Taxpayers for Michigan Constitutional Government v. State, Department of Technology

         Original Action

          Before: Borrello, P.J., and Meter and Shapiro, JJ.

         ON RECONSIDERATION

          Douglas B. Shapiro Judge.

         Taxpayer-plaintiffs bring this original action to enforce § 30 of the Headlee Amendment^[1], which prohibits the State from reducing the total of state spending paid to all units of local government, taken as a whole, below that proportion in effect in fiscal year 1978-1979. Const 1963, art 9, § 30. The parties agree that the proportion of state spending to be paid to all units of local government taken collectively under § 30 is 48.97 percent. They disagree, however, with regard to what categories of state spending may be classified as "state spending to be paid to all units of local government" for purposes of § 30. Plaintiffs allege that accounting practices employed by the State have resulted in a persistent and growing underfunding of its § 30 revenue-sharing obligation. Count I of their complaint asserts that the State has violated § 30 by its practice of classifying as state spending paid to local government those moneys paid to school districts pursuant to Proposal A, Const 1963, art 9, § 11. Count II makes the same assertion as to moneys paid to public school academies ["PSAs"], colloquially known as charter schools, pursuant to Proposal A and MCL 380.501(1). Count IV seeks a determination that state funds directed to local governments for new state mandates may not be counted towards the proportion of state funds required by Section 30. According to plaintiffs, the improper inclusion of these expenditures in its calculations has enabled the State to displace state payments to local governments previously made for existing programs and services and, as a consequence, to force local governments to choose between increasing taxes and fees to fund programs and services previously funded by revenue-sharing payments from the State and reducing the scope of or eliminating altogether those programs and services.^[2]

         For the reasons set forth in this opinion we grant summary disposition in favor of the State on Count I and Count II and declare that the State did not violate § 30 by classifying Proposal A funding paid to school districts and PSA funding as state funds paid to local government. However, we grant summary disposition to plaintiff's on Count IV and declare that pursuant to §29, funding for new or increased state mandates may not be counted for purposes of §30. Finally, we grant mandamus relief and direct the State, and its officers and departments, to comply with the reporting and disclosure requirements of MCL 21.235(3) and MCL 21.241.

         BURDENS OF PROOF

         A. Causes of Action

         Plaintiffs seek declaratory, injunctive and mandamus relief.^[3]

         It is a well-recognized proposition that the remedy required in an action to enforce a provision of the Headlee Amendment "comprises a resolution of the parties' prospective rights and obligations by declaratory judgment." Wayne Co Chief Executive v Governor, 230 Mich.App. 258, 264; 583 N.W.2d 512 (1998); see also Adair v Michigan, 470 Mich. 105, 112; 680 N.W.2d 386 (2004); Durant v Michigan, 456 Mich. 175, 204-206; 566 N.W.2d 272 (1997); Oakland Co v Michigan, 456 Mich. 144, 166; 566 N.W.2d 616 (1997). "The plaintiff in a declaratory-judgment action bears 'the burden of establishing the existence of an actual controversy, as well as the burden of showing that . . . it has actually been injured or that the threat of imminent injury exists.'" Adair v Michigan (On Second Remand), 279 Mich.App. 507, 514; 760 N.W.2d 544 (2008), aff'd in part and rev'd in part on other grounds Adair v Michigan, 486 Mich. 468 (2010), quoting 22A Am Jur 2d, Declaratory Judgments, § 239, p 788; see also Adair v Michigan, 486 Mich. 468, 482-483; 785 N.W.2d 119 (2010) (because the plaintiffs met their initial burden of demonstrating a violation of the "prohibition of unfunded mandates" or "POUM" clause of § 29 of the Headlee Amendment, they were entitled to a declaratory judgment unless the State demonstrated that the plaintiff school districts' costs were not increased as a result of the requirements or that the costs incurred were not necessary).

         Mandamus is an extraordinary remedy. Univ Medical Affiliates, PC v Wayne County Executive, 142 Mich.App. 135, 142; 369 N.W.2d 277 (1985). Thus, the issuance of a writ of mandamus is only proper where (1) the party seeking the writ has a clear legal right to performance of the specific duty sought, (2) the defendant has the clear legal duty to perform the act requested, (3) the act is ministerial, and (4) no other remedy exists, legal or equitable, that might achieve the same result. Rental Properties Owners Ass'n of Kent Co v Kent Co Treasurer, 308 Mich.App. 498, 518; 866 N.W.2d 817 (2014). "Within the meaning of the rule of mandamus, a 'clear, legal right' is one 'clearly founded in, or granted by, law; a right which is inferable as a matter of law from uncontroverted facts regardless of the difficulty of the legal question to be decided." Univ Medical Affiliates, 142 Mich.App. at 143; see also Rental Properties Owners Ass'n of Kent Co, 308 Mich.App. at 518-519. "A ministerial act is one in which the law prescribes and defines the duty to be performed with such precision and certainty as to leave nothing to the exercise of discretion or judgment." Hillsdale Co Senior Services, Inc v Hillsdale Co, 494 Mich. 46, 63 n 11; 832 N.W.2d 728 (2013) (quotation marks and citation omitted); see also Berry v Garrett, 316 Mich.App. 37, 42; 890 N.W.2d 882 (2016). "The burden of showing entitlement to the extraordinary remedy of a writ of mandamus is on the plaintiff." White-Bey v Dep't of Corrections, 239 Mich.App. 221, 223; 608 N.W.2d 883 (1999).

         The moving party bears the burden of proving an entitlement to injunctive relief. Detroit Fire Fighters Ass'n v City of Detroit, 482 Mich. 18, 34; 753 N.W.2d 579 (2008). The moving party carries this burden by proving that the four traditional elements favor the issuance of a preliminary injunction by a preponderance of the evidence. Id.; Dutch Cookie Machine Co v Vande Vrede, 289 Mich. 272, 280; 286 N.W. 612 (1939). In determining whether to issue a preliminary injunction, a trial judge must consider the following factors:

(1) harm to the public interest if the injunction issues; (2) whether harm to the applicant in the absence if temporary relief outweighs the harm to the opposing party if relief is granted; (3) the likelihood that the applicant will prevail on the merits; and (4) a demonstration that the applicant will suffer irreparable injury if the relief is not granted. [Thermatool Corp v Borzym, 227 Mich.App. 366, 376; 575 N.W.2d 334 (1998); see also Detroit Fire Fighters Ass'n, 482 Mich. at 34.]

         B. Summary Disposition

         At the direction of the Court, the parties have filed cross-motions for summary disposition.^[4] Both plaintiffs and the State seek summary disposition pursuant to MCR 2.116(C)(10). Summary disposition is appropriate under (C)(10)

when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. The court considers the pleadings, affidavits, depositions, admissions, and other documentary evidence in the light most favorable to the nonmoving party. Smith v Globe Life Ins Co, 460 Mich. 446, 454; 597 N.W.2d 28 (1999). The moving party must specifically identify the undisputed factual issues and has the initial burden of supporting its position with documentary evidence. Id. at 455; [Maiden v Rozwood, 461 Mich. 109, 120; 597 N.W.2d 817 (1999)]. The responding party must then present legally admissible evidence to demonstrate that a genuine issue of material fact remains for trial. Id.; Smith, supra at 455 and n 2. [E R Zeiler Excavating, Inc v Valenti Trobec Chandler Inc, 270 Mich.App. 639, 644; 717 N.W.2d 370 (2006).]

         Plaintiffs also seek summary disposition pursuant to MCR 2.116(C)(9). Summary disposition may be granted under this subrule when "[t]he opposing party has failed to state a valid defense to the claim asserted against him or her." A motion under this subrule tests the sufficiency of a defendant's pleadings by accepting all well-pleaded allegations as true. Lepp v Cheboygan Area Schools, 190 Mich.App. 726, 730; 476 N.W.2d 506 (1991). If the defenses are so clearly untenable as a matter of law that no factual development could possibly deny plaintiff's right to recovery, then summary disposition under this rule is proper. Id. (internal punctuation and citation omitted).

         STANDING

         Before we can reach the merits of the substantive questions posed by plaintiffs' suit, we must revisit the issue of standing. The State challenged plaintiffs' standing to commence this Headlee enforcement action in its answer to plaintiffs' original complaint. We summarily dismissed the standing challenge as pertains to individual plaintiffs Steve Duchane, Randall Blum and Sara Kandel, but reserved our ruling as pertains to lead plaintiff, Taxpayers for Michigan Constitutional Government ["TMCG"]. We explained:

[T]he Court dismisses defendants' standing challenge, but only as to the individual taxpayer plaintiffs, i.e., Duchane, Blum, and Kandel. Under § 32, "[a]ny taxpayer of the state has standing to bring suit to enforce the provisions of the Headlee Amendment." Mahaffey v Attorney General, 222 Mich.App. 325, 340 (1997). Because all of plaintiffs' claims and requested forms of relief are part of an action seeking to enforce Headlee, the individual taxpayer plaintiffs have § 32 standing.

However, vis-à-vis the lead plaintiff, Taxpayers for Michigan Constitutional Government (TMCG), the Court reserves its standing determination. "[A]n organization has standing to advocate for the interests of its members if the members themselves have a sufficient interest." Lansing Sch Ed Ass 'n v Lansing Bd of Ed, 487 Mich. 349, 373 n 21 (2010) (LSEA). However, TMCG bears the burden of demonstrating that it has standing, see, e.g., Moses Inc v Southeast Mich. Council of Gov'ts, 270 Mich.App. 401, 414 (2006), and TMCG is, with regard to plaintiffs' request for a declaratory judgment, required to "plead and prove facts which indicate an adverse interest," LSEA, 487 Mich. at 372 n 20 (quotation marks and citation omitted; emphasis added). See also MCR 2.605(A)(1) (stating the "actual controversy" requirement for declaratory judgments). Because TMCG has failed to plead or prove the facts necessary to carry its burden of demonstrating that it has standing - specifically, to demonstrate whether its membership has a sufficient interest in this matter to afford organizational standing - the Court holds in abeyance its decision on this issue. The parties may further address the question of TMCG's standing in their respective motions for summary disposition and in any related filings. [Taxpayers for Michigan Constitutional Government v State of Michigan, unpublished order of the Court of Appeals, issued May 9, 2017 (Docket No. 334663).]

         We now return to the question of standing and, after a review of the documentation supplied by plaintiffs, we dismiss the remainder of the State's standing challenge as without merit.

         Lead plaintiff TMCG represents it is "a non-partisan, non-profit, tax exempt organization founded by taxpayers, municipal leaders, educators and lawyers dedicated to ensuring the State of Michigan follows the word of law as written in the state Constitution and fulfills the revenue sharing requirements guaranteed by the Headlee Amendment."^[5] As we observed in our May 9, 2017 order, "an organization has standing to advocate for the interest of its members if the members themselves have a sufficient interest." LSEA, 487 Mich. at 373 n 21. Plaintiffs append to their motion for summary disposition as Plaintiffs' Exhibit 10 the affidavit of individual plaintiff Steven Duchane, who attests to being one of the founding members and the Treasurer of TMCG. Duchane also attests that each of TMCG's 20 individual members is a Michigan resident and taxpayer. He further attests that TMCG has 20 "municipal members," composed of cities, villages and townships. Because the individual members, as taxpayers, have standing under Const 1963, art 9, § 32 to bring this Headlee enforcement action, TMCG has standing to bring suit in its representative capacity as to these members. LSEA, 487 Mich. at 373 n 21. Likewise, because units of local government, including cities, villages and townships, are considered "taxpayers" under § 32 for purposes of vindicating the rights of their respective constituents, see Oakland Co v State of Michigan, 456 Mich. 144, 167; 566 N.W.2d 616 (1997); City of Riverview v State of Michigan, 292 Mich.App. 516, 520 n 1; 808 N.W.2d 532 (2011), TMCG has standing to bring suit in its representative capacity as to its municipal members, LSEA, 487 Mich. at 373 n 21. The State's assertion to the contrary fails for lack of factual and legal support.

         STATE SPENDING AND § 30

         A. Const 1963, art 9, § 30

         At its core, plaintiffs' suit seeks to answer a single legal question, which is whether certain categories of state spending, i.e., payments to school districts guaranteed by Const 1963, art 9, § 11, payments to PSAs guaranteed by Const 1963, art 9, § 11 and MCL 380.501, and payments for state-mandated activities and services under Const 1963, art 9, § 29, constitute state spending to local governments under § 30 of the Headlee Amendment. The question posed by this suit is a novel one. In seeking its answer, we are guided in our application of § 30 by the principles governing the construction of constitutional provisions.

         "The goal of the judiciary when construing Michigan's Constitution is to identify the original meaning that its ratifiers attributed to the words used in a constitutional provision." CVS Caremark v State Tax Comm, 306 Mich.App. 58, 61; 856 N.W.2d 79 (2014). "In performing this task, we employ the rule of common understanding." Id. "Under the rule of common understanding, we must apply the meaning that, at the time of ratification, was the most obvious common understanding of the provision, the one that reasonable minds and the great mass of the people themselves would give it." Id. "Words should be given their common and most obvious meaning . . . ." In re Burnett Estate, 300 Mich.App. 489, 497-498; 834 N.W.2d 93 (2013). "Further, every provision must be interpreted in the light of the document as a whole, and no provision should be construed to nullify or impair another." Lapeer Co Clerk v Lapeer Circuit Court, 469 Mich. 146, 156; 665 N.W.2d 452 (2003). The interpretation of a constitutional provision takes account of the purpose sought to be accomplished by the provision. Adair v Michigan, 497 Mich. 89, 102; 860 N.W.2d 93 (2014).

         Section 30 provides:

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. [Const 1963, art 9, § 30.]

         For purposes of the Headlee Amendment, the term "Local Government" is defined in § 33 of that Amendment as "any political subdivision of the state, including, but not restricted to, school districts, cities, villages, townships, charter townships, counties, charter counties, authorities created by the state, and authorities created by other units of local government." Const 1963, art 9, § 33.

         B. Proposal A Payments to School Districts

         State funding disbursed to local school districts through Proposal A and the State School Aid Act of 1979, MCL 388.1601 et seq., constitutes voter-sanctioned payments of state funding to a specific unit of local government, i.e., public school districts. Nevertheless, plaintiffs argue that Proposal A spending is a category of state funding that may not be classified § 30 revenue sharing. They argue that classifying Proposal A funding as § 30 revenue sharing effectively shifts the State's tax burden to local government units. A shifting of the tax burden occurs, according to plaintiffs, because the Proposal A payments supplant "other State spending previously paid to Local Governments, placing a tax burden on Local Governments to further raise local taxes in order to offset lost State revenue." We find no support in the plain language of § 30 to sustain such a claim.

         Although § 30 embodies and effectuates the anti-shifting purpose referenced in § 25 of the Headlee Amendment, Schmidt v Dep't of Education, 441 Mich. 236, 254; 490 N.W.2d 584 (1992), the State's inclusion of Proposal A funds paid to school districts does not trigger a forbidden tax shift. Section 30 plainly provides that "[t]he 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." (Italics added.) The inclusion of the phrase "taken as a group" in § 30 "clearly requires that the overall percentage allotment of the state budget for local units of government must remain at 1978 levels." Durant v State Bd of Ed, 424 Mich. 364, 393; 381 N.W.2d 662 (1985). In other words, "§ 30 only requires that state funding of all units of local governments, taken as a group, be maintained at 1978-79 levels." Id. Our Supreme Court expressly rejected, as a "strained interpretation of an unambiguous statement of intent by the voters," the proposition that § 30 mandated that each individual unit of government must receive in perpetuity the same proportion of the allotment for local government as it received in 1978. Id. Thus, § 30 "does not guarantee any individual local unit of government, or indeed any type of unit (all cities, for example), that it will always either get the same dollars as the year before or even the same share of state dollars." Fino, A Cure Worse Than the Disease? Taxation and Finance Provisions in State Constitutions, 34 Rutgers L J 959, 1003 (2003). Rather, the voters intended, as revealed in the plain language of § 30, that the State be free from time to time to rebalance how § 30 revenue sharing is distributed among "all units of Local Government, taken as a group" so long as the overall proportion of funding remains at the constitutionally-mandated level. The inclusion of Proposal A funding in § 30 spending reflects a constitutionally-sanctioned rebalancing of the distribution of that revenue sharing. Plaintiffs' argument to the contrary is an argument without foundation in the plain language of § 30. Absent that constitutional foundation, their challenge falls. The State is entitled to summary disposition on Count I of plaintiffs' complaint.

         C. Public School Academy Funding

         Plaintiffs argue that state aid to PSAs does not fall within the scope of § 30 funding because it is not a "local unit of government." We conclude, however, that state funding of PSAs constitutes funding of a local unit of local government for the purpose of calculating state aid under the Headlee Amendment.

         It is undisputed that "school districts" constitute a "unit of local government" as defined in § 33 of the Amendment. Const 1963, art 9, § 33. The question then is whether PSAs are "school districts" for purposes of calculating state funding of education. We answer that question affirmatively in light of the Revised School Code, MCL 380.1 et seq., which provides that "[a] public school academy . . . is a school district for purposes of section 11 of article IX of the state constitution of 1963 . . . ." MCL 380.501(1). The constitutional provision referred to mandates that "[t]here shall be established a state school aid fund which shall be used exclusively for aid to school districts, higher education, and school employees' retirement systems, as provided by law." Const 1963, art 9, § 11. In addition, the School Aid Act, MCL 388.1601 et seq., includes PSAs in the definition of "district." MCL 388.1603(7). To receive state funding, PSAs must receive a "district code" from the Department of Education. MCL 388.1608b(1). Pursuant to these provisions, PSAs receive state funding earmarked for school districts.

         Plaintiffs argue that state funds directed to PSAs should not be counted as state funds directed to school districts for purposes of the Headlee Amendment because PSAs do not resemble school districts in many other ways. Indeed, PSAs are school districts for a "limited purpose." OAG 1995-1996, No. 6915, p204 (September 4, 1996). See also OAG 2003-2004, No. 7154, p121-122 (March 31, 2004).^[6] Nevertheless, PSAs are school districts for the purpose at issue in this case, i.e., the receipt of state school aid. Because state funding for PSAs is considered aid to a school district by law, we see no basis to not count those monies when calculating state spending paid to local government.

         Plaintiffs' other argument is that PSAs could not have been understood as "school districts" when the Headlee Amendment was ratified. It is unlikely that the Headlee voters specifically intended that aid to PSAs would count as state aid to local governments considering that PSAs did not yet exist.^[7] For the same reason, however, there is no reason to conclude that the voters specifically intended to exclude PSA funding from that calculation. What is clear is that the voters almost certainly understood that the state has discretion in how it chooses to "maintain and support a system of free public elementary and secondary schools . . . ." Const 1963, art 8, § 2. As the Supreme Court stated in Council of Organizations & Others for Educ About Parochiaid v Governor, 455 Mich. 557; 566 N.W.2d 208 (1997), "[t]he Legislature has had the task of defining the form and the institutional structure through which public education is delivered in Michigan since the time Michigan became a state." Id. at 571, citing Const 1835, art 10, § 3.^[8]

         Significantly, there is no language in the Headlee Amendment showing an intent to limit this ongoing authority of the state to define and fund school districts. Thus, the text does not compel the conclusion sought by plaintiffs. We have also reviewed the record presented to us by the parties and find no evidence that would demonstrate an intent either to limit the state's authority to define and fund school districts or to specifically bar the state from later defining the term "school district" to include PSAs.

         The Legislature lawfully defined PSAs as school districts for the purposes of receiving state aid. Given that, we see no reason to overrule the state's decision to count those funds as payments to local government under the Headlee Amendment. Put simply, we decline to hold that PSAs are school districts for purposes of receiving state aid, but not school districts for purposes of determining how much state aid was received by school districts.^[9]

         D. ...