Appeals court denies state’s motion, so lawsuit over revenue will continue

By: Bria Brown | Roseville - Eastpointe Eastsider | Published May 31, 2017

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EASTPOINTE — The Michigan Court of Appeals May 9 denied the state’s motion to dismiss a case filed by Taxpayers for Michigan Constitutional Government, a group founded by Eastpointe City Manager Steve Duchane and Wayne State University School of Law professor John Mogk, that alleges that the state has withheld billions of dollars from local governments.

The lawsuit focuses on the requirements of the Headlee Amendment, which requires the state to pay 48.97 percent of revenues to local governments.

“The purpose of the Headlee Amendment was to establish a balanced fiscal policy framework for local governments, limiting their ability to increase revenues from local property taxes on one hand, but protecting local governments from state actions that would undermine their fiscal integrity, on the other,” TMCG attorney John Philo stated in a press release last September, when the group filed its lawsuit.

Local governments that belong to TMCG include Eastpointe, Roseville, Warren, Center Line, Mount Clemens, Clinton Township, Utica, Hazel Park, Harper Woods, Grosse Pointe Woods and the Village of Grosse Pointe Shores.

“The court rejected all of the state’s procedural defenses and ordered that the case proceed to a full hearing on the merits,” TMCG Community Outreach and Communications Director Sara Kandel  stated in a press release May 22. 

Duchane said the group has been working to get to this stage and that he and the group are pleased with the court’s decision.

“When we started this, we saw errors in the method of the state calculation, and it needed to be corrected, and we’re very pleased the Court of Appeals took time to dissect all of the state’s counter-arguments and turned them all down and rejected them all. We’re ready to go to the next stage, and it’s a long journey ahead, but I think it was very encouraging and substantial progress. It’s been almost two years to get to this stage, and we knew it would be a long haul, and I’m very pleased with where we are,” said Duchane.

Mogk, who is the TMCG president, explained more details of the case.

“There are four claims that the calculations are improperly made. We filed a complaint several months ago. The state answered the complaint and also included several procedural defenses that attempted to have the case dismissed before it was heard on the merits,” said Mogk.

According to Mogk, the state and TMCG have a number of days to collect discovery for the case now.

“They gave each side 56 days to submit additional documents to the court, and then (the court) will set a hearing,” he said.

The state and TMCG can request documents from each other during the 56 days.

“We are preparing for the hearing and pretrial discovery, and once that 56 days is up from the date of the order, then the court will take the additional material submitted and set a hearing date,” said Mogk.

According to the September press release, TMCG believes that miscalculations from the Michigan Department of Technology, Management and Budget have taken place and have allowed the state to keep constitutional payments and redirect them for other purposes. The Department of Technology, Management and Budget calculates the constitutional payments made to local governments.

There are four types of prohibited payments that the department included in the calculation for minimum-percentage requirements, according to TMCG.

• Payments made to local units of government to maintain major trunk lines, which TMCG says is prohibited from inclusion under Article 9, Section 30, which prohibits payments made to local units of government to perform obligations belonging to the state.

• Payments resulting from Proposal A, which the TMCG says is prohibited from inclusion under Article 9, Section 25, which prohibits a tax shift putting a tax burden on local governments.

• Payments made to public school academies, which TMCG says is prohibited from inclusion under Article 9, Section 33, which prohibits payments to agencies that are not political subdivisions of the state.

• Payments made to local units of government to fund obligations that the state imposed upon them.

The September release also stated what TMCG is seeking in the lawsuit.

“The lawsuit seeks a declaration that the use of funds raised through Proposal A, spending on public school academies, spending on the maintenance of major trunk lines and payments to fund state obligations cannot be included in the calculation of the minimum mandatory payment; an injunction barring the state from including funds from these areas in the minimum percentage payment calculation; and monetary relief to local governments to recover shortfalls in state spending.”

The Michigan Attorney General’s Office Deputy Press Secretary Megan Hawthorne sent a response to the Eastsider May 24. 

“Due to pending litigation, we are unable to comment at this time,” stated Hawthorne.

Both parties will return to the Court of Appeals in Detroit July 5 with their additional information.