Taxpayer group sues Mich., says it owes cities millions

Mike Martindale
The Detroit News

A taxpayer group with representatives from 14 Metro Detroit cities is challenging how the state may have withheld over a billion dollars in tax revenue to local government.

The cities are not parties to the complaint filed with the Michigan Court of Appeals on behalf of the Taxpayers for Michigan Constitutional Government, but have offered support and some funding, according to Eastpointe City Manager Steve Duchane.

The lawsuit questions state calculations of revenue from state sales tax and payments under the Headlee Amendment which was passed by voters in 1978 and amended in 1989.

Specifically, Wednesday’s suit notes money raised through tax shifts, money paid to local governments to perform obligations by the state and money paid to agencies that are not political subdivisions of the state cannot be included in any calculations but have routinely been subtracted from money that should go to local governments.

“This has been going on for too long,” said Duchane, one of the group’s co-founders. He and two other Eastpointe city employees are listed as plaintiffs. “It’s time for the state to start following the state constitution.”

“We figure over the past 10 year we were shortchanged more than $13.6 million in Eastpointe alone. Some larger communities, like Warren, estimate they should have received more than $44 million.”

Representatives on the taxpayer group membership are from Eastpointe, Wayne, New Baltimore, Utica, Warren, Roseville, Grosse Pointe Park, Grosse Pointe Woods, Center Line, Hazel Park, Auburn, Harper Woods, Mount Clemens and Richmond, Duchane said.

Under the Headlee Amendment, Michigan is required to pay 48.97 percent of revenues to local government. But Duchane and other members — such as John Mogk, a Wayne State University law professor — say the state has miscalculated by including prohibited payments in the mix, such as new services mandated by the state. The result has been underpayment of millions of dollars.

Declining state property tax values during the housing crisis further affected revenue reaching local government, Mogk said.

“We are hopeful the Michigan Court of Appeals will give us a hearing and order the state to correct the way it calculates payments,” said Mogk, who noted it’s taken more than 18 months “to sort out that violations existed and to get to the bottom of miscalculations.”

The Department of Technology Management and Budget handles the distribution of revenue from the state to municipalities.

“The Office of Financial Management within the State Budget Office works hard each year to properly identify expenditures to determine the amount of state spending that goes to the aid of local governments,” said Kurt Weiss, a spokesman for the budget department. “Those expenditures are in turn submitted to the Office of Auditor General for validation to ensure the calculations are accurate. This is a methodology that has been applied consistently since the passage of Proposal A.”

According to the group’s press release state miscalculations have included payments to maintain major trunklines; resulting from Proposal A, which are a tax shift placing a tax burden on local units; made to public school academies; and to fund obligations imposed by the state.

The taxpayers group believes local government has had the burden of cutting services and programs to residents because they did not receive the correct amount of revenue. It also believes it has led to deficits and prompted the appointment of emergency managers in several cities.

Mogk said it could be several months before a hearing is approved by the Court of Appeals.

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