This report reviews the tax limitation provisions of the constitutional amendment known as "Proposal A" which was adopted by the voters on March 15, 1994. Proposal A was described as a measure to permanently increase the sales tax, permanently reduce property taxes, and reform school finance. Proponents also argued that it would provide a large immediate tax cut, and ongoing reduction in overall taxes. This was to occur because the reduction in property taxes would more than offset the increase in sales taxes. The report answers these two questions:

"Have the taxpayers received the tax relief for which they voted in 1994?" and

"What steps must be taken to ensure that the property tax limits are enforced?"

The Property Tax Limits in Proposal A

Proposal A amended Article IX, section 8 of the Constitution to authorize a 6% sales tax increase, and dedicated the new revenue to the financing of schools. To reduce and limit property taxes, Proposal A amended Article IX, section 3 of the Constitution to add the following:

A law that increases the statutory limits in effect as of February 1, 1994 on the maximum amount of ad valorem property taxes that may be levied for school district operating purposes requires the approval of  ¾ of the members elected to and serving in the Senate and the House of Representatives.

This sentence is the bulwark against property tax increases in Proposal A. To ensure that these "statutory limits" were properly identified, the state departments of management and budget and treasury produced a memorandum outlining the limits that would be protected by Proposal A. The memorandum was completed and distributed before the March 15, 1994 election. Subsequent to the election, the Governor sent a copy of the memorandum by letter to other state officials, and relied on it to veto a bill that did not receive the requisite ¾ vote.

In completing this study, we returned to this memorandum to identify the statutory property tax limits now given Constitutional protection, and reviewed the legislative record over the past 2½ years. We determined what changes in these tax limits had occurred since March 1994, and whether the extraordinary majority requirement had been effective in discouraging property tax increases.

Findings: Proposal A Has been Effective

Proposal A has succeeded in reducing property taxes. Property tax payers have received a reduction in property taxes of roughly 2½ billion dollars a year since the amendment passed in 1994.

Proposal A has succeeded in discouraging laws that would increase existing school property taxes or authorize new ones. Of all the bills passed by the legislature since March 1994 that affect the property tax limits, only a few have resulted in tax increases of significance. The significant tax increases that have been passed include an increase in the allowable special education, technical, and vocational education millages levied by intermediate school districts, and a removal of the hearing and notice requirements for many units of local government under the "Truth in Taxation" law. Some other laws have reduced taxes, particularly for agricultural property. While the intention of some of these laws has been to raise new revenue, most of the laws that have amended the statutory limits have improved the administration of the tax laws within the original property tax limits of Proposal A.

All except one of the bills increasing the tax limits received the requisite ¾ vote. The one exception, a school bonding bill--was vetoed by Governor Engler on account of this violation of the will of the people.

The Legislature Is Often Unaware of the Extraordinary Majority Requirement

The legislature often votes on laws that amend the protected property tax limits without being aware that passage requires a ¾ vote. To ensure that future legislatures are fully informed, and that the wishes of the citizens are fulfilled, the extraordinary majority and other requirements of the Constitution must be enforced strictly. Such enforcement will require action on the recommendations which follow.

Recommendations: Adoption of Senate Rules

The House has adopted a rule requiring a ¾ vote for bills increasing school district operating property taxes. The Senate should adopt a similar rule, listing those sections of Michigan law which carry the special constitutional protection. 

Fiscal Agency Notification

 To ensure that legislators are properly informed when they consider tax bills, the House and Senate fiscal agencies should routinely review any property tax bill to determine whether it amends the property tax limits protected by the Constitution, and report their findings in the analyses. 

The departments of Management and Budget and Treasury produced a memorandum listing the statutory limits that would be protected by the Constitution before the adoption of Proposal A. This list was accepted by the Governor and distributed to other state officials at the time of the passage of Proposal A. This list, revised to include amendments made in the past 2½ years, should be adopted by resolution or rule by the legislature and given to their officers, service bureau, and fiscal agencies.

The listed tax limits given constitutional protection include the following:

• Limits on school millage, including the "hold harmless," "enhancement," and the 18-mill operating millage.
• Limits on Intermediate School District millage, including millage for special ed, vocational and technical education.
• The "Truth in Taxation" and "Headlee" tax limitation provisions in the General Property Tax Act.
• The exemptions for homesteads and agricultural property from the school operating millage.
• The state 6-mill property tax limit.
• The definitions of the base of these taxes, including the allowable uses of school bonding authority. 

"Does the bill amend or repeal any section of law that previously established a limit on school operating property taxes, or create a new school operating property tax?"
"Does the bill authorize a new tax, or expand the base or increase the rate of an existing tax?"
If the answer to these two questions is "yes," then the bill requires a ¾ vote.

Recent Bills Requiring A ¾ Vote

The 88th legislature (1995-1996) considered a number of bills that would have increased the tax limits protected by Proposal A. New bills covering similar topics will likely be introduced in the 89th legislature, and would require an extraordinary majority for passage. Bills in the 1995-1996 session which, if introduced again in similar form, would require a ¾ vote include the following:

House Bill 5359, which changes the "Headlee" rollback requirements;
House Bills 4502 and 5848, which authorize "enhancement" millage for school districts;
Bills establishing "cultural authorities" or "metropolitan councils," such as SB 1053 and HB 5394, would require a ¾ vote if they authorize property taxes for new units of local government with the powers of school districts. 

State Tax Commission Review of Local Tax Limits

Some of the tax limitations in the Constitution are different for each county, and for certain intermediate and local school districts. To ensure that these units of local government are all complying with the limits, the state tax commission should audit them periodically.

Contents copyright 1997, Anderson Economic Group. Permission to excerpt given provided proper citation is given. Patrick L. Anderson, The Tax Limits in Proposal "A": Are the Taxpayers Getting What They Bargained For? (Lansing, MI: Michigan Chamber of Commerce, 1997)