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When Michigan's local governments lose in court, taxpayers can face extra costs

Aug 10, 2015

When local governments get sued and lose, Michigan residents can end up paying taxes that voters never approved and that exceed state limitations.

Normally, that can’t happen under the Headlee Amendment to the state constitution. But as the result of a Michigan Supreme Court decision, there’s an exception for court-ordered judgments.

Two recent cases have resulted in such “judgment levies.”

In Wayne County, property owners face a summer tax hike after a judge ruled the county owed retirees $49 million.

And in the city of Inkster, residents will pay out almost $1.4 million to settle a high-profile police brutality case.

In both cases, the struggling local governments said there was simply no other way to make to make the court-ordered payment.

But there’s a way to reconcile court orders and state law, argues the Citizens Research Council of Michigan. The CRC just issued a report about those recent cases “to re-ignite a discussion of this important issue,” said senior researcher Craig Thiel.

Rather than allowing governments to exceed voter-approved tax ceilings, a judge could order that settlement funds come out of the city’s existing budget, Thiel said.

“It would say, ‘This has to be a first-order expenditure. Pay these bills, and then let government run on the resources that are available after they have been paid,” Thiel said.

Otherwise, municipalities and school districts effectively have a loophole to pass settlement costs on to taxpayers — and less incentive to change the practices that got them sued in the first place.

“We put those [tax] limitations in place for a reason, and we think that they should be attended to, even in the case of financially-struggling local governments,” Thiel said.

But any change would require lawmakers to revise state law and limit judges’ options for ordering payment.