practicable according to major purposes."

While Article 5, the executive branch article, starts with Section 1 providing that, "The executive power is vested in the governor," Article V also creates a divided executive with an elected governor, secretary of state, attorney general and state board of education that are required to head their own principal departments, as follows:

"Art. V, § 3 Single heads of departments; appointment, term.

"The head of each principal department shall be a single executive unless otherwise provided in this constitution or by law. The single executives heading principal departments shall include a secretary of state, a state treasurer and an attorney general." (Emphasis added.)

The state treasurer is a constitutional officer, but unlike the elected secretary of state, attorney general and state board of education, is appointed by the governor. The state treasurer is also constitutionally required to head a principal department.

Two more principal departments, the Department of Transportation and Department of Education, are required by the Michigan Constitution:

"Art. V, § 28 State transportation commission; establishment; purpose; appointment, qualifications, and terms of members; director of state transportation department.

"There is hereby established a state transportation commission, which shall establish policy for the state transportation department transportation programs and facilities, and such other public works of the state, as provided by law."

"Art. VIII, § 3 State board of education; duties.

"Leadership and general supervision over all public education, including adult education and instructional programs in state institutions, except as to institutions of higher education granting baccalaureate degrees, is vested in a state board of education. It shall serve as the general planning and coordinating body for all public education, including higher education, and shall advise the legislature as to the financial requirements in connection therewith.

"The state board of education shall appoint a superintendent of public instruction whose term of office shall be determined by the board. He shall be the chairman of the board without the right to vote, and shall be responsible for the execution of its policies. He shall be the principal executive officer of a state department of education which shall have powers and duties provided by law."

One other principal department is mentioned, but not created in the constitution:

"Art. IX, § 35 Michigan natural resources trust fund.

"There is hereby established the Michigan natural resources trust fund.

"The legislature shall provide by law for the establishment of a trust fund board within the department of natural resources. The trust fund board shall recommend the projects to be funded. The board shall submit its recommendations to the governor who shall submit the board's recommendations to the legislature in an appropriations bill.

"The legislature shall provide by law for the implementation of this section."

The constitution also establishes other agencies that presently have principal department status only by statute. The constitution does not require that these agencies have principal department status:

"Art. IX, § 29 Civil rights commission; members, term, duties, appropriation.

"There is hereby established a civil rights commission which shall consist of eight persons, not more than four of whom shall be members of the same political party, who shall be appointed by the governor, by and with the advice and consent of the senate, for four-year terms not more than two of which shall expire in the same year. It shall be the duty of the commission in a manner which may be prescribed by law to investigate alleged discrimination against any person because of religion, race, color or national origin in the enjoyment of the civil rights guaranteed by law and by this constitution, and to secure the equal protection of such civil rights without such discrimination. The legislature shall provide an annual appropriation for the effective operation of the commission."

"Art. XI, § 5 Classified state civil service; scope; exempted positions; appointment and terms of members of state civil service commission; state personnel director.

"The civil service commission shall be non-salaried and shall consist of four persons, not more than two of whom shall be members of the same political party, appointed by the governor for terms of eight years, no two of which shall expire in the same year.

"The administration of the commission's powers shall be vested in a state personnel director who shall be a member of the classified service and who shall be responsible to and selected by the commission after open competitive examination."

One major flaw in the design of the 1963 Michigan Constitution was its limitation on the number of persons a governor (or on a more limited scale, the elected attorney general, secretary of state or state board of education) is entitled to appoint to manage state departments. Adopted when the State had over 100 agencies, the limitation on so-called unclassified employees creates an unnecessary incentive to create and maintain a high number of principal departments:

"Art. XI, § 5 Classified state civil service; scope; exempted positions; appointment and terms of members of state civil service commission; state personnel director. …

"The classified state civil service shall consist of all positions in the state service except those filled by popular election, heads of principal departments, members of boards and commissions, the principal executive officer of boards and commissions heading principal departments, employees of courts of record, employees of the legislature, employees of the state institutions of higher education, all persons in the armed forces of the state, eight exempt positions in the office of the governor, and within each principal department, when requested by the department head, two other exempt positions, one of which shall be policy-making. The civil service commission may exempt three additional positions of a policy-making nature within each principal department." (Emphasis added.)

Attached as Appendix B is a proposed amendment to Article 9 of the constitution to allow not more than one-half of 1 percent of all state employees to be unclassified. This change would help make the consolidation of departments more manageable.

One rarely recognized part of the executive branch is the system of state public universities created or authorized by the constitution. The role of the universities as part of the executive branch is reflected in the following:

"Art XI, § 5 Classified state civil service.

"The classified state civil service shall consist of all positions in the state service except…employees of the state institutions of higher education. …"

"Art. VIII, § 3 Creating the State Board of Education.

"The power of the boards of institutions of higher education provided in this constitution to supervise their respective institutions and control and direct the expenditure of the institutions’ funds shall not be limited by this section."

"Art. VIII, § 5 University of Michigan, Michigan State University, Wayne State University; controlling boards.

"The regents of the University of Michigan and their successors in office shall constitute a body corporate known as the Regents of the University of Michigan; the trustees of Michigan State University and their successors in office shall constitute a body corporate known as the Board of Trustees of Michigan State University; the governors of Wayne State University and their successors in office shall constitute a body corporate known as the Board of Governors of Wayne State University. The board of each institution shall consist of eight members who shall hold office for terms of eight years and who shall be elected as provided by law."

"Art. VIII, § 6 Other institutions of higher education, controlling boards.

"Other institutions of higher education established by law having authority to grant baccalaureate degrees shall each be governed by a board of control which shall be a body corporate. Each board of control shall consist of eight members who shall hold office for terms of eight years, not more than two of which shall expire in the same year, and who shall be appointed by the governor by and with the advice and consent of the senate."

380 PA 1965, The Executive Organization Act of 1965

Following the mandate of the people in adopting Article 4, Section 2, in 1965 the Legislature and governor agreed to the Executive Organization Act of 1965 ("EOA"), MCL 16.101 et seq., to allocate all "executive and administrative offices, agencies and instrumentalities of the executive branch of state government and their respective functions, powers and duties" within not more than 20 principal departments "by law," i.e., by statute. The Legislature deliberately left the "twentieth department" available for future use. The title of the EOA reads as follows:

"AN ACT to organize the executive and administrative agencies of state government; to establish principal departments and department heads; to define the powers and duties of the principal departments and their governing agents; to allocate executive and administrative powers, duties, functions, and services among the principal departments; to provide for a method for the gradual implementation of the provisions of this act and for the transfer of existing funds and appropriations of the principal departments herein created and established."

The EOA was enacted in 1965 at a time of split state government, with a Republican governor and a Legislature heavily dominated by Democrats, as a result of the Johnson landslide following the 1963 death of President Kennedy. The Democrat Legislature and the Republican governor, on a bipartisan basis, carried out their duty to create a new executive branch with all agencies "grouped as far as practicable according to major purposes."

The structure established in the EOA in 1965 was very stable until the 1990s. Section 16 listing the principal departments has only been amended once in the 1960s and twice in the 1970s (1968 PA 353, 1973 PA 127 and 1978 PA 483). Other statutory changes, however, were made in the structure of the executive branch but not reflected in the EOA.

At the time of the adoption of the EOA, a major policy and political issue was the degree of autonomy, if any, the many existing state agencies, boards and commissions would have when they were allocated among the new principal departments.

This issue was resolved by creating three types of "transfers" that delimited the structure and autonomy of the agency following reorganization. A summary of the transfer types established in Section 3 of the EOA is as follows:

  • Type I transfer: The transferring intact of an existing department, board, commission or agency to a principal department. The board, commission or agency is administered under the supervision of its principal department. But the agency granted a type I transfer exercises its prescribed statutory powers, duties and functions of rule-making, licensing and registration including the prescription of rules, rates, regulations and standards, and adjudication independently of the head of the department. All budgeting, procurement and related management functions of a so-called Type I agency are performed under the direction and supervision of the head of the principal department.

  • The fundamental power shift that occurred when an agency was consolidated into a principal department by a Type I transfer was that the agency lost its budgeting, procurement, personnel and management functions to the principal department. The agency continued to independently make regulatory decisions such as licensing, rate making and establishing rules, but it did not control its own budget or management functions.

  • Type II transfer: The transferring of an existing department, board, commission or agency to a principal department but with all its statutory authority, powers, duties and functions, records, personnel, property, unexpended balances of appropriations, allocations or other funds, including the functions of budgeting and procurement, transferred to the principal department. Essentially, an agency subject to a Type II transfer remains in existence, but is advisory to the principal department head.

  • Type III transfer: The abolishing of an existing department, board, commission or agency. All the abolished agency’s statutory authority, powers, duties, functions, records, personnel, property, unexpended balances of appropriations, allocations or other funds are transferred to the principal department. An agency subject to a Type III transfer no longer exists but its statutory functions remain in effect and are exercised by the principal department.

Following the creation of the new principal departments, the EOA provided for the continuing internal organization process for departments as follows:

"MCL 16.107 Internal organization of principal departments; executive allocation and reallocation of duties and functions; limitations; transfer of type II or type III agencies; administration; rules.

"Sec. 7. (a) Except as provided by law or within this act, the head of each principal department with the approval of the governor is authorized to establish the internal organization of his department and allocate and reallocate duties and functions to promote economic and efficient administration and operation of the department. No substantive function vested by law in any officer or agency within the principal department shall be removed from the jurisdiction of such officer or agency under the provisions of this section.

"(b) Except as provided by law or within this act, when any department, commission or board or other agency is transferred by a type II or type III transfer to a principal department under the provisions of this act, the functions of the department, commission or board or other agency shall be administered under the direction and supervision of the head of the principal department. When a department, commission, board or other agency is transferred by a type II or type III transfer to a principal department all prescribed statutory functions of rule making, licensing and registration including the prescription of rules, regulations, standards and adjudications shall be transferred to the head of the principal department into which the department, commission, board or agency has been incorporated."

At present, the EOA sets forth a defective list of state principal departments because of the increasing role of Executive Reorganization Orders discussed below. The EOA today purports to identify the principal departments as:

1. Department of State*
2. Department of Attorney General*
3. Department of Treasury*
4. Department of Natural Resources*
5. Department of Education*
6. Department of Transportation*
7. Department of Management and Budget
8. Department of State Police
9. Department of Military Affairs
10. Department of Agriculture
11. Department of Civil Service
12. Department of Commerce
13. Department of Corrections
14. Department of Licensing and Regulation
15. Department of Labor
16. Department of Mental Health
17. Department of Public Health
18. Department of Social Services
19. Department of Civil Rights
*constitutionally mandated principal department

In fact, the following are the state principal departments presently established by law (and as set forth in the State Directory), whether by statute or by executive reorganization order having the effect of law and not vetoed by both houses of the Legislature:

1. Department of Education*
2. Department of State*
3. Department of Attorney General*
4. Department of Natural Resources*
5. Department of Transportation*
6. Department of Treasury*
7. Department of Agriculture
8. Department of Labor & Economic Growth
9. Department of Civil Rights
10. Department of Civil Service
11. Department of Community Health
12. Department of Corrections
13. Department of Environmental Quality
14. Department of History, Arts and Libraries
15. Department of Human Services
16. Department of Information Technology
17. Department of Department of Management and Budget
18. Department of Military and Veterans Affairs
19. Department of State Police
*principal department required by constitution

Executive Assumes Reorganization Authority

With the Legislature making few changes in its continuing authority to structure the executive branch, in the 1990s, then-Gov. John Engler reinvigorated one of the strongest constitutional powers of the governor – the power to make changes in the executive branch structure "with the force of law," i.e., with the same effect as a statutory change initiated by the Legislature.

In addition to requiring the Legislature to allocate all agencies "by law," the Constitution includes the following:

"Art. V, § 2 Principal departments.

"Subsequent to the initial allocation, the governor may make changes in the organization of the executive branch or in the assignment of functions among its units which he considers necessary for efficient administration. Where these changes require the force of law, they shall be set forth in executive orders and submitted to the legislature. Thereafter the legislature shall have 60 calendar days of a regular session, or a full regular session if of shorter duration, to disapprove each executive order. Unless disapproved in both houses by a resolution concurred in by a majority of the members elected to and serving in each house, each order shall become effective at a date thereafter to be designated by the governor."

Previous to Gov. Engler, no governor had successfully used the governor’s reorganization authority to make changes in the number or names of principal departments. (Gov. Milliken had attempted to create a Department of Human Services, but the Legislature would not fund the new department.)

Gov. Engler issued an executive order that not only eliminated the existence of a number of agencies, he separated the existing Department of Natural Resources into a new restructured Department of Natural Resources and a brand new Department of Environmental Quality.

Executive Order 1995-18 created the DEQ effective Oct. 1, 1995. The Legislature had the opportunity to veto the order by a vote of both chambers, but did not do so.

Litigation challenging the reorganization authority went to the Michigan Supreme Court, which upheld the extensive nature of the governor’s powers.

Under Gov. Engler, a continuing stream of executive reorganization orders substantially restructured the executive branch. Some actions included:

  • Abolishing the Corrections Commission as the head of the Corrections Department.

  • Abolishing the Department of Licensing and Regulation and incorporating its functions into the Department of Commerce.

  • Combining the Departments of Public Health and Mental Health into a new Department of Community Health.

  • Creating a new Department of Jobs Commission out of parts of the Department of Commerce.

  • Abolishing the Department of Labor and incorporating its functions into another department.

Adopting a "Lean Government" Model for Michigan

With this background, the Legislature has an opportunity to take a much more active role in designing an executive branch structure for the first decades of the 21st century, if it has the will.

The Michigan Constitution anticipated a changing structure of the executive branch to meet the needs of the people and administer the size of government for which the people were willing to pay.

"Art. V, § 2 Executive Branch.

"They shall be grouped as far as practicable according to major purposes."

"Art. XI, § 5 Civil Service.

"The appointing authorities may create or abolish positions for reasons of administrative efficiency without the approval of the [Civil Service] commission. Positions shall not be created nor abolished except for reasons of administrative efficiency."

One model for a leaner state government with only 12 principal departments appears below:

Constitutionally Required Principal Departments

1. Department of Education*

2. Department of State

  • Incorporating Department of History Arts and Libraries

3. Department of Attorney General*

4. Department of Transportation*

5. Department of Treasury and Budget*

  • Incorporated existing Department of Treasury and Budget Division of DMB

  • Strategic Fund is transferred to DLEG

  • Head of Department is State Treasurer

  • Budget Director is direct appointee of Governor

Departments to Be Created Under Revised Executive Organization Act

6. Department of Government Services; incorporates existing

  • Department of Information Technology

  • Department of Civil Service (Constitutionally directed by Civil Service Commission

  • Department of Civil Rights (Type I under constitutionally-established Civil Rights Commission

  • Office of State Employer

  • All personnel functions from departments (except State, AG and Education)

  • All of DMB except Budget function

7. Department of Labor & Economic Growth

  • Same plus Strategic Fund

8. Department of Safety and Security

  • Department of State Police

  • Department of Military and Veterans Affairs

9. Department of Natural Resources, Agriculture and Environmental Quality

  • Headed by single director appointed by Governor

  • Natural resources function under Natural Resources Commission by Type I transfer

  • Agriculture functions under Agriculture Commission by Type I transfer

10. Department of Community Health

11. Department of Corrections

  • Add Oversight Commission but retain director appointed by Governor

12. Department of Human Services

Benefits Enactment of Proposed Model

These proposed changes eliminate six departments, allowing the state for "reasons of administrative efficiency" to eliminate:

  • Six cabinet officers

  • Six personnel departments

  • Six department lobbyists

  • Six department budget offices

  • Six department spokespersons

None of these consolidations eliminate state-mandated programs and functions.

The proposed changes are but one element of the changes the state government needs to make to live within its means. And mere consolidation, if not followed by improved management, could be seen as the proverbial "rearranging the deck chairs on the Titanic."

Nevertheless, reducing the number of principal departments could help signal that the Legislature is determined to change state government in fundamental ways.

There are small departments — Civil Service, Civil Rights, Information Technology, History, Arts and Libraries — that could easily be consolidated.

The DNR and DEQ could be recombined but the management efficiencies effected by eliminating multiple agencies and providing a direct appointment of the DEQ director could be maintained.

By consolidating the budget function with the Treasury Department, all of the revenue and expenditure functions could be in one department.

A consolidated department including the State Police and the National Guard would permit a unified homeland security structure while retaining a Commissioner of State Police and Adjutant General to carry out their respective functions.