On November 7, 1978, Michigan voters approved Ballot Proposal E (the 11 Headlee 11 amendment), placing in the state constitution three sets of limits to the growth and relationship of state and local government finances: (1) An overall limit on state revenues and spending; (2) requirements that the state maintain aid to local units at a constant proportion of total state spending and reimburse local units for state mandates; and (3) a limit on future increases in local property taxes and a requirement for voter approval of new local taxes.
This Council Comments on the State Revenue and Spending Limits is the first of a series of three publications analyzing the implementation of the tax limitation amendment, evaluating its impact in the past three years, and exploring issues raised by the amendment. A more detailed (18 page) analysis of the State Revenue and Spending Limits is available on request.
- The amendment limits total state revenues in any fiscal year to ten percent of personal income in the prior calendar year, based on the relationship of actual revenues in fiscal 1978-79 to personal income in calendar 1977.
- The base year of 1978-79, through a combination of circumstances, had the highest ratio of state revenue to personal income of any year before or since — in effect, the revenue cap is based on the peak year.
- Legislative implementation of the revenue and spending limits follows closely the language and intent of the amendment.
- Since adoption of the amendment, actual state revenues have fallen well below the limit — in fiscal 1980-81, state revenues were about $1.4 billion below the limit of $8.6 billion.
- The wide gap between actual revenues and the total amount of revenues permitted under the limit has resulted from the adverse impact of the economy on state revenues and the fact that the legislature has not raised taxes.
- Projections indicate that absent legislative action. to increase taxes or voter action to reduce the limit, the gap between actual state revenues and the revenue limit will continue to widen in the future, since revenues from present sources do not increase as rapidly as personal income.
- If state revenues ever do approach the limit there are some potential loop holes that could be used to circumvent the limit.