Christina Hall

Detroit Free Press

Eastpointe City Manager Steve Duchane says local governments in Michigan have been doing a lot of reacting to revenue sharing cuts through the years, slashing services and programs because they have been receiving fewer state funds.

But now, more than a dozen of those local governments — most in metro Detroit — are taking action, joining a nonprofit group that on Wednesday filed a civil lawsuit against the state for overstating various payments to local governments and causing a more than $1-billion shortfall to municipalities.

Taxpayers for Michigan Constitutional Government, Duchane and two other Eastpointe employees filed the lawsuit against the state, the state’s Department of Technology Management and Budget and the Michigan Office of the Auditor General in the Michigan Court of Appeals. The state has until Sept. 28 to file a response, according to the online court docket.

►Related: Economy improved, but Michigan cities still in crisis

►Database: See what Michigan shares with its cities

Kurt Weiss, spokesman for the state budget office, released a statement Thursday related to the lawsuit.

“The Office of Financial Management within the State Budget Office works hard each year to properly identify expenditures to determine the amount of state spending that goes to the aid of local governments,” it states. “Those expenditures are in turn submitted to the Office of Auditor General for validation to ensure the calculations are accurate. This is a methodology that has been applied consistently since the passage of Proposal A. The State Budget Office will take time to further review the complaint, but it’s important to note that these calculations have been consistently applied over time.”

But the group disagrees and says the state is violating the Michigan Constitution by overstating spending that is paid to local governments and engaging in an “illegal tax shift.” The complaint states that Michigan is including payments from Proposal A revenue and payments to charter schools, county road commissions and others from the trunk line roads fund and payments to cover the costs of state mandates in its calculations of spending in the form of aid that is paid to local governments.

“When these items are subtracted, state spending in the form of aid that is paid to local governments falls significantly below 48.97% of total state spending,” violating the constitution, according to the complaint.

►Related:House passes $38.8B budget for state government

The group is asking, among other things, that these items be removed from the funding formula for aid paid to local governments. It is also asking that the court order the state to make up the funding shortages.

On its website, the group claims that the loss of billions of dollars in funding has forced local governments to make significant cuts to services and programs to stay solvent.

“State spending continues without control and the locals have paid the price,” said Duchane, the group’s treasurer.

The group was founded by Duchane and its president, John Mogk, a professor at Wayne State University School of Law.

According to its website, its members include the cities of Center Line, Eastpointe, Mt. Clemens, New Baltimore, Richmond, Roseville, Utica and Warren and Clinton Township in Macomb County; Hazel Park in Oakland County; Harper Woods, Southgate and Grosse Pointe Woods in Wayne County; Grosse Pointe Shores, which straddles Wayne and Macomb counties, the city of Auburn in Bay County, the Sugar Law Center for Economic and Social Justice in Detroit, and Wayne City Councilman Tom Porter.

Duchane said other communities may be joining the group, whose attorneys are John Philo, executive and legal director of the Sugar Law Center; Tracy Peters, who specializes in education and the rights of students and parents, and Robert Sedlar, a constitutional law and legal conflict professor at Wayne State University School of Law.

Duchane said he doesn’t know where the money local governments are supposed to be getting is going, but “I can tell you where our money goes.”

For example, he said, if the state would have done revenue sharing like the group believes it should have, Eastpointe would have had $13.6 million accumulated from 2002 to the present. That kind of money, Duchane said, would have meant that officials would not have had to raise taxes.

Many Michigan communities have said they were brought to their knees financially by a combination of events, including the Great Recession, the mortgage market meltdown that dramatically cut real estate values, the state's elimination of the personal property tax on businesses and continued cuts in state revenue sharing. Working their way back has been difficult because of the limits on property tax growth imposed by Proposal A and the Headlee Amendment.

Eastpointe and Hazel Park formed a unique taxing authority for 20 years to raise funds for police and fire services in their cities. The city of Wayne tried to join that authority, but voters in that city and Eastpointe shot it down in the Aug. 2 election. Now, the city of Wayne — facing insolvency in December 2017 — has asked the state for an emergency financial review and could be facing a state-appointed emergency manager.

Wayne Mayor Susan Rowe told the Free Press late last month that city officials were to meet with the state treasurer in Lansing at the end of September to discuss finances that communities, in general, are struggling with. She also said she was working with a state senator to tweak two public acts that could help communities financially.

"We're just the tip of the iceberg," Rowe said last month. "We're not the only city in this (financial) situation. It'll be happening to communities around us soon. We don't have an expense problem. We have a revenue problem."

Contact Christina Hall: chall99@freepress.com. Follow her on Twitter: @challreporter.