by Patrick J. Wright[ccxxxii]
Public school finance has been significantly affected by the Michigan Constitution’s Article 9, Section 29, which is one of the sections added to the state constitution by the “Headlee amendment.”[ccxxxiii] The section states:
“The state is hereby prohibited from reducing the state financed proportion of the necessary costs of any existing activity or service required of units of Local Government by state law. A new activity or service or an increase in the level of any activity or service beyond that required by existing law shall not be required by the legislature or any state agency of units of Local Government, unless a state appropriation is made and disbursed to pay the unit of Local Government for any necessary increased costs. The provision of this section shall not apply to costs incurred pursuant to Article VI, Section 18.”
The Michigan Supreme Court has explained the basic meaning of the first two sentences contained within Section 29:
“The first sentence of this provision prohibits reduction of the state proportion of necessary costs with respect to the continuation of state-mandated activities or services. The second sentence requires the state to fund any additional necessary costs of newly mandated activities or services and increases in the level of such activities or services from the 1978 base year.”
The Michigan Supreme Court described the first sentence as “‘a maintenance of support’ (MOS) provision” and the second sentence as a “ ‘prohibition on unfunded mandates’ (POUM) provision.”
There have been four significant lawsuits regarding school finance and Section 29. The first lawsuit, Durant v. State of Michigan (commonly referred to as “Durant I”), was filed in 1980, and it was not decided until 1997. The plaintiffs were several individuals (including the eponymous Donald Durant), 83 local school districts and one intermediate school district. Durant I was an MOS case, and the major issue was state funding for special education mandates.
In its ruling on Durant I, the Michigan Supreme Court unanimously held that state government had not properly financed three state-imposed mandates: special education, special education transportation and a school lunch program. The court split 4-3 on the proper remedy. The majority held that the unique facts presented in this case — most important, the state’s recalcitrance, exemplified by the state’s inconsistent arguments throughout the long course of the litigation — justified an award of monetary damages. While the Michigan Supreme Court held that the injured parties were Michigan’s local taxpayers, the court nevertheless awarded damages to the local school districts, writing, “[T]he democratic process will inform and shape distribution of the award.” The minority would have limited the plaintiffs to a declaration that the state had not funded the school districts sufficiently.
The monetary damages award, which was approximately $212 million, was compensation for the 1991-1992, 1992-1993, and 1993-1994 school years. The court traced the damages to 1991 because it was then that the Michigan Court of Appeals held in its own Durant I ruling that districts were underfunded. The Michigan Supreme Court terminated the damages in 1994, when voters approved Proposal A, which largely prevented harm to local taxpayers.
The state paid Durant I’s money damages to the plaintiff school districts in 1998. At about the same time, the Legislature passed Public Act 142 of 1997, a reauthorization of the State School Aid Act that appropriated around $632 million for the 457 conventional school districts and 52 intermediate school districts that did not participate in the Durant I lawsuit.[ccxxxiv]
In order to receive this money, the districts had to agree to waive any claims that were based on issues similar to those in Durant I and that involved the state’s conduct prior to Sept. 30, 1997. A total of 382 conventional and intermediate school districts agreed to the waiver and received money.[ccxxxv]
The lawsuit known as “Durant II” — technically Durant v. State (on Remand)[ccxxxvi]  — was brought by 225 local school districts and 11 intermediate school districts. The districts claimed that in Public Act 142 of 1997 and Public Act 339 of 1998 (two versions of the State School Aid Act), the state of Michigan continued to underfund special education and special education transportation, hence violating the MOS provision of Article 9, Section 29. The plaintiffs alleged that the state improperly paid for special education by requiring the districts to spend a portion of their state foundation allowance to cover special education costs — i.e., that the state Legislature had attached strings to a portion of the foundation allowance.
The Michigan Court of Appeals agreed and based its decision on Article 9, Section 11, more commonly known as Proposal A, instead of Article 9, Section 29. The Michigan Court of Appeals held, “Our constitution prohibits the Legislature from using the per pupil funding guaranteed by Proposal A to satisfy the state’s obligations under the Headlee Amendment (Article 9, Section 29).” Thus, the court essentially ruled that no strings could be attached to the foundation allowance.
Significantly, however, the Michigan Court of Appeals granted only declaratory relief and denied the plaintiffs’ request for monetary damages. The Michigan Supreme Court denied leave to appeal.
To address the constitutional deficiencies identified by the court in Durant II, the Legislature passed Public Act 297 of 2000. This act effectively set aside the single foundation grant used after Proposal A and replaced it with three separate payments to school districts: (1) the minimum required to satisfy the Headlee amendment’s MOS requirement for special education; (2) the minimum required by Proposal A — an amount equal to the fiscal 1995 foundation allowance, according the language of the proposal; and (3) a discretionary amount for any additional funding.[ccxxxvii]
In response, 423 school districts and 33 intermediate school districts filed a constitutional challenge commonly known as “Durant III.” The lawsuit alleged that the new arrangement was merely a “shell game,” with each school district receiving the exact amount the district would have received under Public Act 142 of 1997 and Public Act 339 of 1998. Specifically, the plaintiffs claimed that the Legislature was violating the court ruling in Durant II by once again using money from the state’s foundation grants to meet the MOS requirement for special education under the Headlee amendment. The Michigan Court of Appeals, however, disagreed with the plaintiffs and held the following:
“The essence of plaintiffs’ argument is that once the Legislature has allocated money to the ‘foundation allowance,’ that money is unavailable to satisfy the state’s obligations under the Headlee Amendment even if that foundation allowance is greater that the minimum required under art 9, § 11 [Proposal A]. The essence of defendants’ argument is that funds allocated to the ‘foundation allowance’ may be used to meet the state’s obligations under both Proposal A and the Headlee Amendment as long as that foundation allowance is equal to, or greater than, the sum of the state’s obligations under Proposal A and the Headlee Amendment. We agree with defendants.”
The Michigan Supreme Court denied leave to appeal.
The last significant school funding case is Adair v. State, sometimes referred to as “Durant IV.” Here, 429 conventional and 34 intermediate school districts (as well as numerous individuals, including Daniel Adair) cited Headlee’s prohibition on unfunded mandates to bring a claim against administrative rules and statutes governing special education. The Michigan Supreme Court found that most of the claims were either precluded by the Durant I litigation or were not properly categorized as mandates. The Supreme Court allowed a single claim regarding record-keeping to proceed. This claim related to student, programming and facilities data that the school districts were required to collect, maintain and transit to the state’s Center for Educational Performance and Information.
On remand, the Michigan Court of Appeals dismissed the claim because the districts had not shown documentary support. The court also noted that much of the data was already being collected and used by the districts for their own purposes.
In 2006, however, the Michigan Supreme Court held that the fact that districts had already been collecting much of the data was not enough to lead to dismissal of the claim. The case was again remanded to the Michigan Court of Appeals for a determination of the extent to which the school districts’ data reporting requirements were not funded by previous expenditures. As of this writing, the lawsuit is still proceeding.
[ccxxxii] Patrick J. Wright is a senior legal analyst with the Mackinac Center for Public Policy and a former Michigan Supreme Court commissioner and Michigan assistant attorney general.
[ccxxxiii] Michigan voters approved the “Headlee amendment” to the state constitution in 1978. The amendment reached the state ballot as a citizens initiative spearheaded by Michigan insurance executive Richard H. Headlee.
[ccxxxiv] Durant v. Michigan, 238 Mich App 185, 200 (1999) (Durant II), lv denied 462 Mich 882 (2000); see also subsection 11h(1) of Public Act 142 of 1997.
[ccxxxv] Adair v. Michigan, 470 Mich 105, 114 (2004).
[ccxxxvi] The similarity between the case names Durant v. State (“Durant I”) and Durant v. State (on Remand) (“Durant II”) should not be taken to suggest that the two cases are simply different stages of the same lawsuit. The parties and the issues in the two lawsuits are different, and the court actions are therefore entirely separate.
[ccxxxvii] For further discussion, see “Payment Sections.”