Un- vs. Underfunded Mandates: Michigan’s Next Big Debate and Implications for Future Education Policy

November 7, 2014

By Rachel White and Professor Kristi Bowman

Every year, state governments adopt new mandates that school districts are required to follow. A great number of these mandates require additional administrative, clerical, and financial resources; thus, additional funding is often necessary for locals to have the capacity to comply with the law. The proposed early warning finance system legislation is an example of a mandate that would subject school districts to a hefty amount of new financial reporting requirements. Whether this package of bills will be enacted as is, however, may be dependent on how the Michigan Supreme Court decides the historic Adair case after its recent (and second) appearance before the court.

Photo Courtesy of DES Daughter

Photo Courtesy of DES Daughter

The History of Adair

Legal proceedings in the Adair case have lasted over a decade. Beginning in 2000, plaintiffs Daniel Adair, Fitzgerald Public Schools, and numerous other public school districts alleged that the state mandated an increase in the level of fifteen separate activities and services, including the maintenance and transmission of data to the Michigan Department of Education’s Center for Educational Performance Indicators (CEPI). The plaintiffs argued that this increased activity was a violation of Section 29 of the Headlee Amendment, a section of the Michigan Constitution that requires the state to reimburse local governmental units for any new state-mandated programs or activities. In basic terms, the Headlee Amendment prevents the legislature from enacting unfunded mandates.

In 2010, the Michigan Supreme Court held in Adair I that the CEPI record-keeping requirements did present an increase in the level of activity beyond what was previously required of districts, thus violating the prohibition on unfunded mandates in the Headlee Amendment. Following the Adair I decision, the Michigan legislature appropriated $25.6 million to reimburse plaintiff school districts for CEPI-related compliance costs incurred in the 2010-11 school year and increased the appropriation for the subsequent school year. Problem solved, right?

Wrong. In 2013, Mr. Adair, 465 school districts and a representative taxpayer from each district, again filed suit against the State of Michigan challenging the constitutionality of the method by which the legislature funded these appropriations and the adequacy of the amount of each appropriation. The Court of Appeals did not ultimately decide whether the existing appropriations fully funded the necessary costs of collecting, maintaining, and reporting the required data. However, the Court did determine that the plaintiffs’ burden of proof to show that the mandate was underfunded must be something less than proving an exact dollar amount increase in districts’ costs to comply with the CEPI requirements.

The Unfunded and Underfunded Mandate Debate

Since the latest Court of Appeals ruling, the defendant – the State of Michigan – appealed the case to the Michigan Supreme Court again. Subsequently, this past October the Michigan Supreme Court heard oral arguments by both the plaintiffs and defendant to aid them in deciding the case.

Much of the arguments focused on establishing what plaintiffs must prove to prevail in an underfunded mandate case (as compared to an unfunded mandate case), because the statutes appropriating money for these activities appear on their face to account for the additional costs of compliance. Justice Mary Beth Kelley, expressing concern about opening the floodgates of litigation, appeared reluctant to involve courts in making detailed decisions about local governments’ costs of complying with legislative mandates. Yet, several of the justices appeared receptive to the argument that, for underfunded mandated cases, the relevant cost was the local school district’s actual cost, which the district would need to demonstrate is greater than what was allocated by the state.

While the majority of the justices who participated in the oral argument appeared drawn to this latter argument, the concern that local government and taxpayers could question almost any legislative mandate in court remained a substantial concern. Combining these two concerns, it seems highly likely that the court will set the bar substantially higher for plaintiffs in an underfunded mandate case than in unfunded mandate case. We will know this for certain when the Michigan Supreme Court issues its decision in Adair II in late 2014 or early 2015.

Implications of Adair: Funding of the Proposed Early Warning Financial System

As it was described in a previous Green & Write post, the proposed early warning system legislation would mandate that all school districts follow new financial reporting requirements. The cost for districts to comply with this law would be substantial. In fact, the Association of Michigan School Business Officials contends that for districts that are subject to enhanced reporting or audits, districts could potentially need at least one additional high-level full-time equivalent employee to complete the necessary reporting.

Nonetheless, this package of bills is not attached to any funding mechanism that would assist local districts in paying for the costs associated with the increased financial data collection, management, and transmission requirements. Thus, the Michigan Supreme Court’s decision in Adair II could impact this package of bills’ survival rate. If the court determines that districts must prove the exact amount of additional money required to comply with state mandates, districts will need to monitor closely their expenditures associated with the early warning system if they can even begin to think about taking the state to court to receive remuneration.

On the other hand, if the Michigan Supreme Court determines that plaintiffs must prove that the methodology employed by the legislature to determine the amount of the appropriation is so flawed that it fails to reflect the “actual cost to the state if the state were to provide the activity or service mandated as a state requirement…” then it may be wise for the legislature to proactively consider how much it would cost the state to collect, manage, and transmit these data and thus ensure suitable appropriations are provided to districts related to this legislation.

 

Professor Kristi Bowman joined the Michigan State University Law College faculty in 2007. Her academic interests include Education Law and Policy and Constitutional Law. She has published numerous articles in scholarly journals examining public schools in fiscal crisis, students’ free speech rights, racial/ethnic equality in education, and religion in public schools. Professor Bowman is also a faculty affiliate of the Education Policy Center at the Michigan State University College of Education. Prior to teaching, she practiced at Franczek Sullivan, P.C. (now Franczek Radelet) in Chicago where she represented school districts, and was a judicial clerk on the US Court of Appeals for the Eighth Circuit.

Professor Kristi Bowman – kristi.bowman@law.msu.edu

Rachel White – whitera3@msu.edu