Guy Gordon (00:00.632)
Hello and welcome to another hashtag Facts Matter Podcast. I’m Guy Gordon, where we will once again dive into the issue of a constitutional convention in Michigan. On November 3rd, you will be asked if we should undertake such an exercise today. We focus on Article Nine, finance and taxation. And are there two bigger, thornier issues in state government than those? I’m joined by Eric Lufer, president of the Citizens Re Research Council of Michigan and our

in house constitutional authority on this. I I mean, if ever there was an an epicenter for controversial earthquakes over the last fifty years, it’s been this, isn’t it?

Eric Lupher (00:44.202)
Yeah, I think Article One, that is our Declaration of Rights, and Article Nine, that is our finance and taxation provisions, are the meadiest of the meaty, as we look at the different articles and what’s working and not working, how does it affect citizens, how does it affect state and local government?

Guy Gordon (01:05.226)
It feels like for the past sixty years or so we’ve been having an ongoing constitutional convention as it relates to Article Nine anyway, just because of all the attempts to amend it.

Eric Lupher (01:17.512)
It has been the most the the article for which there’s been the most attempts to amend it and has also had the most success. And again, there’s amendments to article one that have been very significant, the reproductive rights and and issues like that very important to people. But i the amendments to article nine,

limiting how our state and local government can raise and use revenue have been very consequential. P you would have to rank those up as peers of of those in terms of consequentiality.

Guy Gordon (02:01.936)
when you when you think about it, I mean the Headley amendment and proposal A in nineteen ninety-four would be the two biggies. And what you and I have discussed in previous podcasts is that so much of this is done within the constitutional context because people have really lost faith in the legislature to rein themselves in or to be able to to get past their spending and taxation habit.

Eric Lupher (02:26.557)
Yeah, I think Article nine is the poster child for how citizens have distrusted their elected officials that they choose, but distrust them to do the things that are in the citizens’ best interest. So we’re in a perfect world, we might call our legislator and say this is how what I feel.

in a less perfect world, we might initiate a statutory referendum to say, let’s do it this way. we’ve sort of ended up in in the third least favorable choice where people have chose to amend a constitution that is the hardest to to change and and the most secure, right? You you can’t tinker around the edges

Once those words are embedded into the Constitution.

Guy Gordon (03:26.956)
Well, and in in previous incarnations of the Constitution and especially at the nineteen sixty one CONCON, I mean, this was the fundamental debate. How far do we go to protect the power of the purse for the legislature? And will that likely be ground zero for the same debate if we had a CONCON this time around?

Eric Lupher (03:46.305)
For sure. For sure. It’s this will be I think a lot of people, should they choose to campaign and and run for delegates, will have the desire to serve on the finance and taxation committee and have a voice in what this looks like with a draft document.

Guy Gordon (04:06.582)
And I mean it’s fundamental because this this is a critical check on the executive branch.

Eric Lupher (04:13.256)
both executive and legislative, yes.

Guy Gordon (04:15.372)
Yeah. So if we were to look at some of the the the the thornier issues that they may want to pick up, especially as it relates to taxation, let’s start with section seven. That it it at least in theory requires a flat income tax rate and then it sort of prohibits a graduated tax base, but that’s somewhat ambiguous.

Eric Lupher (04:40.962)
it is a bit. But again, other states different states have different income tax systems. We have been doing this every sixteen years trying to help people understand this question of a constitutional convention. And when we look back sixteen years and say, well, how many states have a flat rate versus a graduated rate? It has changed over time, really speaking to the idea that

Guy Gordon (05:06.338)
Mm-hmm.

Eric Lupher (05:08.874)
This is a legislative matter that most other states have the the legislatures have the freedom to say we’re meeting our revenue needs, we’re not meeting our revenue needs. We care about the regressivity or progressivity of our income tax, and we want to make these changes accordingly in Michigan, our legislature and our cities who also have the authority to levy city income taxes.

are restricted, they only have this choice.

Guy Gordon (05:39.919)
Mm-hmm. You know, you point out in your paper, and we invite everybody to find it at CRCmish.org, that in theory we have this flat tax rate. And yes, when you pay your taxes, you know what your tax rate is. But through exemptions, waivers, exclusions, credits, do we really have a flat tax rate? Or do we is it graduated in a sense just by

Determining what level of your income is subject to it.

Eric Lupher (06:13.312)
Yeah, th there is some progressivity to our income tax. The courts have been asked to weigh in on that and you know they’ve more or less signed off on it. It starts with the fact that we begin with the federal adjusted gross income and and that’s the most that’s the simplest way to start defining your tax base for each

you know each individual filing this. you don’t have to start over from what you’ve just done with the federal tax filing. You can just pick up that number and plug it in here. And then there’s some extra credits and and deductions as you suggest. So it it’s a balance of simplicity versus purity. but our other states are far more progressive because they have those graduated rates.

Guy Gordon (07:10.474)
Right. but that might be fertile ground for discussion, just how much we want to muddy up the code with these exemptions, credits, things like that.

Eric Lupher (07:19.88)
Yeah, I I think should we have a constitutional convention, the question is whether we should have this prohibition or not. And if if the decision’s n to keep it, it’s not that we should change it in some way and start putting tax graduated tiers into our constitution. That’s way too far. It’s it’s simply

Should we in the constitution tie the hands of the legislature and require a graduated a graduate require a flat rate tax versus a graduated tax?

Guy Gordon (07:59.425)
In terms of sales taxes, which are by nature regressive, would there be a revisiting on limitations on sales taxes and also perhaps a question about whether or not you would allow some opportunities for local governments to engage?

Eric Lupher (08:17.29)
Yeah, I think

There’ll be a strong interest, probably a strong lobby by local governments and in saying that I’m speaking not only of cities and townships and counties, but also many of the special authorities that look at their peers in other states have the opportunity to levy a local sales tax and the prohibition exists here in Michigan. So th the tax limitations relating to sales tax in Michigan.

We have a discretionary tax that dates back to the nineteen forties that say the legislature may levy a a sales tax up to a certain rate, but also a mandatory tax that we create in ninety-four that say the state has to levy two cents to fund schools. So a six percent sales tax and if local governments say, Well, we would like that, but there’s no room. There’s a the state’s using all of that six percent.

There’s also provisions that say of the money collected, so much has to go to schools, so much has to go to local governments and to public transit. So it gets muddied up real quick. And again, it’s just a question of, you know, you look at other states, they have the ability to change their sales tax. They have the ability to authorize local sales taxes, they have the ability to decide.

how that money is used and they don’t have to ask the voters to amend the constitution to make that happen.

Guy Gordon (09:56.193)
upon reading your paper, one of the pieces of my ignorance that I didn’t realize is that we have a state revenue limit built into the Constitution in section twenty-six, that our state revenues cannot exceed a certain proportion of our state personal income and that we’ve bumped and exceeded that limit on a couple of occasions when things have been going gangbusters, but usually we fall beneath it.

Does this kind of fall under the heading of maybe things that have out use their usefulness or that are kind of an anachronism?

Eric Lupher (10:30.964)
Well, yeah, by accident. the revenue limit was created as part of the Headley Amendment, what we call the Headley Amendment in nineteen seventy eight that was an effort to limit the growth of government. And and they chose for the state government, let’s tie how much state revenue can be generated relative to personal income. The idea of personal income grows over time and therefore

Guy Gordon (10:39.128)
Right.

Eric Lupher (10:59.68)
there’s room for state revenue to grow over time. What they didn’t presuppose was that our personal income would not grow over time.

And and even worse that our state revenues, because of the structure of our state rev our tax system, our revenues are bringing in less and less revenue over time. So it’s kind of an indictment, first of all, on our economy and second of all on our tax system, that we are now eleven close to twelve billion dollars below that revenue limit, which makes it very irrelevant.

Guy Gordon (11:26.52)
Mm-hmm.

Eric Lupher (11:41.653)
Right, we could almost double the size of our general fund and still be within that revenue limit. so as a taxpayer, you might feel good that that exists. local governments look at it and it doesn’t mean that they should be getting more money, but it’s a benchmark to what they were getting as a percent of state revenues you know, back in 1978.

And thinking about what might have been if our economy would have continued to grow, if our tax system kept pace with the growth of personal income, how much money would be available for state revenue sharing or funding schools or operating state government in many ways that we now look about us and say resources are scarce and and therefore we can’t do everything we wanna do.

Guy Gordon (12:19.021)
Right.

Eric Lupher (12:40.764)
So it’s kind of a irrelevant tax limit, but at the same time it’s because we chose a period of time when our personal income was the highest and we only know that in retrospect.

Guy Gordon (13:01.28)
And some presumptions that it would always be thus. the the other issue that may be arise is the and we we’ve seen it become just an annual exercise, and that is earmarking. I guess from a constitutional standpoint, it usurps some of the some of the legislature’s appropriation authority because it siphons off revenue and puts it in specific untouchable pots.

Eric Lupher (13:04.138)
Yes.

Guy Gordon (13:27.904)
Again, in many cases it’s it’s born of a mistrust of and and having sacred cows protected. is that one of those cleanup items that a constitutional convention could be very helpful with?

Eric Lupher (13:43.895)
W last time we had a constitutional convention and we ended up drafting what we now call our nineteen sixty three constitution, the earmarking of state revenues were one of the biggest issues that led to a yes vote and and people saying we need to clean this up. upwards of eighty percent of all state revenues were legislated or or were dedicated were

put into those pots before the legislature could even put their hands on it. And so as the legislature was muddling its way through the nineteen fifty eight recession, it had very l little latitude on where to cut or how to move money around to reflect the state’s priorities while living within the limitations. So we look today and our dedicated

Revenues have not risen to that same level, but we’re not far behind. And knock on wood, we haven’t had to deal with any recessions for for some period of time, but we we know they happen, they’re inevitable. That’s part of our economic cycle. And what happens when we have high levels of earmarking? Again, the legislature we choose to say,

Guy Gordon (14:52.397)
Right.

Eric Lupher (15:09.174)
appropriate money to our highest priorities and if if that can’t happen because of constitution and we also have statutory earmarks, it really ties their hands and puts the state in a bad spot.

Guy Gordon (15:23.351)
Right.

Right. there are that’s as you said, it was a big deal in sixty one and maybe a big deal again. The other one is is w the ability of government to borrow. Again, we set a fairly high bar, didn’t we? And in some cases require voter approval of taking on larger debt obligations. But that can also be highly restrictive, especially in an emergency context, or

where you have these large infrastructure projects where you want to get up and running.

Eric Lupher (16:01.204)
Yeah, so we have different types of borrowing. usually like Governor Whitmer has bonded to do some of the road improvements or her whole fix the damn roads effort. because the money to pay for those bonds was kinda come from gas tax revenue and vehicle registration, we didn’t she didn’t need to. The the

Guy Gordon (16:08.877)
Mm-hmm.

Eric Lupher (16:28.05)
state highway commission didn’t need to come to the voters and ask for voter approval. But if there’s just a general need to raise money to fund things and it’s going to come out of the general fund or just generally funding it without a dedicated revenue source, then we need voter approval for that. And that’s a way of limiting the state from getting in over its head. we’ve we saw that with Detroit

Guy Gordon (16:49.262)
Mm-hmm.

Guy Gordon (16:54.157)
Right.

Eric Lupher (16:56.82)
you know, not too long ago it happens with governments and and this is a way to tap the brakes a little bit. So it’s yeah.

Guy Gordon (17:03.042)
Well it certainly has happened with the federal government. So I mean I think the the the idea is is well founded and the and the the skepticism and the mistrust may be well founded as as well. But again, from from it it does limit your flexibility.

Eric Lupher (17:19.218)
It it does. I I think this is one of the things that they might tinker around the edges, but they probably want to keep in a voice of the people for general obligation bonds that let’s make sure that the people you’re checking in with the people. And and I think I don’t know that we addressed it in our paper, but th that’s not uncommon among the states to have some sort of a check-in on something like that.

Guy Gordon (17:22.742)
Mm-hmm.

Guy Gordon (17:49.667)
Through Headley and Proposal A and through a variety of other mechanisms, we have severely limited the ability of local governments to raise revenues beyond property taxes, and we’ve even put the brakes on how they can levy their property taxes and what assessment authority they can use. So how robust will there be of a drive and we’ve already touched on this to some degree at the top, for local governments to weigh in and say,

You have to give us more ability to fund our operations.

Eric Lupher (18:26.174)
Yeah. I’m starting to see some messaging from groups that are opposed to this question of a constitutional convention. I’m not seeing any that are for it. but I suppose if there is a group lurking

Just out of sight, it would be local governments that are so severely restricted by Article 9. The property tax limitations in place to somewhat affect the tax rates that are available to them. It’s kind of a paper tiger, but it exists in the Constitution. And then we put in place the tax limitations in the Headley Amendment in 1978.

And created a system of taxable value in 1994 that from 1994 to the recession, the Great Recession, we call it from 2007 to 2009, they kind of worked hand in hand and and local governments didn’t like it because they see there was revenue out there they couldn’t tap into. But they were working hand in hand. But since that great recession,

those two tax limitations have a compounding effect. And we can look back now and say, well, why didn’t we take out the old tax limitation when we put in the new one? And it was the idea that you had to get voter approval and and dealing with these types of things through amendment. And there are so many provisions in the Constitution in this way that

Well, well intentioned. Act to restrict the ability of the legislature to create a municipal finance system that reflects what other states do and meets the needs of Michigan in twenty twenty six and restricts the local governments to do raise the revenue that they need to to fund their operations.

Eric Lupher (20:38.15)
and fulfill state mandates that are handed down to them and to maintain the system, the the quality of life that we expect, you why would you try to attract families and businesses to the Michigan? It starts with the quality of life in individual communities. So this has far reaching effects and local governments are beaten and abused by the provisions in

Guy Gordon (20:56.077)
Right.

Eric Lupher (21:07.976)
Article nine and I don’t know that they have a campaign to support this, but I wouldn’t be surprised if they did.

Guy Gordon (21:16.61)
Well, and the other argument would be just the level of detail and complexity in these specific sections as it r relates to local government, that there really needs to be kind of a clean up in aisle five on just so you can navigate.

Eric Lupher (21:32.231)
It it does. and again it speaks to the level of detail. In in many cases we’ve put statutory type language into the constitution that is so fine, but then we maybe find it doesn’t work the way we envisioned or there’s some opportunity to do things different. and and so cleanup would be very helpful on some of these things.

Guy Gordon (22:03.104)
I we’re getting kind of in the in the home stretch here, but state revenue sharing maybe some fertile ground to plow. it can be arbitrary, it can be partisan, it can be overly politicized. And th there are better ways to do it, are there not?

Eric Lupher (22:19.934)
I got distracted. Ask that question again and we can cut this

Guy Gordon (22:22.976)
Okay, I’ll start it I’ll start it from the top. one other avenue that may be ripe for plowing is state revenue sharing, Eric. We we’ve seen it become so highly politicized and partisan and really kind of, you know, where sacred cows go to graze.

Eric Lupher (22:42.696)
Yeah, you know, it it goes back to the earmarking, right? The the local governments have been precluded from levying taxes other than the the property tax. We have a city income tax, we have a few things counties are unable to do, but for the most part, because we have eighteen hundred plus units of government and such a checkerboard arrangement of our local government, the state is

Told local governments, you stand by, the state will raise the revenue and share it with local governments, but then over time has reneged on a lot of those promises. And the revenues that are shared through the Constitution are shared on a per capita basis, which back in the 1940s, when this was first introduced, the the Citizens Research Council said.

This is probably the worst way to do that, that there are so many ways of measuring fiscal need and and the needs of communities. So first of all we gotta deal with the earmarking. State revenue sharing as a as a subset of that earmarking needs to be cleaned up and made meaningful. How how it happens if it’s kept into the constitution

a a meaningful way to have the legislature fulfill its promises.

Guy Gordon (24:15.904)
Another area that kind of reflects the difference between private sector and public sector and whether or not they should more mirror each other would be the issue of pensions. is and and how much we protect them and in and in what form do we allow for them to evolve the way they have in the private sector. is that something that should be revisited in a CONCON?

Eric Lupher (24:38.804)
Yeah, I think when we we saw when Detroit declared bankruptcy and the question of public pensions were put on the table, that there was a a a bright spotlight shown on this element of our state constitution. The history the the backstory is that for a long time we were able to hire civil servants at the state level or at local government level and say, you know, we

probably can’t pay you the same as if you did the same job at the private sector, but we can promise you a pension upon retirement and and that’ll, you know, give you lifetime security as opposed to immediate riches. And this provision was put in the constitution to s make sure that the state and the local governments didn’t renege on that promise.

Guy Gordon (25:16.109)
Uh-huh.

Eric Lupher (25:35.147)
That they couldn’t pull that out and say we’re gonna cut your pension or we’re gonna eliminate it completely. generally as a society, we’re moving away from the defined benefit plans to a defined contribution. So this type of thing is becoming less and less significant. But at the same time, defined benefit plans do still exist in state and local government. And

Guy Gordon (25:48.686)
Exactly.

Eric Lupher (26:04.096)
promise made should be a promise kept. there there’s a whole discussion we don’t need to get into whether these pensions were meant to be tips, you know, sort of here’s a bonus for thanking you for years of service or or some level of compensation. the point is that we’ve offered them and and promise workers if you devote, you know, if y if you give your time and labors to us, we’ll compensate you and

Guy Gordon (26:15.798)
Mm-hmm.

Eric Lupher (26:34.278)
that word should mean something.

Guy Gordon (26:37.506)
So as we look at this in in total, and we’ve kind of done Article nine top to bottom here, what is the one section or the one portion that you think would offer maybe the best opportunity to initiate better practices, less complication, less detail? Is there an area that that and I realize this question is somewhat subjective, but you know, if there was an area that just cries out

Eric Lupher (27:06.684)
Yeah, the the the one that cries out and it’s not a single section. We have from the late eighties through the early two thousands amended a constitution several times and put in several provisions. In some cases, you know, we all use computers these days, the idea of copy and paste. I th they did that with the with statute. Copy the statute, pasted in the constitution.

Guy Gordon (27:07.032)
For attention.

Guy Gordon (27:29.026)
Mm-hmm.

Eric Lupher (27:37.123)
and and it’s literally word for word what prior existed in statute because we wanted to make sure the hands hands off, right? So to answer your question, if you’re gonna start in one place to clean this up and take statutory nature out of the constitution, that’s it. But a lot of Article nine is is item one B

Guy Gordon (27:44.462)
Hands off.

Eric Lupher (28:06.048)
There’s so much issues of statutory nature in Article Nine that really prohibit our state and local governments from adapting to the times and having a finance system that reflects the twenty twenties, soon to be the twenty thirties and and how we go forward. these are the types of things that will be really hard to fix through amendment.

So if we’re going to clean them up, a constitutional convention is the best way to do it.

Guy Gordon (28:42.4)
And yet the timing of it is, you know, n not taking this out of the political environment that we’re in, a CONCON would be a a very difficult, contentious thing because the level of trust is so low.

Eric Lupher (28:56.128)
the level of trust and we are a very purple state, Republican and Democrat, and so

Will we be able to find a hundred and forty-eight delegates to a constitutional convention that understand these issues enough that they can make compromises and still create a working system that we can understand and work within? So on the one hand you can make the case that Article Nine begs for

constitutional convention and and cleanup on the other hand, tap the brakes and what are we asking for here?

Guy Gordon (29:43.001)
Yeah. Eric, thanks so much. A really meaty look at this. And th there there are more elements that we didn’t have time to cover. but we we hit the big ones. And for those of you that want to take a closer look, do read the Article Nine paper that Eric has generated at CRCMish dot org. And as always, as Eric likes to say, a think a fact tank can’t run on fumes. If you find it in your hearts, go to the CRCMish dot org website and also give us a little

financial help as well. As we talk about taxation, we depend on your charity. So we would certainly appreciate that to keep this kind of very fact based analysis moving forward. Eric, thanks again.

Eric Lupher (30:20.246)
All right, yes.

Eric Lupher (30:31.572)
Yeah, we’re we’re in the home stretch. There’s twelve articles and this is article nine. So we have three more to go and we hope to have the final one in everyone’s inbox right about the time they’re receiving their absentee ballots for the November election. So stay tuned and and we got three more to go.

Guy Gordon (30:50.808)
All right. Until then, take care. Thank you for joining us, and we’ll see you next time on the hashtag PAXBatter Podcast.