Michigan Court Of Appeals Rules 1937 PA 345 Bypasses Headlee Tax Limitation Regarding Health Care Funding for Retired Police Officers and Firefighters
The Michigan Court of Appeals has ruled, in the consolidated cases of Bate v City of St. Clair Shores and Ruman v City of Warren, that Public Act 345 of 1937 (MCL 38.559) bypasses the Headlee Amendment (Michigan Constitution of 1963, Article IX § 25, et seq.) requirement for voter approval of taxes to fund retiree health care. The MCoA holds that voting for police and fire protection prior to the 1978 enactment of Headlee creates a carte blanche to fund any and all police and fire retiree health care without further voter approval:
Michigan Court of Appeals Protects Act 345 Health Care Funding for Retired Police Officers and Firefighters
August 20, 2023 - Miller Canfield Press Release
In a matter of first impression, the Michigan Court of Appeals held that municipalities may use tax dollars assessed under the Fire Fighters and Police Officers Retirement Act (a/k/a “Act 345”) to fund police and fire retiree healthcare benefits.
Act 345 was passed in 1937 to create “a system of pensions and retirements” for retired firefighters and police officers.  If a municipality’s voters adopt an Act 345 system, the Act provides that the municipality may create a fund for the payment of “pensions and other benefits” for those retirees.  In Bate v City of St. Clair Shores and Ruman v City of Warren, two consolidated class action lawsuits, the Court of Appeals clarified that under the plain terms of Act 345, these “other benefits” may include retiree health care benefits (also known as other post-employment benefits, or “OPEB”).
In Bate and Ruman, a group of taxpayers sued the cities of St. Clair Shores and Warren, respectively, alleging that the cities’ use of taxes collected under Act 345 to fund health care for retired police officers and firefighters was unconstitutional under Michigan’s Headlee Amendment. The Headlee Amendment, enacted and ratified in 1978, requires local voters to approve any locally levied taxes that were not authorized by law at the time the Amendment was ratified. Although the voters of St. Clair Shores and Warren had approved taxes under Act 345, the plaintiffs argued that Act 345 only authorized the cities to collect taxes to fund pensions for retired police officers and firefighters. Therefore, the plaintiffs argued the cities would need to get additional voter approval to collect taxes to fund police and fire retiree health care benefits, as well.
St. Clair Shores, represented by Miller Canfield, and Warren both argued that Act 345 was intended to fund broader retirement systems for police and firefighter retirees, not just pensions. In support of this argument, the cities emphasized Act 345’s statutory text referring to “other benefits” and “retirement systems.” The Court of Appeals agreed with the cities, holding that the phrase “‘other benefits payable’ could include healthcare benefits ...” This means that when the cities’ voters approved the collection of taxes under Act 345, they approved the collection of taxes to establish an entire retirement system that may include more than just pensions.
The Court of Appeals’ decision clarifies that municipalities may use Act 345 funds to provide retiree healthcare benefits for their police officers and firefighters without running afoul of the statute. If you have questions about how these cases impact your local government, please contact the authors of this article or your Miller Canfield attorney.
A question which should be the subject of a further appeal: Does this bypass hold for de novo benefits granted by units of government after the 1978 enactment of Headlee? The Michigan Court of Appeals opinion was mute on this question.
Well, now. That's not light reading!
Having been well below voting age when Headlee passed, I needed help understanding what this means.
First, Headlee itself: in its Syllabus on the MI Constitution, Anderson Economic Group has a nice section on Headlee.
Sec 25: Property taxes and other local taxes and state taxation and spending may not be increased above the limitations specified herein without direct voter approval. The state is prohibited from requiring any new or expanded activities by local governments without full state financing, from reducing the proportion of state spending in the form of aid to local governments, or from shifting the tax burden to local government. A provision for emergency conditions is established and the repayment of voter approved bonded indebtedness is guaranteed. Implementation of this section is specified in Sections 26 through 34, inclusive, of this Article.
Interestingly, Mackinac Center did a retrospective of Headlee's effects after the first 25 years.
Context sound familiar to anyone??
The time was right for such restraints to be imposed. State government was growing faster than the state’s population, personal income and inflation.
Worth reading for the visual effects alone.
What does it mean?
So if I understand the court's decision, this frees local governments from previous limits on tax & spend for employee health benefits??
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