MSC dismisses Headlee claims by 450 school districts alleging “underfunded” reporting mandate; districts failed to show the specific amount of shortfall

Local governments must show the amount of a funding shortfall to claim an "underfunding" violation of Michigan’s Headlee Amendment, according to the Michigan Supreme Court’s recent decision in Adair v. State, No. 147794. The Court distinguished this case from Adair I, where the Court recognized a narrow exception to this requirement, in which a plaintiff need not establish the particular dollar amount if the state fails to make any appropriation at all. The school districts did not waive their claims by accepting the conditional appropriation. They simply failed to produce evidence of the specific amount of shortfall. Judge Cavanagh dissented, arguing that the school districts had made the minimal showing that a genuine issue of material fact exists as to whether the state appropriation was sufficient.

In 2010, the plaintiffs (465 school districts and a representative tax payer from each) successfully sued the state under the Headlee Amendment when the state did not provide any appropriations to local school districts after the legislature required districts to report data to the Center for Educational Performance and Information. SeeAdair v. State, 785 N.W.2d 119 (2010) (“Adair I”). Plaintiffs then brought this action, alleging that the state’s appropriation to the districts for school years 2010-2011 and 2011-2012 were inadequate to compensate the schools for the increased costs associated with the legislature’s mandate.

The Court of Appeals referred the matter to a special master, who required plaintiffs to show the specific dollar amount of the alleged under-funding and directed a verdict for the state when plaintiffs were unable to do so. The Court of Appeals reversed the special master’s holding and concluded that a plaintiff need not show a specific dollar amount, but instead only need to prove that the legislature used flawed methodology to calculate the appropriation.

The Headlee Amendment, Const. 1963, art. 9, § 25, provides that the state must not (1) require any new or expanded activities by local units of government without full state financing, (2) reduce the proportion of state spending in the form of aid to local units, or (3) shift the tax burden to local units. The Headlee Amendment’s prohibition of unfunded mandates (POUM) provision, § 29, prohibits the state from requiring a local unit to provide new services or an increase in the level of any service beyond that required by existing law unless there is a state appropriation to pay the local unit for all necessary increased costs.

The Michigan Supreme Court first held that plaintiffs did not waive their claim when they accepted the appropriated amount. The Court next held that plaintiffs are required to show and prove the specific amount of the shortfall in order to prevail under the Headlee Amendment. The Court observed that plaintiffs overlooked the factual distinction between Adair I, in which no appropriation had been made, and this case, in which appropriations were made. A POUM claim for inadequate funding requires the Court to consider the legislature’s appropriation in comparison with the mandate to evaluate whether the appropriation is sufficient to meet Headlee requirements; as a consequence, plaintiffs must show the specific amount of the purported funding shortfall in order to establish the extent of the harm caused by the legislature’s inadequate funding. The Michigan Supreme Court reversed the Court of Appeal’s holding and reinstated the special master’s order of involuntary dismissal.

Judge Cavanaugh concurred in part and dissented in part. He agreed that the school districts did not waive their POUM claim by accepting the conditional appropriation. He disagreed, however, that a plaintiff must plead and prove a quantified dollar amount of the state’s shortfall. Judge Cavanaugh would have instead held that to overcome the state’s motion for summary disposition, a plaintiff must show that there is a genuine issue of material fact that the state underfunded the appropriation.