Adair v. State

• Decision Date: 22 August 2013
• Docket Number: Docket No. 302142.
• Parties: ADAIR v. State of MICHIGAN.
• Court: Court of Appeal of Michigan — District of US

302 Mich.App. 305

839 N.W.2d 681

ADAIR

v.State of MICHIGAN.

Docket No. 302142.

Court of Appeals of Michigan.

Submitted July 25, 2013, at Lansing.

Decided Aug. 22, 2013, at 9:00 a.m.

Secrest Wardle (by Dennis R. Pollard, Troy and Mark A. Roberts, Southfield) for plaintiffs.

Bill Schuette, Attorney General, John J. Bursch, Solicitor General, Matthew Schneider, Chief Legal Counsel, and Timothy J. Haynes and Jonathan S. Ludwig, Assistant Attorneys General, for defendants.

Before: O'CONNELL, P.J., and TALBOT and OWENS, JJ.

PER CURIAM.

This original taxpayer action is brought pursuant to the provisions of the Headlee Amendment, Const. 1963, art. 9, §§ 25 through 34. The action addresses the parameters of the state's funding obligations under the second sentence of § 29 of the amendment—commonly referred to as the “ prohibition of unfunded mandates” or POUM provision—and Proposal A, Const. 1963, art. 9, § 11. Our Supreme Court held that the state violated the POUM provision when it required plaintiff school districts to collect, maintain, and report to the Center for Educational Performance and Information (CEPI) certain types of data for use by the state, without providing funds to reimburse the school districts for the necessary increased costs they would incur in order to comply with those recordkeeping mandates. Adair v. Michigan, 486 Mich. 468, 494, 785 N.W.2d 119 (2010)( Adair I ). Thereafter, our Legislature appropriated $25,624,500 to reimburse plaintiff school districts for the compliance costs incurred during the 2010–2011 school year. The Legislature increased the appropriation to $34,064,500 for the 2011–2012 school year, which also included an allocation of $8,440,000 to reimburse the school districts for the costs of complying with the new CEPI mandate to report student performance data to the Teacher Student Data Link. Plaintiffs, who are 465 school districts and a representative taxpayer from each district, now challenge the constitutionality of the method by which the Legislature funded these appropriations. They also challenge the adequacy of the amount of each appropriation. Finally, plaintiffs allege that the Legislature violated the POUM provision by imposing new or an increased level of activities on the districts through amendments to several provisions of the Revised School Code, MCL 380.1 et seq., the teacher tenure act, MCL 38.71 et seq., and the public employment relations act (PERA), MCL 423.201 et seq., without appropriating any funding to reimburse the school districts for the necessary costs associated with satisfying the new mandates. We referred this matter to a special master, who made a series of advisory rulings that ultimately resulted in the entry of a directed verdict in favor of the state.

We adopt the findings of fact and conclusions of law of the special master, with the exception of the special master's characterization of plaintiffs' burden of proof. Accordingly, we enter a declaratory judgment, in part, in favor of the state, but also remand this matter to the special master to take additional proofs and conduct further fact-finding. The motion to expedite is denied as moot. We decide this case without oral argument pursuant to MCR 7.214(E).

I

The special master convened an evidentiary hearing, the subject of which was plaintiffs' claim that the existing appropriations do not fully fund the necessary costs of the CEPI mandates as the POUM provision requires. Plaintiffs' lead counsel asserted during his opening statement that, in order to sustain this claim, plaintiffs must show only that the amounts appropriated for the two fiscal years “are inadequate,” that is, that they do not represent full state financing as required by §§ 25 and 29 of article 9.¹ Counsel explained that plaintiffs would carry this burden by presentingexpert testimony that would show that the method employed by the Legislature to determine the amount of the challenged appropriations was flawed and that the use of this flawed method resulted in a level of appropriation that was “grossly below” the amount of funding needed to reimburse the cost of all the activities associated with the collection, maintenance, and reporting of the data. Counsel rejected the proposition that plaintiffs were required to establish the exact amount of the alleged underfunding and candidly admitted that plaintiffs could not do so. Immediately following this opening statement, the state sought a directed verdict in its favor. According to the state, plaintiffs bore the burden of showing the specific dollar amount of the alleged underfunding of the state's POUM funding obligation. Because plaintiffs admitted that they could not do so, plaintiffs could not sustain their challenge to the adequacy of the appropriations, and the state was entitled to a directed verdict. The special master agreed and directed a verdict for the state. We conclude that the special master held plaintiffs to a higher standard of proof than required by Adair I and, therefore, that the special master erroneously directed a verdict in favor of the state.

Our Supreme Court granted leave in Adair I, in part, to determine “whether plaintiffs must introduce evidence of a specific, quantified increase in costs resulting from a violation of the Headlee Amendment provision prohibiting unfunded mandates to establish entitlement to a declaratory judgment” when the plaintiffs had alleged that the state had failed to appropriate any funding to reimburse the school districts for complying with the CEPI recordkeeping mandates. Adair I, 486 Mich. at 472, 785 N.W.2d 119. The majority answered this question in the negative. According to the majority,

to establish a violation of the POUM provision, a plaintiff must show that the state required a new activity or service or an increase in the level of activities or services. If no state appropriation was made to cover the increased burden on local government, the plaintiff need not show the amount of increased costs. It is then the state's burden to demonstrate that no state funding was required because the requirement did not actually increase costs or the increased costs were not necessary. [Id. at 480, 785 N.W.2d 119.]

The majority rejected the state's claim that it was the school districts' burden, and not its burden, to demonstrate that any additional costs incurred in order to comply with the recordkeeping mandates met the definition of “necessary cost” under MCL 21.233(6) and were not de minimis under MCL 21.232(4). The majority explained:

Neither Const. 1963, art. 9, § 29 nor MCL 21.233 suggests that plaintiffs bear the burden of proving precisely how much the school districts' costs increased as a result of the mandate. In fact, the language of MCL 21.233 implies the opposite. That section defines “necessary cost” as the “net cost of an activity or service provided by a local unit of government.” The “net cost” is defined as “the actual cost to the state if the state were to provide the activity or service mandated as a state requirement....” [Adair I, 486 Mich. at 486–487, 785 N.W.2d 119.]

Likewise, the majority rejected the state's argument that the school districts were required to produce evidence of specific dollar-amount increases in the costs incurred by the districts in order to comply with the CEPI mandates. The majority indicated that the conclusion that “a plaintiff does not have the burden to make such a showing to establish entitlement to a declaratory judgment under the POUM provision ... is axiomatic from the language of Const. 1963, art. 9, § 29, previous caselaw involving the Headlee Amendment, and the underlying purpose for seeking a declaratory judgment.” Adair I, 486 Mich. at 488, 785 N.W.2d 119. The majority elaborated:

The terms “net cost” and “actual cost” suggest a quantifiable dollar amount. However, nothing in MCL 21.233 suggests that it was intended to change the burden of proof in Const. 1963, art. 9, § 29. The specific costs that would be incurred are defined by reference to what costs the state would incur if it had to pay for the increased costs itself. Thus, it is the Legislature's burden to demonstrate that those costs were not “necessary” under one or more of the exceptions in MCL 21.233(6)(a) to (d). Otherwise, the Legislature must determine what dollar amount is necessary, then appropriate that amount to the school districts.

This is so because MCL 21.233(6) defines “net cost” as “the actual cost to the state” if the state were to provide the activity or service required. Clearly, the Legislature is in a position far superior to plaintiffs' to determine what the actual cost to itself would be if it performed the increased recordkeeping and reporting duties. Proofs on this point are easily accessible to the state because it could ascertain the costs it would incur if it provided the new activity. The dispositive issue is the cost to the state if it were to provide the new or increased activity or service, not the cost incurred by the local governmental unit.

To impose such a requirement on plaintiffs would be illogical and inconsistent with the purposes of the POUM provision of the Headlee Amendment. We have noted that the POUM provision is intended to address future services and activities. Plaintiffs in this case filed suit fewer than two months after EO 2000–9 took effect. The parties stipulated at trial that plaintiff school districts were not required to begin complying with the order's recordkeeping requirements until two years later.

Therefore, had this case been resolved in a timely fashion, EO 2000–9 would not have required plaintiffs to demonstrate specific amounts of necessary costs incurred. Moreover, it would have been difficult for them to do so....

Finally, plaintiffs in this case seek a declaratory judgment, not monetary damages. An action for a declaratory judgment is typically equitable in nature and subject to different rules than other causes...