Case Name: SCHMIDT v. DEPARTMENT OF EDUCATION
Court: Michigan Supreme Court
Jurisdiction: Michigan
Decision Date: 1992-09-29
Citations: 441 Mich. 236
Docket Number: Docket No. 90858
Parties: SCHMIDT v DEPARTMENT OF EDUCATION
Judges: Brickley, Griffin, and Mallett, JJ., concurred with Boyle, J.
Reporter: Michigan Reports
Volume: 441
Pages: 236–314

Head Matter:
SCHMIDT v DEPARTMENT OF EDUCATION
Docket No. 90858.
Argued November 7, 1991
(Calendar No. 11).
Decided September 29, 1992.
Rehearing denied post, 1202.
Gerald Schmidt, a taxpayer in the Warren Woods School District, and fifty other taxpayers from fifty other school districts brought an action in the Court of Appeals under the Headlee Amendment, Const 1963, art 9, § 32, against the Department of Education and others, contending that the reduction of the state financed proportion of the necessary costs of certain state-required activities and services and the reduction of the proportional funding of social security taxes paid by the districts on behalf of their employees violated art 9, § 29. By order, the Court of Appeals, Danhof, C.J., and Gillis and Mackenzie, JJ., dismissed the complaint for failure to state a cause of action under the Headlee Amendment, reasoning that § 29 would be violated only if the state financed portion of the necessary costs were reduced statewide (Docket No. 132677). The plaintiffs appeal.
In an opinion by Justice Boyle, joined by Justices Brickley, Griffin, and Mallett, the Supreme Court held:
Because the voters intended neither to freeze legislative discretion nor to permit state government full discretion in its allocation of support for mandated activities or services, the statewide-to-local ratio for calculating the state’s funding obligation for existing services and activities under § 29 preserves voter intent by securing a minimum funding guarantee while simplifying calculations and avoiding inequitable anomalies. Social security coverage is not a state-required activity or service within the meaning of the Headlee Amendments.
1. Only the statewide-to-local district funding ratio for calculating the state’s obligation pursuant to § 29 gives full effect to the language and purposes the voters sought to achieve in ratifying the Headlee Amendment. The approach requires an initial calculation of the proportion of statewide funding for a particular mandated activity to the total necessary costs of providing that activity. The necessary costs to each local unit in the funding year at issue are then calculated, and the proportion of state financed funding for the activity or service in the base year is compared to the proportion of funding provided to the district in the year at issue. The state is obligated to afford each unit providing the activity or service the same proportion of funding that the state provided on a statewide basis in the year that the Headlee Amendment was ratified.
2. Section 29 was intended to impose an obligation on the state vis-á-vis each unit of local government with respect to mandated activities or services as well as new requirements. The statewide-to-local method of calculating the state’s obligation achieves the voters’ desire to secure a minimum level of funding to the local governmental unit for mandatory programs and to link the authority to mandate programs with the necessity of taxing to pay for those programs. It also creates the appropriate balance between the state’s desire for discretion in allocating funds and the desire of the local units of government for minimum funding. It provides a uniform allocation of resources for mandatory programs and frees the state to supplement minimum funding on the basis of its perception of need, while the local government is guaranteed its proportionate share. This formulation additionally simplifies the calculation necessary to determine the state’s obligation under § 29. Requiring that the state pay each local government the same percentage in a given year avoids some of the anomalies present with a local base-year calculation. New districts, like previously existing districts, are provided the same proportionate share of state funding. The statewide-to-statewide and local-to-local methods each fail in that neither embodies the dual approach reflected in the text and purpose of § 29.
3. Social security coverage is directly imposed by federal law and therefore is not required by state law within the meaning of § 29. Nor is it an activity or service within the meaning of that section. Thus, regardless of how the funding ratio is calculated, it is not a state-required activity or service within the meaning of the Headlee Amendment.
Reversed and remanded for further proceedings.
Chief Justice Cavanagh, dissenting, stated that the proper interpretation of Const 1963, art 9, § 29, for purposes of assessing the state’s compliance in a given year, requires comparison of the state financed proportion of the total necessary costs incurred by all relevant units of local government statewide in providing a specific state-required activity or service in 1978-79 with the state financed proportion provided in the year at issue, i.e., the statewide-to-statewide interpretation.
Section 29 prohibits the state from reducing the state financed portion of the necessary costs of any existing activity or service required by the state of units of local government. It is eminently logical to calculate necessary costs on the basis of the aggregate costs incurred by all units of local government that are required to provide each activity or service.
Section 29 was designed to bar the state from shifting the cost of activities or services required by state law to local units of government. The statewide-to-statewide interpretation of § 29 in no way conflicts with the purposes of the amendment. As long as the state is prevented from shifting its funding responsibilities onto local governments on an overall, statewide basis, the antishifting goal of § 29 is fully realized and effectuated. Because the plaintiffs have not alleged any aggregate, statewide shifting, their claim under § 29 fails as a matter of law, as does their claim regarding social security coverage.
A comparison of § 29 with § 30 does not support a local-to-local interpretation. The phrase in § 30, "taken as a group,” when referring to units of local government, was included to avoid any ambiguity in that section regarding the allocation of state funds to units of local government. Its absence from § 29 does not undermine the statewide-to-statewide interpretation because that interpretation clearly flows from the existing language. Rather, its inclusion would have created ambiguity and confusion.
The statewide-to-local interpretation of § 29 is clearly untenable. It would require interpretation of the language of the statute depending upon whether the base year or the year of the challenged funding was at issue.
Justice Levin, joined by Justice Riley, dissenting, stated that the state violated Const 1963, art 9, § 29 when it reduced funding allocated to particular school districts for mandated programs, and that social security taxes are a necessary cost of providing mandated services.
The Headlee Amendments were added to this state’s constitution as part of a nationwide taxpayer revolt. The intent of the voters was to lower taxes and put a ceiling on state spending. Section 29 was added as part of that revolt in an effort to limit legislative expansion of requirements placed on local government to freeze what was perceived as excessive government spending so that there would be no shift of responsibility for services from the state to the local governments without adequate compensation from the state treasury to the local treasuries, i.e., to bar the state from shifting the cost of activities or services required by state law to local units of government. Section 29 requires that the actual cost of providing a state-mandated service or activity must be paid by the state to the local unit of government. It sought to bar additional taxes both at the local and the state level without voter approval.
The statutory scheme challenged by the plaintiffs and adopted by the dissent validates a budgetary dissimulation that enables the state to avoid this ceiling on state spending by shifting to relatively wealthy school districts the cost of additional state spending to provide aid to poorer school districts. It brings about this result by declaring that the state complies with the edict of § 29 upon enactment of an appropriation bill that tentatively "allocates” to all school districts, wealthy and poor, the amounts required by § 29 to be paid. It ignores that the School Aid Act further provides that amounts so tentatively allocated to wealthy school districts are to be deducted and recaptured to the state treasury. The dissent thus treats the tentative allocations of the amounts required to be paid pursuant to § 29 as satisfying the state’s obligation to avoid reducing the state financed proportion of the necessary costs even though the amounts tentatively allocated will not, by reason of the recapture, be fully paid to wealthy school districts. In a word, what is "allocated” need not be paid in order to comply with § 29. The result is that the sums recaptured from the tentative allocations are nothing more than bookkeeping entries, and need not actually be paid. The tentative allocations thus are a sham, unless there is recognition that, by reason of the recapture, the amount tentatively allocated is not the actual application.
The construction adopted by the dissent neuters the prohibition of § 29 of reducing the state financed proportion of the necessary costs of pre-Headlee state-mandated programs. Section 29, as construed by the Court, no longer bars the state from shifting to wealthier school districts the entire cost of maintaining in those school districts pre-Headlee state-mandated programs without any compensation from the state. Insofar as pre-Headlee mandated programs are concerned, school districts, for all practical purposes, have been read out of § 29 as "local units of government.” But the Court’s construction of § 29 is not limited to school districts. The allocation/ recapture charade provides the means of neutering § 29 with respect to all pre-Headlee state-mandated programs, thereby enabling the state to shift to local units of government the cost of providing funds for the state financed proportion of any preHeadlee state-mandated programs, and thereby freeing the "saving” achieved for expanded state spending for any purpose at the expense of local taxpayers, who either must accept a reduction in other local services or vote for increased taxes at the local level to provide the funds needed to pay the state financed proportion of the necessary cost of providing the preHeadlee state-mandated service. The state thereby increases state spending with money provided by local governments. It is apparent from the face of the recapture provision, that the recapture in fact shifts to wealthier school districts the portion of the aggregate, statewide funding responsibility that is recaptured.
Const 1963, art 9, § 29 provides that the state is 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. Section 30 provides that the proportion of total state spending paid to all units of local government, taken as a group, shall not be reduced below that proportion in effect in fiscal year 1978-79. Both sections refer to units of local government, but only § 30 specifies that such units are to be taken as a group. Because school districts are a species of local government, the reference in § 29 to units of local government connotes a governmental entity smaller than a group comprised of all school districts in the state and suggests that § 29 refers to individual school districts.
If "taken as a group” is read into § 29, and the state may recapture funds allocated to mandatory educational programs, local taxpayers effectively would be required to choose between raising their taxes or cutting back on traditional core educational programs and significant traditional extracurricular activities. Such a narrow reading of § 29 effectively would deprive many school districts of any protection under § 29. The state would be allowed to do incrementally what it is otherwise prohibited from doing comprehensively.
Social security coverage is part of the state financed proportion of the necessary costs of providing mandated services under § 29, but not of providing education generally. Since 1989, state law has provided for the recapture from wealthier school districts and reallocation to needier school districts of funds dedicated to social security coverage for school employees. To the extent state funds were allocated in the base years for social security coverage of employees engaged in general education, the funds were not used to defray a necessary cost of an activity or service required by state law. To the extent, however, that state funds were then allocated for social security coverage of employees engaged in mandated programs, such funds defrayed necessary costs of providing mandated services. Accordingly, § 29 requires that the cost of funding social security coverage for school employees engaged in the delivery of mandated services be included in the calculation of the necessary costs of those services in each district.
Hardy, Lewis, Pollard & Page, P.C. (by Dennis R. Pollard), for the plaintiffs.
Frank J. Kelley, Attorney General, Gay Secor Hardy, Solicitor General, and Paul J. Zimmer and Jane D. Woodfin, Assistant Attorneys General, for the defendants.
Amici Curiae:
Hardy, Lewis, Pollard & Page, P.C. (by Dennis R. Pollard and Richard E. Kroopnick), for Donald Durant, Jack Kennedy, Hillary Kutella, Edward Rishavy: Taxpayers of the Fitzgerald School District, and Fitzgerald Public Schools.
Sachs, Kadushin, O’Hare, Helveston & Wald-man, P.C. (by Theodore Sachs, Eileen Nowikowski, and Andrew Nickelhoff), for Detroit Federation of Teachers.
White, Beekman, Przybylowicz, Schneider & Baird, P.C. (by Cynthia Williams Irwin), for Michigan Education Association.

Opinion:
Boyle, J.
The question presented is the proper interpretation of the first sentence of § 29 of the Headlee Amendment, Const 1963, art 9, § 25-34. The question arises against a backdrop of complex issues including equitable school financing, the intricacies involved in state school aid formulas, and the fiscal problems of the state. These underlying issues shape the arguments of the parties and amicus curiae and color their perspective. However, mindful of the fact that construction of a constitutional provision enacted as a result of voter initiative requires a special emphasis on the duty of judicial restraint, our interpretation is ultimately drawn from the words of the amendment and our understanding of the purpose the voters sought to effectuate by ratification.
The principal theories of the parties may be fairly summarized as a claim by local units of government that they are entitled to funding of mandated state programs on a unit by unit basis and a claim by the state that the Headlee obligation is met by funding a proportionate share of the mandated activity on a statewide basis wherever it is spent. Thus, having examined the language of §29 supporting their respective positions, Justice Levin's dissent ultimately turns on the belief that the voters intended to preclude any shift of responsibility for mandated services from state to local governments, post, p 285, while the opinion of the Chief Justice implicitly accepts the proposition that the voters adopting the Headlee Amendment intended that the state could fulfill its Headlee obligation by discretionary redirection of amounts recaptured from mandatory programs, post, pp 274-275.
Because we conclude that the voters intended neither to freeze legislative discretion nor to permit state government full discretion in its allocation of support for mandated activities or services, we hold that the statewide-to-local ratio for calcu lating the state's funding obligation for existing services and activities under § 29 preserves voter intent by securing a minimum funding guarantee while simplifying calculations and avoiding inequitable anomalies. We further hold that social security coverage is not a state-required activity or service within the meaning of the Headlee Amendments.
i
Section 29 of the Headlee Amendment provides:
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 plaintiffs in this case, fifty-one Michigan school districts and fifty-one taxpayers residing in each of those districts, contend that the state has violated § 29 by reducing the state financed proportion of the necessary costs incurred by the plaintiff school districts in providing certain state-required activities and services.
When the Headlee Amendment was adopted by the voters of Michigan as part of the Michigan Constitution in 1978, state law provided for programs for special education, special education transportation, bilingual education, and lunch and supplemental milk. Since the adoption of the Headlee Amendment, the Legislature has appropriated funds to school districts pursuant to the State School Aid Act, MCL 388.1601 et seq.; MSA 15.1919(901) et seq., as amended annually. The act generally provides for two types of state funding: "restricted" and "unrestricted." Unrestricted funds can be used for any school-related purpose authorized by law. Restricted or "categorical" funds are earmarked for specific programs, some of which are voluntarily provided by local districts, and some of which are mandated by state law.
The state allocates unrestricted funds according to a formula, set forth in § 21(1) of the act, that guarantees to each district a minimum level of funding per pupil. Generally speaking, the amount of unrestricted funds provided per pupil equals the difference between the amount guaranteed and the amount per pupil generated from local revenues. Districts are only eligible to receive unrestricted funds if the amount of revenue per pupil generated locally does not exceed the amount of funds guaranteed per pupil by the state. Districts that are so eligible are said to be "in-formula." Districts whose local revenues per pupil exceed the state-guaranteed amount are ineligible for unrestricted funds and are said to be "out-of-formula."
The act contains a "recapture" or "base revenue deduction" provision appearing in § 21(5) as amended by 1990 PA 207 and 1991 PA 118. This provision authorizes the "recapture" of funds tentatively allocated to an out-of-formula district under all other provisions of the act, including funds allocated for mandated categorical programs. The recaptured funds are withheld from out-of-formula districts and are available for distribution to in-formula districts in accordance with the act. The amount of the recapture or base revenue deduction is determined according to a complex set of formulas, the details of which are not relevant here.
It is this recapture provision that, according to the plaintiffs, has resulted in a violation of § 29 of the Headlee Amendment by reducing the state financed proportion of the necessary costs incurred by the plaintiff school districts in providing the activities and services mentioned above.
The plaintiffs also allege that the state has violated § 29 by reducing its prior one hundred percent proportional funding of the plaintiff school districts' employer share of federal social security taxes paid on behalf of their employees. Since 1987, the state, in accordance with federal law, has required local school districts to remit all federal social security taxes directly to the appropriate federal agency. At the same time, the state has undertaken to appropriate to each district funds sufficient to cover the district's employer share of such social security taxes. See MCL 388.1746; MSA 15.1919(1046), originally enacted by 1987 PA 128, as amended annually ("§ 146"); see also MCL 38.1341(9); MSA 15.893(151X9), as amended by 1989 PA 194.
Before 1989, § 146 was included in a list of provisions under which the funds due school districts were exempted from recapture. See MCL 388.1621(5); MSA 15.1919(921X5), as amended through 1988 PA 318. The Legislature, however, in 1989 PA 197, removed § 146 from that list, thus subjecting to recapture the funds allocated for reimbursement of the social security taxes paid by out-of-formula districts. See MCL 388.1621(7); MSA 15.1919(921)(7), as currently amended. This, according to the plaintiffs, has resulted in the unconstitutional reduction of the state financed proportion of social security taxes paid on behalf of their employees.
The plaintiffs filed their original complaint in the Court of Appeals, pursuant to § 32 of the Headlee Amendment, on September 13, 1990, and filed an amended complaint on October 9, 1990. The Court of Appeals, on November 9, 1990, dismissed the complaint for failure to state a cause of action under the Headlee Amendment. The Court reasoned that the plaintiffs had alleged only a reduction of the state financed proportion of their particular budgets on a unit-by-unit basis, and that § 29 would be violated only by a reduction of the state financed proportion of the necessary costs of any existing state-required activity or service as calculated on an aggregate, statewide basis, covering all relevant units of local government. The Court, on January 14, 1991, clarified the reasoning of its earlier order and denied rehearing. The plaintiffs applied for leave to appeal to this Court, which we granted on April 23, 1991. 437 Mich 974.
In our order granting leave to appeal, we directed the parties
to include among the issues to be briefed (1) whether the obligation of the state under Const 1963, art 9, § 29 should be measured by one of the following: (a) the ratio of total state aid for a required activity to total necessary costs for the required activity in the base year compared with the ratio of total state aid for the activity to total necessary costs for the activity in the year of challenged funding; (b) the ratio of state aid to an individual local unit of government for a required activity to necessary costs of that unit for the activity in the base year compared with the ratio of state aid to the unit for the activity to the necessary costs of that unit for the activity in the year of challenged funding; (c) the ratio of total state aid for a required activity to total necessary costs for the required activity in the base year compared with the ratio of state aid to an individual local unit of government for the activity to the necessary costs of that unit for the activity in the year of challenged funding; or (d) such other ratios as advanced by the parties . [Id.][ ]
II
A
The first two sentences of § 29 provide:
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.
Only the statewide-to-local district funding ratio for calculating the state's obligation pursuant to § 29 gives full effect to the language and advances the purposes that voters sought to achieve in ratifying the Headlee Amendment.
This approach requires an initial calculation of the proportion of statewide funding for a particular mandated activity to the total necessary costs of providing that activity. The necessary costs to each local unit in the funding year at issue are then calculated. Next, the proportion of state financed funding for the activity or service in the base year is compared to the proportion of funding provided to the district in the year at issue. The state is obligated to afford each unit providing the activity or service the same proportion of funding that the state provided on a statewide basis in the year that the Headlee Amendment was ratified.
The first sentence of § 29 speaks of "the state financed proportion," suggesting a single proportion of multiple necessary costs for state-required activities and services. While not direct enough to be certain, the language suggests that the electors thought that a common percentage would be applied to measure the state's obligation to fund each activity or service. The question is whether, in the year at issue, i.e., the payout year, each unit of local government is entitled to the same percentage.
In Durant v State Bd of Ed, 424 Mich 364, 379; 381 NW2d 662 (1985), we interpreted the language in § 29 to "reflect an effort on the part of the voters to forestall any attempt by the Legislature to shift responsibilities to the local government . . . ." Durant, supra, p 379. We explained that the two sentences must be read together "[b]ecause they were aimed at alleviation of two possible manifestations of the same voter concern . . . Id. That reasoning suggests that the section was intended to impose an obligation on the state vis-ávis each unit of local government with respect to mandated activities or services as well as new requirements. The first sentence focuses on a single proportionate obligation by the state measured during the base year, i.e., the year that the Head-lee Amendment became effective. The only language in §29 that speaks directly to payment occurs in the second sentence, which requires a "state appropriation . to pay the unit of Local Government for any necessary increased costs." (Emphasis added.) This language references a singular unit and a singular governmental body. It suggests that the framers intended, and the voters understood, that the state's obligation ran to each unit of local government. Thus, although the language is indirect, the section as a whole supports the state-to-local method.
The state-to-local formulation satisfies the voters' intent in enacting the Headlee Amendment. When the voters ratified the Headlee Amendment, they sought to ensure that when the state mandates a program, funds are provided to the local government to pay for that program. The state-to-local method of calculating the state's obligation achieves the voters' desire to secure a minimum level of funding for the local government unit for mandatory programs and to link the mandating of programs with the necessity for taxing to pay for those programs. This approach also creates the appropriate balance between the state's desire for discretion in allocating funds and the desire of the local units of government for minimum funding. The state-to-local ratio provides a uniform allocation of resources for mandatory programs. The state is free to supplement that minimum funding on the basis of its perception of need, but the local government is guaranteed its proportionate share.
The state-to-local formulation also simplifies the calculations necessary to determine the state's obligation pursuant to § 29. Calculating the state financed proportion in the base year under the local formulation would entail numerous complicated questions regarding each governmental entity's spending in the year that the Headlee Amendment took effect. In contrast, using a statewide method for calculating the percentage in the base year entails examining the necessary costs to the state in relation to the state's proportionate share of funding, a single calculation.
Requiring the state to pay each local govern ment the same percentage in the payout year will also avoid some of the anomalies present with a local base-year calculation. For example, if a district in existence in the base year was not providing a mandatory program when the Headlee Amendment took effect, this method would entitle the district to the same proportionate share as every other local unit that previously provided the programs. This formulation also simplifies funding where new districts are created by consolidation, or reorganization, or otherwise. If the newly organized district adds a program that was "mandated" when the Headlee Amendment took effect, any district providing the program is then entitled to the same proportionate share as every other unit providing the activity or service. Thus, the anomaly of funding at either zero or one hundred percent (pursuant to the second sentence of § 29) is avoided. New districts, like previously existing districts, would be entitled to the same proportionate share of state funding.
B
Section 29 of the Headlee Amendment embodies a dual view of government; the voters' purpose comprehended balancing the rights and obligations of state and local governments. The state-to-state and local-to-local methods each fail for the same reason — they do not embody the dual approach that was reflected in the text and purpose. The state-to-state approach focuses on the first sentence of § 29 and its reference to a single statewide proportionate share. The local-to-local formulation stresses the second sentence of § 29 and its reference to payment to individual units of government. Rather than viewing these two approaches as embodying conflicting principles requiring a choice, the state-to-local method gives effect to the supplementary principles embodied in the statute and most closely captures the full meaning and spirit of the text of § 29.
This dual purpose is reflected in the language of §25:
Property taxes and other local taxes and state taxation and spending may not be increased above the limitations specified herein without direct voter approval. The state is prohibited from requiring any new or expanded activities by local governments without full state financing, from reducing the proportion of state spending in the form of aid to local governments, or from shifting the tax burden to local government. [Const 1963, art 9, § 25.]
The text reflects the Headlee Amendment's purpose of limiting the state's discretion in several ways. First, it expresses the desire to prohibit the state from requiring new or expanded activities without fully funding them. The clause that embodies this purpose refers to funding for "local governments," a plural reference, which implicitly suggests that funding must be provided to those local governments of whom the programs are required. Second, the language evidences a purpose of preventing the state from reducing "the proportion of state spending in the form of aid to local governments." This language again includes a singular description of the state spending "proportion" along with a plural reference to the "local governments" that are receiving the aid. Finally, the language embodies an antishifting purpose that prevents the state from shifting "the tax burden to local government." This text evidences the aggregate antishifting purpose embodied in the text of § 30. It also may be read to incorporate an absolute prohibition of any shifting to local gov ernment, including the type of shifting advocated by the state and supported by Chief Justice Cavanagh.
The Chief Justice contends that the state financed proportion of the necessary costs of an existing activity or service does not mean the state financed proportion of the necessary costs of each unit of local government. Rather, he asserts that the state financed proportion of the necessary costs should be calculated on the basis of the necessary costs of all units of local government that provide the activity or service in the aggregate. Post, pp 266-267. Relying on the plural "units of Local Government" and the framers' failure to include language specifying "each unit," it is concluded that "the statewide-to-statewide interpretation appears to be the most logical and persuasive way to read the provision." Id., pp 267-268. According to Chief Justice Cavanagh, the language of § 30 neither supports nor undercuts the interpretation that he favors for the text of § 29. Id., pp 271-273. Thus, he rejects Justice Levin's assertion that when § 29 and § 30 are read together, it becomes apparent that § 29 was intended to prevent shifting in respect to the local units of government, while § 30 was intended to prevent shifting in respect to the local governments in the aggregate.
Chief Justice Cavanagh insists that the voters' antishifting purpose is adequately realized by adopting a statewide-to-statewide formula for measuring the state's § 29 obligation. Post, p 269. He observes that the unit-to-unit interpretation "require^] the state to subsidize . . . wealthier districts in perpetuity," id., p 269, n 6, when no evidence suggests that voters sought to achieve that result. To the extent that this observation rests on the assumption that the state will not keep its promise to educate all of Michigan's chil dren because the political costs are too high, it is wide of the mark. To the extent it rests on the text and purpose of the first sentence of § 29, it is likewise not well taken. The state is not prohibited from redirecting other revenue in the interest of equalization, nor is it required to maintain mandatory programs in perpetuity. All that Headlee requires is that when the state mandates a program one factor in its determination of whether to require the activity or service must be the proportionate share of funding that the state must bear.
The state-to-state formulation is also contrary to implicit assumptions that this Court acted on in Durant. In Durant, we analyzed the state's potential funding obligation under § 29 by considering the effect of funding decisions on the local unit of government. As the Durant plaintiffs correctly observed in an amicus curiae brief filed with this Court, both the parties, this Court, and panels of the Court of Appeals have proceeded on the assumption that § 29 had application to each unit of local government, and not in any aggregate sense. The rule of "common understanding," as described by Justice Cooley, is applicable here. He explained that the constitutional construction to be given to a provision should give voice to the interpretation that " 'the great mass of the people themselves, would give it.' " Traverse City School Dist v Attorney General, 384 Mich 390, 405; 185 NW2d 9 (1971), quoting Cooley, Constitutional Limitations (6th ed), p 81. The parties, the Court, and the state assumed in Durant, litigation that closely followed the effective date of the Headlee Amendment, that a payout to each governmental entity was required. Although this assumption does not constitute a holding, it nevertheless constitutes some evidence that the language of § 29 does not compel a state-to-state approach.
Use of aggregate funding in the payout year as required by the state-to-state method frustrates the voters' purpose as understood by this Court in both Durant and Livingston Co v Dep't of Management & Budget, 430 Mich 635; 425 NW2d 65 (1988). We emphasized in Durant that the two sentences of § 29 must be read together. We explained that both "clearly reflect an effort on the part of the voters to forestall any attempt by the Legislature to shift responsibility for services to the local government, once its revenues were limited by the Headlee Amendment, in order to save the money it would have had to use to provide the services itself." Id., p 379. We further explained that "while the voters were concerned about the general level of state taxation, they were also concerned with ensuring control of local funding and taxation by the people most affected, the local taxpayers." Id., p 383. We rejected an interpretation of the scope of § 29 on the basis that it "would . . . force some taxpayers to supplement the school district budgets of others" when the "supplementing taxpayers would have no control over how those funds would be spent . . . .''Id.
State-to-state funding fails to protect local units of government from the need to increase taxes for state-required programs and permits the state to fund some state programs by shifting moneys away from certain local units of government and toward others at the state's sole discretion. Pursued to its logical conclusion, this rationale would allow the state to meet its Headlee obligation by funding the cost of all mandated services in one county and none in the other eighty-two. The Headlee Amendment sought "to link funding, taxes, and control," balancing rights and obligations at both the state and local levels. Durant, supra, p 383. Yet, the state-to-state method fails to effectuate the intended protection when viewed from the perspective of the local taxpayer._
Ultimately Chief Justice Cavanagh concludes that "as long as the state does not attempt to shift its aggregate, statewide funding responsibilities" onto local units of government, it has satisfied the Headlee obligation established in § 29. (Emphasis deleted.) Post, p 270. Implicit in this analysis is the assumption that the drafters of the amendment were content to let the acceptability of discrete decisions within the aggregate responsibility, be evaluated in the polling place. It is this proposition that is most difficult to square with what we perceive to be the voters' intent. If there is anything that the referendum was motivated by, it is that those who introduced it did not believe that the legislators' determination of local responsibilities and its distribution of resources to local government could be fully harnessed by the political process. Although the statewide approach may ensure that the state saves no money from any shifting of funding between local units of government, it fails to protect all local taxpayers from the need to increase taxes to pay for programs over which they lack control. In other words, the statewide approach permits the state to shift funding from some districts to others while still requiring those districts to carry out mandated pro grams. This separation of the taxing question from the programing question is contrary to one of the primary purposes of the Headlee Amendment. See Durant, supra, p 378.
The argument for adoption of a local-to-local method for calculating the state's Headlee obligation pursuant to § 29 is also not persuasive. Justice Levin asserts that the words "taken as a group" should not be read into § 29 in contradistinction to § 30 where the framers included them, and concludes that the proper method to measure the state's § 29 Headlee obligation is to compare the state financed proportion of local funding in the base year to the state financed proportion of local funding in the year at issue. He rejects the aggregate approach to the state's obligation under § 29 because it would "effectively deprive many school districts of any protection under § 29" and force them to raise local taxes. Post, p 307.
Like the observations of the Chief Justice, these observations are inapposite. The question is not whether the local districts will be forced to raise local taxes to support their programs of choice, it is whether the state may mandate programs for which it does not pay a proportionate share. Justice Levin also maintains that, unless a local-to-local ratio is employed, wealthier districts will be presented with the "Hobson's choice" of raising taxes or cutting programs contrary to the purpose of the Headlee Amendment. Id., p 308.
However, enforcing a local ratio in the base year would freeze funding at widely varying propor tions that would guarantee disparities and severely limit the state's ability to exercise discretion in the allocation of funds. We do not view the Headlee Amendment as being the voters' expression of intent to freeze the status quo. Indeed, as we observed in Durant, "egregious mandated disparities would seriously affect the state's ability to provide the basic necessities for a 'free education' to all students . . . ." Id., p 384. Use of a local ratio in the base year as advocated by Justice Levin would freeze the state's obligation in disparate proportionate shares, virtually mandating inequitable school financing. Varying shares of state funding not related to programing presumably reflected the relative wealth or need of the districts as determined by the Legislature. But, if the Headlee Amendment freezes those disparities, the proportionate share a local district obtains will no longer be on the basis of relative need, it will be based on the fortuity of the district's share when Headlee became effective. Nothing in the text of the Headlee Amendment or any statement of the voters' purpose suggests that voters sought to freeze funding disparities regardless of changes in the wealth or need of a particular district over time.
iii
We also consider the plaintiffs' claim that the state is obligated to pay the employer's share of social security coverage for all school district employees. We agree with the Court of Appeals that plaintiffs' social security coverage claim is not cognizable under § 29 of the Headlee Amendment.
Plaintiffs sought to frame their social security costs claim as though social security coverage constituted a separate state-required activity or service. However, social security coverage is directly imposed by federal law and therefore not required by state law within the meaning of § 29. Second, social security coverage does not constitute an activity or service within the meaning of § 29. Therefore, regardless of the method of calculating the funding ratio, plaintiffs' claim for social security costs is defective.
CONCLUSION
The opinions filed today reflect what must honestly be acknowledged as an attempt to fill the gap in the text of Headlee. Thus, each illustrates the juridical reality that a commitment to judicial restraint and a desire to give effect to the meaning as understood and ratified by the voters does not end the process of constitutional construction where the text is indeterminate. We must examine a host of factors such as the common meaning of the text, the structure of the provision, and the historical context in which the amendment was passed. Legal argument founded on multiple factors can be characterized as "cable-like." Eskridge & Frickey, Statutory interpretation as practical reasoning, 42 Stanford LR 321, 351 (1990). The writers observe that "[t]he text, one probable purpose, some legislative history, and current policy each lend some — even if not unequivocal — support to the result. Each thread standing alone is subject to quarrel and objection; woven together, the threads" persuade that a particular result is in order. Id. The cable metaphor aptly describes the arguments in this case. The text, purpose, structure, and historical context all suggest that the strongest "cable" is woven from a state-to-local method. The theme of a single state obligation measured during the base year and the theme of state obligation owing to each local government are not logical alternatives but combinable strategies. So viewed, the strongest cable is that which winds together the Headlee Amendment's dual focus into a single strong whole — the state-to-local method.
We remand to the Court of Appeals for further proceedings consistent with this opinion. The Court of Appeals order of dismissal was based on theories developed by it without the benefit of full argument by the parties. Although this Court has had the benefit of briefing and argument regarding the method of measuring the state's obligation pursuant to § 29 and the social security coverage issue, there has been no opportunity to discuss the remedy or to evaluate the viability of discrete claims of districts or individuals. We indicate no opinion regarding whether the method of measurement recognized today should be applied either fully retroactively or fully prospectively, or whether limited retroactivity is appropriate.
Brickley, Griffin, and Mallett, JJ., concurred with Boyle, J.
See Posner, Legal formalism, legal realism, and the interpretation of statutes and the constitution, 37 Case WRLR 179, 189 (1986):
In our system of government the framers of statutes and constitutions are the superiors of the judges. The framers communicate orders to the judges through legislative texts. . If the orders are clear, the judges must obey them.
Durant v State Bd of Ed, 424 Mich 364; 381 NW2d 662 (1985); Livingston Co v Dep't of Management & Budget, 430 Mich 635, 642; 425 NW2d 65 (1988). We stressed that the meaning must be clarified in light of the circumstances of adoption of the provision and the purpose sought to be achieved by the voters who ratified it.
The plaintiff school districts are those of Alcona, Allen Park, Ann Arbor, Avondale, Birmingham, Bridgman, Caledonia, Center Line, Charlevoix, Crestwood, Dearborn, East China Township, East Grand Rapids, East Lansing, Elkton-Pigeon-Bay Port, Essexville-Hampton, Farmington, Forest Hills, Frankenmuth, Grand Blanc, Grand Haven, Grosse lie, Grosse Pointe, Harper Woods, Holland, Lake Orion, Lamphere, Livonia, Midland, North Huron, Northville, Novi, Plymouth-Canton, Portage, Riverview, Rochester, Royal Oak, Saginaw Township, St. Joseph, Saugatuck, South Lake, South Redford, Southfield, Tawas, Trenton, Troy, Warren, Warren Woods, Waverly, West Bloomfield, and West Ottawa. The lead named plaintiff, Gerald Schmidt, is a taxpayer residing in the Warren Woods School District.
See MCL 380.1751; MSA 15.41751 (special education); MCL 380.1756; MSA 15.41756 (special education transportation); MCL 380.1153; MSA 15.41153 (bilingual education); MCL 380.1272a; MSA 15.41272(1) (lunch and supplemental milk programs).
The formulas for allocating restricted or categorical funds vary with each program.
All of the plaintiff school districts in this case were, at the time this litigation commenced, out-of-formula districts.
In earlier versions of the act, this provision appeared in § 21(4). The plaintiffs in this case allege that the recapture provision has resulted in violations of § 29 of the Headlee Amendment since 1979, continuing to the present. However, they focus primarily on the violation that they allege resulted from § 21(5) as amended by 1990 PA 207, which, they allege, resulted in substantially greater base revenue deductions from out-of-formula districts than had previously been the case, to the point, they allege, that some of the plaintiff out-of-formula districts have received no state funding at all for state-mandated categorical programs. The plaintiffs do not address the effect of § 21(5) as amended by 1991 PA 118, because that amendment postdated the filing of the plaintiffs' amended complaint.
Section 21(5) states that it applies whenever "the net allocation computed for a district pursuant to subsection [21](1) is a negative amount . . . ." Such a district is, by definition, an out-of-formula district.
The recapture amount is initially set as the "negative amount" computed under § 21(1), i.e., the amount by which the district's local revenues exceed the state-guaranteed level of funding. That amount, however, is then subject to further qualifications and adjustments pursuant to the formulas provided.
Before 1987, the state was directly liable under federal law for the employer share of social security taxes paid on behalf of local government employees. For 1987 and subsequent years, however, federal law imposes this obligation directly on units of local government. See PL 99-509, §9002, 100 Stat 1874, 1970-72 (enacted October 21, 1986), codified principally at 26 USC 3126; 53 Fed Reg 32973 (August 29, 1988).
The plaintiffs mistakenly identify this change as originating in 1990 PA 207.
This provision was redesignated from § 21(5) to § 21(7) by 1990 PA 207.
Section 32 provides:
Any taxpayer of the state shall have standing to bring suit in the Michigan State Court of Appeals to enforce the provisions of Sections 25 through 31, inclusive, of this Article and, if the suit is sustained, shall receive from the applicable unit of government his costs incurred in maintaining such suit.
Unpublished order entered November 9, 1990 (Docket No. 132677).
The Court of Appeals dismissed count vi of the plaintiffs' complaint, dealing with the social security claim, on the ground that it did not purport to raise any issue under the Headlee Amendment, and was therefore outside the Court's jurisdiction under § 32. As the Court noted, count vi appears to assert only certain alleged rights of the plaintiff school districts as third-party beneficiaries of an agreement regarding social security coverage entered into in 1951 between the State of Michigan and the federal Social Security Administration, and that the state is in breach of its obligations under that agreement by reducing its funding of the plaintiff school districts' social security taxes paid on behalf of their employees, pursuant to the recapture provision.
The Court of Appeals was correct in holding that such a contractual claim falls outside the limited jurisdiction conferred by § 32. However, while the complaint is inartfully worded, it can be construed to assert a claim that the alleged reduction in social security funding as a result of the recapture provision violates § 29. While count vi does not explicitly refer to § 29, paragraph 49 of count vi does "reallege and incorporate" the preceding paragraphs of the complaint. Paragraph 45 of the complaint explicitly refers to MCL 38.1341(9); MSA 15.893(151X9) (dealing with state funding of school districts' social security taxes paid on behalf of their employees) as dealing with one of the activities or services allegedly required by state law, with regard to which the state has allegedly failed to meet its funding obligations. Count v, paragraphs 42-48, generally asserts that the state's failure to meet its alleged funding obligations with regard to both social security taxes and other mandated school programs violates § 29. Thus, we construe the plaintiffs' social security claim in this regard as being, on its face, within the jurisdiction conferred by § 32, and we address it on the merits.
Unpublished order entered January 14, 1991 (Docket No. 132677). The Court of Appeals, in its earlier order, had mistakenly cited this Court's decision in Durant, n 2 supra, 424 Mich 392-393, for the proposition that units of local government must be "taken as a group" under § 29. In fact, the phrase "taken as a group" appears only in § 30 of the Headlee Amendment, not § 29, and the cited discussion of the "taken as a group" concept in Durant dealt only with § 30. In its subsequent order on rehearing, the Court clarified its reasoning by holding that the "taken as a group" principle nevertheless applies to § 29 because the first sentence of § 29 refers to "units of Local Government" in the plural.
We had previously denied as moot the plaintiffs' complaint for superintending control filed in response to the Court of Appeals original order. Unpublished order entered February 5, 1991 (Docket No. 90718).
We also directed the parties to brief "(2) whether plaintiffs stated a cause of action under Const 1963, art 9, § 29 with regard to state funding of plaintiff school districts' contributions under the Social Security Act, 42 USC 301 et seq., and 1951 PA 205, MCL 38.851 et seq.; MSA 17.801 et seq., as amended." Id.
We discussed the meaning of "necessary costs" in Durant, n 2 supra, observing that it meant "actual cost to the state" and suggesting that "[a]ctual cost in the marketplace is also a reliable measure of what must be paid in order for a service or activity to be provided." Id., p 391.
Chief Justice Cavanagh emphasizes this statewide focus of the text of the first sentence of § 29. Post, pp 264-268.
The heart of Justice Levin's analysis is the second sentence and the interplay of language between § 29 and § 30. He highlights, in particular, the absence of the words, "taken as a group," in § 29 and emphasizes the local focus for the payout. Post, pp 299-301.
Contrary to Chief Justice Cavanagh's suggestion, the construction that we propose is not "untenable." Post, p 275. Chief Justice Cavanagh attempts to refute the state-to-local method by submitting that the "relevant phrase" can "have only one meaning" and must therefore "apply both to the base year and the year of challenged funding." Id., p 276. We cannot accept this reading. In order to apply § 29, three ratios are required: 1) the ratio in the base year, 2) the ratio in the payout year, and 3) the ratio between the two years. It is apparent that the language prohibits a reduction of state funding, and, thus, requires funding in the payout year to remain equal to or greater than funding in the base year. While this ratio is clear, the text of § 29 fails to precisely articulate the components of the other two ratios. Neither plaintiffs nor the state have been able to precisely locate in the text the components of a base-year or payout-year ratio. Each contends that the language supports a particular ratio, while discounting additional language counseling for a different ratio. The problem, of course, is that the actual computations by any resolution of this dispute are more complex than that suggested by the amendment's singular reference to a "proportion." However, our interpretation is faithful to that language. The state-to-local method results in a single proportion, but one that is derived from a comparison of statewide aggregate funding in the base year and then applied to the funding of local units of government in the payout year.
See Donohue, The Headlee Amendments: Friend or foe of local government?, Laches — Oakland Co Bar Ass'n (April 1992), p 14.
A short time after the Headlee Amendment was ratified by the voters, its drafters prepared notes reflecting their view of the amendment's intent. Although the drafters' notes are not authoritative, Durant, supra, p 382, n 12, they are one piece of evidence concerning the common understanding of the voters' intent. The notes state:
No mandated activity or service should be legally binding on any local unit until the appropriations for such mandated activity or service is made and disbursed to the applicable local units.
This section does not necessarily prevent the state from shifting funds from general and unrestricted revenue sharing to the funding of a state mandated activity but it does prohibit shifting funds from state mandated programs unless the mandate for such programs is eliminated.
The notes support the notion that § 29 sought to connect the state's programing requirements with its funding requirements.
Defendant argues the merits of its decision to shift categorical funds from "wealthier" districts to poorer districts. However, as Chief Justice Cavanagh points out, the merit of the shift is not before us. The sole question is whether § 29 of Headlee prevents such a shift. If the state has the power to shift funds, it may shift funds from poorer districts to wealthier as well as from wealthier to poorer. Furthermore, although the state argues that it ought to retain discretion to increase funding, tacitly suggesting that it will shift funds to districts more in need of funding, that result is not required or prevented under the state's interpretation. The parties agree that the base revenue deduction, the device by which the state has shifted funds, is based on the local millage, the adjusted gross income of residents per child, and the school district's state equalized valuation per child. A district with a great deal of vacant land per child (such as rural districts in northern Michigan) might be deemed "wealthy" under the formula. But when land is vacant and not producing income, residents will be unable to pay, and unwilling to enact, increased millage.
Redistributing income to insure equality of education is good policy. However, nothing in the state-to-state ratio requires the state to follow that policy. The state could transfer money the other way, as it appears to do in part in sparsely populated districts. Most importantly, the policy of redistributing income is unrelated to the funding of the programs protected by the Headlee Amendment. To the extent that redistribution has any relation to Headlee, it seems to violate the amendment's intent to protect local district income.
Chief Justice Cavanagh answers this argument regarding the drafters' intent by urging that it is "fundamental" that the state "is free to do whatever it wants to do, subject only to the democratic verdict of the voters." Post, p 280. What this rejoinder misses is that this opinion seeks to discover and effectuate the intent of the voters in adopting the antishifting portion of the Headlee Amendment. That is, the "democratic verdict of the voters." Id. A vivid contrast between the Chief Justice's opinion and this opinion is the absence in the Chief Justice's opinion of any discussion on whether the voters' common understanding of the antishifting provision of the Headlee Amendment gave any protection to local taxpayers in their capacities as taxpayers of each local unit of government.
Even this is a fallacy. The state saves the money that it otherwise would have had to spend to raise in-formula districts to the state-desired level of funding. The money is "saved" by use of the recapture formula.
Although it has not been argued, the drafters' notes suggest that the "Hobson's choice" perceived may be illusory, at least for future funding years. If the view that a local unit is not legally obligated to offer an unfunded mandated program was found to be authoritative and applicable to programs mandated before Headlee was adopted, the local unit would have local control of its resources, in which case offering the "mandated" program would be a real choice.
Because the record in this case is not well developed, we do not know precisely what gave rise to the variance in funding during the base year. Funding disparities may be program related. It is possible that some districts provided more than the minimum requirements for mandated programs and earned extra funds by so doing. These variances should disappear after deciding what constitutes a necessary cost. The state also may have had different funding rates for distinct service delivery methods. For example, the state may have funded a program offered in a regional school at a higher level than if it was housed at a single neighborhood school. These variances may be avoided by a proper determination of the scope of each mandated service or activity. Variances also might have been created by block grant funding. For example, the state might have provided a minimum basic amount to each school that provided a program such as its first ten-thousand dollars in cost.
Indeed, we employed an example that emphasized the inequity in freezing a proportion so that one district would forever be entitled to fifty percent of its budget in state aid while another would get only twenty-five percent, regardless of "how the property values declined in succeeding years . . . ." Id., p 384. To be sure, this example was employed to justify a limited view of the scope of "state law" in § 29, not to describe the parameters of the state financed proportion of necessary costs. Nevertheless, the manner in which we envisioned the section operating is inconsistent with the local-to-local funding ratio advocated by Justice Levin.
Justice Levin's approach focuses on the fact that the state is attempting to avoid the effect of the Headlee Amendment, while the opinion of the Chief Justice, post, p 275, correctly recognizes that the state is entitled to attempt to preserve its prerogatives as long as it does not violate it.