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After the Miller ruling, the Michigan Supreme Court expanded the definition of the public purpose, leaving it almost wide open. In 1947, the court heard a case questioning whether the city of Kalamazoo was allowed to fund a private, nonprofit — the Michigan Municipal League — with tax dollars. With a unanimous decision, the court indicated that categorically defining public purpose “difficult, if not impossible.”[89] Further, the opinion cited the legal publication, American Jurisprudence, that provided an overview of the national trend on this issue:
A public use changes with changing conditions of society, new appliances in the sciences, and other changes brought about by an increase in population and by new modes of transportation and communication. The courts as a rule have attempted no judicial definition of a public as distinguished from a private purpose, but have left each case to be determined by its own peculiar circumstances. Generally, a public purpose has for its objective the promotion of the public health, safety, morals, general welfare, security, prosperity, and contentment of all the inhabitants or residents within the municipal corporation, the sovereign powers of which are used to promote such public purpose.[90]
The court ruled that funding this private organization was a proper use of tax dollars as it fit this new and very broad definition of public purpose.
At the same time, the voters of Michigan chose to slightly reduce the constitutional limitations on public expenditures for internal improvements. Constitutional amendments in 1945 and 1946 modified Article 10, Section 14, by adding exemptions for all public roads, harbors, waterways, airports and other aeronautical facilities. Also exempted were improvements to rivers, streams and lakes “for purposes of drainage, public health, control of flood waters and soil erosion.”[91] While these amendments certainly expanded what could be deemed a public purpose, it is important to note that voters kept the broad prohibition against internal improvements in place.
Further, the voters of Michigan rejected a proposal in 1961 to amend the constitution to explicitly allow the Legislature to spend or loan up to $50 million to aid “public benefit corporations for the purpose of financing industrial, manufacturing and municipal projects in the state.”[92] Despite this vote, the debate over taxpayer-funded corporate welfare would be questioned again when voters approved the creation of a constitutional convention in 1961.
In developing a new constitution, convention delegates wrestled with state-funded economic development on multiple occasions. Article 10, Section 14 of the 1908 constitution, which explicitly prohibited state-funded internal improvements, was discussed at length, and its sharp divide between public and private purposes was described as being “very important.”[93] Some delegates, however, wanted to completely eliminate it, arguing:
The provision in the present constitution developed as result of the panic of 1837. We do not believe there is a danger of the recurrence of such a panic. We would prefer to remove any legislative straightjacket and permit the legislature to meet the challenges and opportunities with wholesome cooperation with local units of government, private industry and universities.[94]
This attempt to remove the prohibition completely failed, however, with some delegates citing the proposed constitutional amendment that voters had just rejected two years prior. The argument that seemed to carry the motion to maintain a type of prohibition on state-funded internal improvements was the desire to draw a clear line between internal improvements that serve a public purpose and those that primarily serve a private purpose. Arguing against striking the provision entirely, one delegate stated:
[U]nder the language which the committee has adopted . . . the state at least cannot engage in internal improvements of a private nature. Now, if you want to authorize the legislature or enable it to get into internal improvements of a private rather than a public nature, then vote [to strike the provision]. But if you want to leave it like it is … so that the state can engage in any internal improvement as long as it is of a public nature — for the benefit of the public, in other words, not for the benefit of some private interest — why then it is very clear how you should vote.[95]
In the end, the delegates approved what would become Article 3, Section 6 of the 1963 constitution: “The state shall not be a party to, nor be financially interested in, any work of internal improvement, nor engage in carrying on any such work, except for public internal improvements provided by law.”
The convention also addressed a relatively new form of state aid, which was to benefit a special class of private interests. Some municipalities were offering special tax exemptions to certain firms in an apparent effort to entice them to set up shop in their jurisdiction. This issue arose as delegates debated whether to keep a provision that stated, “The power of taxation shall never be surrendered, suspended or contracted away.” One delegate commented:
The power of taxation should reside perpetually with the state and its corporate districts and should never be surrendered, delegated or assigned to private parties. An important development in regard to this section in the recent years has been the practice of some communities to give exemptions or other special incentives to lure industry to their areas. Potential problems arise when communities promise tax exemptions of 5, 10, or 20 years to new industries. Some of these industries remain only as long as these exemptions or other special incentives remain in force, and the long run value of this special treatment for new industries is questionable. These policies to some extent involve a contracting away of the taxing power and to this extent are construed by some to be in violation of this section.[96]
That provision was approved and remained at Article 9, Section 2 of the 1963 constitution.
The final instance in which the constitutional convention considered taxpayer-funded subsidies for private purposes related to modifying Article 10, Section 12 of the 1908 constitution, which banned the granting state credit to or “in aid of any person, association or corporation, public or private.” Delegates ultimately decided to keep that language the same, but they added language to clarify that this would not prohibit the state from investing public funds in private markets for the purpose of providing retirement benefits to public officials and employees.
But in discussing this provision, some delegates wanted to also exempt using state credit for economic development purposes. One delegate summarized the opinion of the committee that rejected this proposal:
One thing that we were asked to do that we have not done was to so change this wording that it would not prevent the loaning of state credit for the purpose of improving, bringing in industry and making industrial inducements. That was carefully considered by the committee. It was ruled out. We don’t think it is sound policy. We know that we have competitors that use it, but we don’t think that we should add to that situation by permitting Michigan to get into the same category.[97]
Still, when being considered before the whole convention, an amendment was made to Article 10, Section 12 that would allow the Legislature to loan a maximum of $100 million to private industries for the purpose of economic development. A delegate in favor argued that this was meant “to give the same advantage to Michigan which other, large industrial states of this union are taking on their own.”[98] Another argued that this would allow “community wide development” that would provide the “necessities” for “the modern economy.”[99]
Several delegates spoke out against this amendment. One called it a “gimmick” and reminded the convention that voters had just rejected this exact proposal two years before.[100] Another highlighted that the types of projects this money would likely be used for were precisely ones that “the composite judgement of private enterprise” deemed unsound.[101] Yet another delegate argued that economic development programs like these undermine belief in the residents of Michigan to generate prosperity on their own:
That this great state of Michigan, endowed as it is with its great wealth of natural resources — agricultural, mineral, industrial — in the presence of an adequate labor supply and industrial facilities, should get involved in a program such as this is beyond my comprehension. It seems to me to lack, basically, a faith in the future of Michigan and in the capabilities of our people. The soundest and most wholesome economic development will not be an artificially stimulated state industrial subsidy, which is what this would be, but one based on a positive, forward looking leadership, sound government and free enterprise.[102]
The amendment was voted down 84-39.[103] Almost immediately, another amendment was proposed. It would have struck the phrase “authorized in this constitution” in this section and replaced it with “authorized by law,” thereby putting the discretion to allow taxation for private economic development purposes with the Legislature.[104] That amendment was also defeated. Finally, a third attempt was made to enable the state’s credit to be used for economic development, and again, the delegates rejected it, this time 93-40.[105]
The constitutional convention of 1963 discussed at length, on several different occasions, the question of whether tax dollars should be allowed to be used to benefit private interests or even for the broader purpose of economic development. While some delegates consistently argued in favor of these policies, the convention as a whole rejected them, and the 1963 constitution that voters ratified retained language that prohibiting expending public funds for private benefits.
