This paper was written by Bill Bowerman, Chief Analyst, General Government Unit, Senate Fiscal Agency. Word processing was provided by Pat Harper. Fred Hood, Senate Fiscal Agency Intern, developed spreadsheets that were used to generate projections of Court Equity Fund distributions. The Senate Fiscal Agency would like to thank the State Court Administrative Office and the Supreme Court Finance Department for their technical assistance.
PUBLIC ACTS 438 THROUGH 440 OF 1980
PUBLIC ACTS 374, 388, AND 524 OF 1996
Table 1: State General Fund Appropriations to the Court Equity Fund and Hold Harmless Fund
Table 2: FY 1998-99 Court Equity Fund Estimated Revenues and Distribution - Current Law Compared with House Bill 5668
APPENDIX
A
State Court Fund Allocations FY 1993-94
Through FY 1995-96
APPENDIX
B
House Bill 5668 Proposed Court Equity
Fund Distribution Compared with Weighted Caseload Distribution
APPENDIX
C
Court Equity and Hold Harmless Fund
Distributions
APPENDIX
D
House Bill 5668 FY 1998-99 Distributions
by County
APPENDIX
E
Third Class District Courts
The following information provides an overview of State funding for trial court (Circuit Court, former Recorder's Court, District Court and Probate Court) operations and an analysis of House Bill 5668 as passed by the House. State funding for judges' salaries, State funding to trial courts from driver license reinstatement fee revenue, funding for probation officers, and the allocation of funding for juror costs (FY 1994-95 and FY 1995-96) are not included in this overview. House Bill 5668 creates a new formula for distribution of the Court Equity Fund, eliminates the Hold Harmless Fund, and creates the Criminal Defense Coordinating Council. The bill was passed by the House on June 18, 1998, and was referred by the Senate to the Committee on Judiciary. The House-passed version of the fiscal year (FY) 1998-99 Judiciary Appropriation Bill (House Bill 5596) tie bars the appropriation bill to enactment of House Bill 5668.
Public Acts 438 through 440 of 1980
Prior to 1981 the trial courts of the
State were locally funded with the State funding a percentage of judges'
salaries(1). On September 1, 1981, the State
assumed partial funding for the Third Circuit Court (Wayne County), the
Detroit Recorder's Court, and a newly created 36th District Court (Detroit)
as the first phase of court reorganization pursuant to Public Act 438 of
1980. The effect of this first phase was to subsidize in part the Wayne
County Circuit Court, the Recorder's Court, and the 36th District Court.
From September 1981 through September 30, 1996, the State paid approximately
$300 million State General Fund and $14.2 million State Court Fund for
the operation of those courts, in addition to amounts paid for judges'
salaries statewide. Section 9947 of the 1980 legislation provided for a
six-year timetable for the State to fund trial court operational expenses
on a statewide basis. The section also provided that if the Legislature
did not appropriate sufficient funds to implement statewide funding, then
State funding for certain current court operations would terminate. Attorney
General Opinion No. 6125 of 1983 ruled that Section 9947 stated an intent
on the part of the Legislature to fund reorganization of trial courts and
that failure of the Legislature to appropriate sufficient funding to accomplish
statewide court reorganization does not compel the termination of funding
to other courts. In subsequent litigation on this issue, Grand Traverse
County et al. v State of Michigan et al.,
450 Mich 457 (1995), the Michigan Supreme Court also held that the Legislature
was not required to assume the funding of all trial courts.
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Public Act 189 of 1993 created a new
source of funding for court operations and other programs by restructuring
and increasing certain court fees. A major portion of the fee increase
was earmarked to a newly created State Court Fund. Revenue from the State
Court Fund was allocated for trial court operations, replacement of a portion
of General Fund revenue in State-funded trial courts, indigent civil legal
assistance, Court of Appeals backlog reduction (FY 1993-94 through FY 1996-97),
and State Court Administrative Office costs associated with oversight,
data collection, and court management assistance. State Court Fund allocations
to individual trial court funding units from FY 1993-94 through FY 1995-96
was pursuant to a formula based on the State's paying a percentage of defined
trial court expenditures offset by an equivalent percentage of local court
revenues and existing State funding for trial court operations (e.g., judges'
salaries and Friend of the Court funds). This formula resulted in the allocation
of funds to a limited number of court funding units. Appendix A
lists the distribution of State Court Fund revenue from FY 1993-94 through
FY 1995-96.
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Public Acts 374, 388, and 524 of 1996
In 1996 legislation was enacted to
provide for major restructuring of the court system (Public Acts 374, 388,
and 524 of 1996) and to provide equitable State funding of trial courts
on a statewide basis. Among other changes, Public Act 374 of 1996 created
a new formula for providing funding to all 83 counties through a new Court
Equity Fund. The Court Equity Fund consists of State Court Fund revenue
allocated for trial court operations, $2,200,000 of Court Fee Fund (excess
judges' retirement funds), a portion of the district court conviction fee,
and State General Fund revenue. A Hold Harmless Fund was also established
for FY 1996-97 through FY 2000-01 to phase in the impact of the 1996 legislation.
Under provisions of the 1996 legislation the State continues to provide
funding to former partially State-funded trial courts (Third Circuit Court,
former Recorder's Court, and 36th District Court) through the Court Equity
Fund and Hold Harmless Fund for Wayne County, and through the Hold Harmless
Fund for the City of Detroit and other third class district courts. While
the Hold Harmless Fund is sufficient to provide funding to counties until
Court Equity Fund distributions equal certain FY 1995-96 former State reimbursements
for trial court operations, the new distribution formula and declining
appropriations to the Hold Harmless Fund will eventually result in the
elimination of formula funding to certain third class district court funding
units (Detroit, Flint, Grand Rapids, and Pontiac). Third class district
courts are funded by cities and townships, not by counties, and therefore
do not receive funding from the Court Equity Fund.
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Beginning with FY 1996-97, State
reimbursement
for trial courts pursuant to Public Acts 374, 388, and 524 of 1996 is through
a formula based on case filings in circuit and probate courts and number
of judges. Under provisions of Public Act 374 of 1996, a Hold Harmless
Fund was to receive a State General Fund appropriation of $20,000,000 in
FY 1996-97, reduced by $4,000,000 annually in subsequent fiscal years until
it is completely phased out in FY 2001-02. Concurrently, the State General
Fund appropriation to the Court Equity Fund is to be increased until it
reaches a level of $41,796,400 in FY 2001-02. Table 1 details State
General Fund appropriations to the Court Equity Fund and Hold Harmless
Fund under current law.
Public Act 374 of 1996 contains criteria for determining allocations from the Hold Harmless Fund. If the amount payable exceeds the amount available in the Hold Harmless Fund, each recipient's share will be reduced on a pro rata basis. If amounts needed are less than the appropriation, the balance carries forward for Hold Harmless requirements in the next fiscal year. The criteria for distribution of the Hold Harmless Fund were revised by Public Acts 388 and 524 of 1996.
Based on projections, there would be sufficient funding in the Hold Harmless Fund to make statutory distributions under MCL 600.151b(3) and (4), and proration of funds would not be required. The interim trial court orders in Dennis W. Archer et al. v The State of Michigan et al. and Judicial Attorneys Association and Governmental Administrators Association v State of Michigan et al. disrupt the funding scheme set out in MCL 600.151b. The orders require the Plaintiff City of Detroit, Plaintiff Wayne County, and Defendant State of Michigan each to provide necessary funding for the same functions and activities of the 36th District Court and Recorder's Court, adjusted for revenues received, as it did prior to the enactment of Public Act 374 of 1996. If the State is required to maintain the FY 1995-96 State funding arrangement for the 36th District Court and the former Recorder's Court, by FY 1998-99 the Hold Harmless Fund will not be sufficient to fund the requirements of the interim trial court orders.
The Court of Appeals decision in the consolidated cases of Judicial Attorneys and Archer reversed the trial court and held that Public Act 374 of 1996 does not violate the Headlee Amendment. Plaintiffs have been granted leave to appeal by the Michigan Supreme Court. The Supreme Court will hear the cases during its fall 1998 term. Until the Supreme Court makes a final ruling the State is subject to the interim trial court orders.
House Bill 5668, as passed by the House, would amend the Revised Judicature Act to provide for the following changes:
House Bill 5668 would provide an additional $12 million in State General Fund dollars to Court Equity Fund distributions by eliminating the Hold Harmless Fund, effective October 1, 1998. Under current law, the State General Fund allocation to the Court Equity Fund will not reach the same level until FY 2001-02. Under the bill, distributions from the Court Equity Fund would be based on a weighted caseload recommended by the Trial Court Assessment Commission. However, the impact of the new formula is negated by a guaranteed level of funding and a 5% maximum increase based on FY 1997-98 distributions. The bill provides that court funding units would receive at a minimum the amount of Court Equity and Hold Harmless funding received in the preceding fiscal year adjusted by the United States Consumer Price Index (estimated at 1.5% for FY 1997-98) unless a pro rata reduction were required, and also would limit annual increases to 5%. The 5% limit would not be effective until FY 1999-2000 for district court funding units. After the new $500,000 allocation to the Office of Criminal Defense Coordination, the bill would allocate 87% of the Court Equity Fund to counties for circuit and probate court reimbursement and 13% to district court funding units.
Table 2 compares FY
1998-99 Court Equity Fund revenue sources and allocations under current
law and House Bill 5668.
Appendix B delineates how the proposed formula would affect distributions of the Court Equity Fund. It also shows the impact that floor (previous year payment adjusted for inflation) and ceiling (previous year payment plus 5%) would have on the weighted caseload formula. Seventy-seven counties would be limited by the 5% maximum under the distribution for circuit and probate court funding units, while four counties (Gladwin, Huron, Mackinac, and Wayne) would benefit from the minimum guarantee. Of the four counties affected by the minimum guarantee, Wayne County would benefit to the largest degree by receiving $6.3 million more than what a pure weighted caseload would allocate in FY 1998-99. However, this estimated allocation is approximately $133,937 less than the FY 1997-98 estimated Court Equity Fund and statutory Hold Harmless Fund allocation to Wayne County, and $1.2 million less than what Wayne County will receive in FY 2001-02 under current law. The weighted caseload formula becomes irrelevant due to the impact of the minimum and maximum limits contained in House Bill 5668. Proration of funds is necessary for circuit and probate distributions to counties based on current revenues and the proposed formula. This is due to the increased authorization for Court Equity Fund reimbursements in the FY 1997-98 Supplemental Appropriation Bill (Public Act 273 of 1998) and current revenue estimates. It is also necessary to prorate the distribution to district court funding units due to the formula requirements and available revenue. The minimum guarantee would affect two cities, Detroit and Pontiac. Under House Bill 5668, Detroit would receive approximately $2.8 million more than its pure weighted caseload distribution in FY 1998-99. However, that amount is $1.8 million less than its FY 1998-99 statutory Hold Harmless Fund payment. Pontiac would receive $109,880 more than its pure weighted caseload distribution, but $113,507 less than the statutory Hold Harmless Fund payment. The FY 1997-98 Year-To-Date column of Appendix B includes projected Court Equity Fund distributions based on increased spending authorization from the FY 1997-98 Supplemental Appropriation (Public Act 273 of 1998) limited by current revenue estimates, and FY 1997-98 statutory Hold Harmless payments for Allegan County, Wayne County, Detroit, Flint, Grand Rapids, and Pontiac. The Weighted Caseload column reflects what the distribution would be under House Bill 5668 without funding guarantees based on FY 1997-98 payments (floor and ceiling). The House Bill 5668 Distribution column lists projected funding based on the floor and ceiling and the resulting proration of funds. The pro rata reduction to counties totals $1,348,529 (2%) for circuit and probate court funding units and $4,852,939 (33%) for district court funding units(2). While Appendix B provides a comparison of weighted caseload distribution to House Bill 5668 distribution, this paper provides no qualitative statement as to the fairness of the weighted caseload distribution.
Appendix C compares the impact of the new formula with future distributions under current law. The first column in Appendix C shows the FY 1998-99 estimated distribution of the Court Equity Fund and Hold Harmless Fund. The second column shows the FY 1998-99 estimated distribution of the Court Equity Fund under House Bill 5668. This estimate is calculated using the FY 1997-98 Year-To-Date appropriation for the Court Equity Fund and statutory payments from the Hold Harmless Fund. Wayne County and the City of Detroit are receiving payments from the Hold Harmless Fund based on interim court orders which are not used for the purposes of this analysis. Column 3 estimates payments under current law in FY 2001-02 when the Hold Harmless Fund will be eliminated. The FY 2001-02 estimate is based on no growth in restricted revenues and no increase in the State General Fund allocation, other than additional General Fund support required by statute due to elimination of the Hold Harmless Fund.
In order to show the total
impact of House Bill 5668 on a county basis, Appendix
D consolidates distributions to district court funding units
with allocations to counties for circuit and probate court distributions.
The first column reflects the estimated total allocation to court funding
units within each county under House Bill 5668. The change to current law
distributions for FY 1997-98, FY 1998-99, and FY 2001-02 follow. The FY
2001-02 projection is relevant because under current law, the Hold Harmless
Fund is completely phased out by that year, resulting in a total General
Fund allocation to the Court Equity Fund of $41,796,400. This results in
a comparison using the same amount of revenue for the current law distribution
and the House Bill 5668 distribution. The House Bill 5668 distribution
has $500,000 less to distribute to court funding units due to the amount
earmarked for the proposed Office of Criminal Defense Coordination. Amounts
within that total for third class district courts would be paid to cities
and townships within the county. Counties are the funding units for first
and second class district courts. Appendix E
lists third class district courts. Counties with third class district courts
include Genesee, Kalamazoo, Kent, Ingham, Macomb, Oakland, Washtenaw, and
Wayne.
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Since 1981, State reimbursement for trial court operations in the State judiciary budget has evolved from partially funding three courts in Wayne County and making statewide payments for judges' salaries to the current allocation of funds pursuant to 1996 legislation. The Trial Court Assessment Commission developed a weighted caseload funding formula pursuant to Public Act 374 of 1996. The Commission's report to the Legislature states:
State reimbursement for trial
court operations and the appropriate distribution to court funding units
has been a continuing issue for the Legislature for almost 20 years. However,
until lawsuits involving Headlee claims on court funding by Wayne County
and the City of Detroit are resolved, the State will not know if court
rulings will restrict the ability to implement a new formula.
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2. There is a question as to whether the minimum guarantee would apply twice to district court funding units that are also the funding units for circuit and probate courts. This analysis is not based on that possible interpretation. That interpretation would result in a substantial change in the allocation of funding to district court funding units. Third class district court allocations would be reduced and county funded district courts would increase.