STATE OF MICHIGAN

A rollback of multi-year, voter-approved millages that create a sinking fund for the construction and repair of school buildings approved after May 31 of the tax year is required by Const 1963, art 9, � 31, and its implementing legislation in each year after the year of approval in which the percentage increase in the taxable value of the affected property exceeds the increase in the General Price Level from the previous year. Each year's millage is to be reduced by not only the millage reduction fraction for that year but also by the millage reduction fractions for previous years as well.

Opinion No. 7131

April 24, 2003

Honorable Mark H. Schauer
State Senator
The Capitol
Lansing, Michigan 48913

You have asked to what extent, if any, a rollback of voter-approved millages that create a sinking fund for the construction and repair of school buildings approved after May 31 of the tax year is required by Const 1963, art 9, � 31, and its implementing legislation.

The Revised School Code, section 1212(1), MCL 380.1212(1), authorizes local school boards with prior voter approval to levy taxes to create a fund for certain capital improvements. This section provides in pertinent part:

If approved by the school electors of the school district, the board of a school district may levy a tax of not to exceed 5 mills on the state equalized valuation of the school district each year for a period of not to exceed 20 years, for the purpose of creating a sinking fund to be used for the purchase of real estate for sites for, and the construction or repair of, school buildings. The sinking fund tax levy is subject to the 15 mill tax limitation provisions of section 6 of article IX of the state constitution of 1963 and the property tax limitation act, Act No. 62 of the Public Acts of 1933, as amended, being sections 211.201 to 211.217a of the Michigan Compiled Laws.

Const 1963, art 9, � 31, is part of the Headlee Amendment adopted by the electorate in 1978. This section provides in pertinent part:

If the assessed valuation of property as finally equalized, excluding the value of new construction and improvements, increases by a larger percentage than the increase in the General Price Level from the previous year, the maximum authorized rate applied thereto in each unit of Local Government shall be reduced to yield the same gross revenue from existing property, adjusted for changes in the General Price Level, as could have been collected at the existing authorized rate on the prior assessed value.¹

By this measure the voters mandated that the total of taxes assessed against all taxable property within a taxing unit shall not increase from one tax year to the next at a rate exceeding the rate of increase in the General Price Level² for the prior year. In any tax year in which the value of all taxable property has, in comparison with the value of the same property for the previous tax year, increased at a rate in excess of the rate of increase in the General Price Level, the Constitution requires a reduction in the rate of taxation so that the revenue realized from such property for the current year does not exceed that which was realized from that same property for the prior year by more than the percentage increase in the General Price Level.

This constitutionally mandated rollback of authorized millage rates has been implemented by the Michigan Legislature in accordance with Const 1963, art 9, � 34, through its passage of amendments to the General Property Tax Act, specifically section 34d, MCL 211.34d. They establish the "millage reduction fraction" (MRF) as the basis for calculating a rollback and describe how the MRF shall be applied.

This fraction is calculated by comparing the value of taxable property that existed in the prior tax year with the value of the same property for the current year. It is designed to arrive at a true comparison by eliminating the increases and decreases in value attributed to additions and losses. Thus, the MRF involves the determination of the ratio between:

(a) the value of the property for the previous year, less losses, multiplied by the sum of 1.0 plus the rate of increase in the General Price Level (the numerator of the fraction); and

(b) the value of the property for the current year, less additions (the denominator of the fraction).

The value lost when property or improvements become exempt from taxation, are removed, razed, or otherwise destroyed in the previous year (losses) is subtracted from the numerator, and the value added by new improvements or other enhancements during the current year (additions) is subtracted from the denominator. Simply stated, losses, which are not present in the current year, are subtracted from the prior year and additions, which were not present in the prior year, are subtracted from the current year. Thus, the values compared are truly "apples to apples." It is the difference in the value of property that is actually present in both years that determines whether a MRF is appropriate, and to what extent.

If the value of such property for the prior year (properly adjusted), multiplied by the sum of 1.0 plus the rate of increase in the General Price Level, is less than the value of the identical property (again, properly adjusted) for the current year, then the value of such property has appreciated at a rate greater than the rate of increase in the General Price Level. To reduce the excessive increase in revenue that would result if the original millage were applied against that increased value, the effective millage (rate of taxation) is multiplied by the determined MRF, a number less than 1, so that the amount of revenue received is properly reduced.³

The Legislature, in MCL 211.34d, states it this way:

(6) The number of mills permitted to be levied in a tax year is limited as provided in this section pursuant to section 31 of article IX of the state constitution of 1963. A unit of local government shall not levy a tax rate greater than the rate determined by reducing its maximum rate or rates authorized by law or charter by a millage reduction fraction as provided in this section without voter approval.

(7) A millage reduction fraction shall be determined for each year for each local unit of government. . . . For ad valorem property taxes that are levied after December 31, 1994, the numerator of the fraction shall be the product of the difference between the total taxable value for the immediately preceding year minus losses multiplied by the inflation rate and the denominator of the fraction shall be the total taxable value for the current year minus additions. For each year after 1993, a millage reduction fraction shall not exceed 1.

* * *

(9) The millage reduction shall be determined separately for authorized millage approved by the voters. The limitation on millage authorized by the voters on or before May 31 of a year shall be calculated beginning with the millage reduction fraction for that year. Millage authorized by the voters after May 31 shall not be subject to a millage reduction until the year following the voter authorization which shall be calculated beginning with the millage reduction fraction for the year following the authorization. The first millage reduction fraction used in calculating the limitation on millage approved by the voters after January 1, 1979 shall not exceed 1.

(10) A millage reduction fraction shall be applied separately to the aggregate maximum millage rate authorized by a charter and to each maximum millage rate authorized by state law for a specific purpose.

* * *

(16) Beginning with taxes levied in 1994, the millage reduction required by section 31 of article IX of the state constitution of 1963 shall permanently reduce the maximum rate or rates authorized by law or charter. . . . The reduced maximum authorized rate or rates for 1995 and each year after 1995 shall equal the product of the immediately preceding year�s reduced maximum authorized rate or rates multiplied by the current year�s millage reduction fraction and shall be adjusted for millage for which authorization has expired and new authorized millage approved by the voters pursuant to subsections (8) to (12).

You ask about a local school board that has obtained voter approval for levying a tax for each of four consecutive tax years. The voters approved the levy at an election conducted after May 31. The school district was authorized to first levy the tax in the same calendar and tax year that the levies were approved.⁴ The levies authorized were:

5 mills for the first year.
4 mills for the second year.
3 mills for the third year.
2 mills for the fourth year.

In the situation presented in your request, the first year in which taxes are collected is the same calendar and tax year in which the voters approved the levy of taxes. Since voter approval was given after May 31 of that year, no rollback in the approved millage rate is called for in the first year. MCL 211.34d(9). The question arises whether the approved millages for the subsequent years are subject to constitutional and statutory rollbacks, and if so, to what extent.

It should be emphasized that whether the voter-approved millages are for a flat, ascending, or descending rate of millage is, for millage rollback purposes, immaterial. In substance, Const 1963, art 9, � 31, calls for a reduction in the rate of taxation whenever the monies realized from taxing property (after adjustments) at the voter-approved rate would result in realizing more tax revenue for the year of levy than would be realized by multiplying the authorized rate of taxation by the taxable value of all property (after adjustments) and by the rate of increase of the General Price Level for the preceding tax year(s).

The determination of an MRF must be calculated each year that a levy is in force. MCL 211.34d(7). As noted above, the fraction becomes the basis for adjusting rates only for years in which it yields a number less than 1.0.

As indicated by MCL 211.34d(6), the number of mills that may be levied in a tax year is limited by Const 1963, art 9, � 31, and a unit of local government⁵ may not levy a tax rate greater than the rate determined by reducing its authorized maximum rate or rates authorized by law or charter by an MRF, as set forth in MCL 211.34d, without voter approval. In this regard, OAG, 1979-1980, No 5562, p 389 (September 17,1979), concluded that the "maximum authorized rate" as that term is used in Const 1963, art 9, � 31, includes the basic 15 mills that may be levied without voter approval,⁶ any tax authorized in a charter approved by the electorate, as well as any tax voted by the electors.⁷ Since the millage contemplated in your question is, as indicated by MCL 380.1212, subject to the 15 mill limitation and was approved by the electorate, for the first year the maximum authorized rate as approved by the voters is 5 mills, the second year it is 4 mills, the third year it is 3 mills, and for the fourth and last year it is 2 mills.

There is no question that, as to the first year of the millage, the full 5 mills may be levied. This is so because the millage was approved after May 31 of that first year and MCL 211.34d(9) provides that "[m]illage authorized by the voters after May 31 shall not be subject to a millage reduction until the year following the voter authorization . . . ." This language also indicates, however, that the remaining millages are subject to millage rollbacks starting in the second year.

As noted earlier, MCL 211.34d(16) provides:

Beginning with taxes levied in 1994, the millage reduction required by section 31 of article IX of the state constitution of 1963 shall permanently reduce the maximum rate or rates authorized by law or charter. . . . The reduced maximum authorized rate or rates for 1995 and each year after 1995 shall equal the product of the immediately preceding year�s reduced maximum authorized rate or rates multiplied by the current year�s millage reduction fraction and shall be adjusted for millage for which authorization has expired and new authorized millage approved by the voters pursuant to subsections (8) to (12).

Where the terms of a statute are clear and unambiguous, albeit complicated, they must be applied as written. See Storey v Meijer, Inc, 431 Mich 368, 376; 429 NW2d 169 (1988). As each of the tax years in issue is after 1995, the Headlee implementing legislation makes clear that beginning with the second year of the millage, the MRF, if called for, is to be applied against each millage, permanently reducing the "maximum rate" previously approved. For the second year of the millage, pursuant to MCL 211.34d(9), the appropriate millage is the MRF for that year multiplied by the maximum authorized millage rate. For the third and fourth years, the appropriate millage is computed pursuant to MCL 211.34d(16) and is the product of the then current maximum authorized rate, which is reduced by the prior years' MRFs, multiplied by the current year's MRF.

As explained by the Michigan Supreme Court in Bolt v City of Lansing, 459 Mich 152, 160-161; 587 NW2d 264 (1998), the Headlee Amendment, of which Const 1963, art 9, � 31, is a part,

"[G]rew out of the spirit of 'tax revolt' and was designed to place specific limitations on state and local revenues. The ultimate purpose was to place public spending under direct control." Waterford School Dist v State Bd of Ed, 98 Mich App 658, 663; 296 NW2d 328 (1980). More recently, this Court has stated,

The Headlee Amendment was "part of a nationwide, 'taxpayers revolt' . . . to limit legislative expansion of requirements placed on local government, to put a freeze on what they perceived was excessive government spending, and to lower their taxes both at the local and the state level." [Airlines Parking, Inc v Wayne Co, 452 Mich 527, 532; 550 NW2d 490 (1996).]

The Supreme Court in Bolt, 459 Mich at 160, also explained how constitutional provisions should be interpreted:

A primary rule in interpreting a constitutional provision such as the Headlee Amendment is the rule of "common understanding":

"A constitution is made for the people and by the people. The interpretation that should be given it is that which reasonable minds, the great mass of the people themselves, would give it. 'For as the Constitution does not derive its force from the convention which framed, but from the people who ratified it, the intent to be arrived at is that of the people, and it is not to be supposed that they have looked for any dark or abstruse meaning in the words employed, but rather that they have accepted them in the sense most obvious to the common understanding, and ratified the instrument in the belief that that was the sense designed to be conveyed.'" [Traverse City School Dist v Attorney General, 384 Mich 390, 405; 185 NW2d 9 (1971), quoting Cooley�s Const Lim 81 (emphasis in original).]

In this case, Const 1963, art 9, � 31, requires that, excluding adjustments for new construction and improvements, if the taxable value of property increases from one year to the next by more than the percentage increase in the General Price Level, the millage to be applied against property is to be reduced so as to produce a percentage increase in property tax collected equal only to the increase in the General Price Level. Increases in the taxable value of property at rates in excess of the rate of increase in the General Price Level are effectively removed from the computation of the total amount of property tax to be collected by local units of government. Taxpayers are assured that, absent consideration for "new construction and improvements," the total amount of property tax to be collected by the local unit of government in future years will not increase at rates in excess of the rate of increase in the General Price Level unless specifically approved by the electorate in what is commonly known as a Headlee "override." Thus, for each year that an authorized millage is in existence, whether it is a millage for a current year or a future year, it must be recalculated to recognize the effect of an increase in taxable value beyond the rate of increase in the General Price Level.

Because of the nature of the declining millage rates approved by the affected electorate in your question, if the current year's MRF were to be multiplied by the maximum authorized rate levied in the prior year without consideration of the lower voter-approved rate for the current year, the taxpayers in the local unit of government would not obtain the tax benefit that Const 1963, art 9, � 31, was designed to grant. Applying a hypothetical MRF to the factual situation giving rise to your request serves to illustrate this point.

For example, if the MRF for each year is .95, the millage that could be levied in the second year (the year following the year of voter authorization) would be 3.8 mills (4 mills x .95). For the third year, if the MRF in effect for that year (again, .95) were multiplied by the rate levied in the second year, the resulting millage rate would be 3.61 mills (3.8 mills x .95). As the voter-authorized rate for the third year is only 3 mills, however, unless the third year's reduced maximum authorized millage is determined by acknowledging that the 3 mills authorized were in effect from the date the millage was first approved, the taxpayers would get no benefit from the tax relief contained in Const 1963, art 9, � 31, despite the fact that having MRFs of less than 1 for the second and third tax years presumes that taxable values have grown faster than the increase in the General Price Level for those years.

If the voter-approved rates are properly accounted for in the second year, the millage for the third year, although not yet levied, should be 2.85 mills (3 mills x .95). Similarly, in that second year, the millage for the fourth year, although not yet levied, should be 1.9 (2 x .95). In the year in which the third year millage is actually levied, the millage for that year would be 2.7075 (the rolled back 2.85 mills from the second year x .95). Likewise, in that third year, the millage for the fourth year, again although not yet levied, should be 1.805 (2 x .95 x .95). In the fourth year, the millage that could be legally levied would be 1.7147 (the rolled back third year of 1.805 x .95). Determining the millage levied in the third and fourth years by only multiplying the previously authorized millage rate by that year's specific MRF presumes that the electorate voted to override the impact of the Headlee Amendment to the Constitution for those years when the millages were first approved, despite no such election having been held.

In other words, to conclude that the voters who initially approved the declining millage rates for the tax years in question also, at the same election, voted to override the prospective benefit of Const 1963, art 9, � 31, so that the full amount of the previously approved millages for the second, third, and fourth tax years could be levied, would be contrary to the common understanding of the people and thwart the intent of Const 1963, art 9, � 31 -- to reduce the property tax burden of taxpayers so that the increase in taxable valuation of property beyond the increase in the General Price Level does not result in higher property taxes, unless the electorate approves a millage increase.

It is my opinion, therefore, that a rollback of multi-year, voter-approved millages that create a sinking fund for the construction and repair of school buildings approved after May 31 of the tax year is required by Const 1963, art 9, � 31, and its implementing legislation in each year after the year of approval in which the percentage increase in the taxable value of the affected property exceeds the increase in the General Price Level from the previous year. Each year's millage is to be reduced by not only the millage reduction fraction for that year but also by the millage reduction fractions for previous years as well.


MIKE COX
Attorney General

¹With the passage of "Proposal A," and its attendant amendments to Const 1963, art 9, � 3, in 1994, it is now the increase of the "taxable value" of property, rather than the increase of the "'[a]ssessed valuation of property as finally equalized,'" which drives the determination of whether, and to what extent, millage rollbacks occur. MCL 211.34d(1)(d).

²The General Price Level is defined by the Constitution as "the Consumer Price Index for the United States as defined and officially reported by the United States Department of Labor or its successor agency." Const 1963, art 9, � 33. See also MCL 211.34d(1)(f).

³For a year in which the calculated MRF is equal to or greater than 1.0, no rollback is statutorily required because the value of the property has not increased at a greater rate than the rate of increase in the General Price Level.

⁴In Michigan, the tax year for property tax is the same as the calendar year. OAG, 1965-1966, No 4463, p 207 (February 21, 1966).

⁵A "unit of local government" is defined by Const 1963, art 9, � 33, to include "any political subdivision of the state, including, but not restricted to, school districts, cities, villages, townships, charter townships, counties, charter counties, authorities created by the state, and authorities created by other units of local government."

⁶This is set forth in Const 1963, art 9, � 6.

⁷Also included are millages authorized by state law for a specific purpose. MCL 211.34d(10).