Advisory Opinion Constitutionality of P. A. 1 and 2, In re, 17
| Decision Date | 17 October 1973 |
| Docket Number | No. 17,17 |
| Citation | 211 N.W.2d 28,390 Mich. 166 |
| Parties | In re ADVISORY OPINION re CONSTITUTIONALITY OF P.A. 1 AND 2. |
| Court | Michigan Supreme Court |
Frank J. Kelley, Atty. Gen., Robert A. Derengoski, Sol. Gen., Eugene Krasicky,
Gerald F. Young, Asst. Attys. Gen., Lansing, on brief of the Attorney General in Support of the constitutionality of 1973 P.A. 2 and 1973 P.A. 1.
BEFORE THE ENTIRE BENCH.
In response to the requests of the Senate of the State of Michigan, made in accordance with Const.1963, art. 3 § 8, requesing the opinion of the Supreme Court as to the constitutionality of 1973 P.A. 1 and 1973 P.A. 2, on April 16, 1973 we issued the following order:
'On order of the Court, the requests of the Senate of the State of Michigan made pursuant to section 8, article 3 of the Michigan Constitution of 1963 to render opinions on the following questions of law:
In compliance with our order, the Attorney General filed briefs and presented argument for and against the constitutionality of the legislation.
Both sides agree and it was conceded in argument that §§ 14, 15 and 18 of art. 9 were not applicable to the bond issues contemplated in the subject legislation, but it was argued and briefed by the opponents of constitutionality that these sections did not exhaust the possibilities of constitutional infirmity. It was urged that § 12 of art. 9 must also be considered in order to determine the constitutionality of the legislation.
We agree, for we are convinced, in light of the language of sec. 2 of each of the acts '. . . the legislature requests the opinion of the supreme court as to the constitutionality of this act.', that the intent of the request was to encompass all of the sections of art. 9 bearing on the constitutional question. Accordingly we include § 12 in our consideration.
We do so also because we judicially notice that steps have already been taken to effectuate the financing plan intended by the legislation. The State has loaned the School District of Detroit $30,000,000 pursuant to the first operative paragraph of 1973 P.A. 2 (M.C.L.A. § 388.1238; M.S.A. § 15.1919(638)), that paragraph requires We are further advised that the proposed issue of State notes of up to $75,000,000 cannot be sold until this Court renders an advisory opinion. If we advise the Senate that the State may not borrow money in accordance with the plan, some other plan must be promptly developed to accomplish the object sought by this legislation.
repayment of the money within 180 days. The acts contemplate the sale of State notes in an amount sufficient to reimburse the treasury not only for that $30,000,000 but also to permit an additional loan of up to $45,000,000 to cover the full deficit of the Detroit school district, which has been determined to be $73,000,000 as of June 30, 1973.
Article 9 of the Constitution of 1963 treats of finance and taxation. It makes specific provision for state borrowing (Sections 14, 15, 16) and proscribes the issuance of any evidence of state indebtedness except for debts authorized pursuant to the Constitution (Section 12). It also forbids the granting of the credit of the state except as authorized in the Constitution (Section 18).
Section 14 authorizes short term borrowing to meet obligations incurred pursuant to appropriations for any fiscal year and the issuance of the state's full faith and credit notes pledging undedicated revenues to be received during the same fiscal year. This short term borrowing power is limited to 15% Of the undedicated revenues and the debt must be repaid as the revenues are received but no later than the end of the fiscal year.
Section 15 authorizes long term borrowing for specific purposes but the purpose, amount, and method of repayment of the debt must be submitted to and approved by the electors.
Section 16 authorizes borrowing for the purpose of making loans to school districts for funding capital expenditures. It contemplates the issuance of state notes or bonds pledging its full faith and credit and also the issuance of school district bonds for repayment of the loan according to the provisions therefor specified by the legislature. In this connection it is noteworthy that the power to tax for the repayment of principal and interest on such bonds is expressly without limitation as to rate or amount.
Manifestly the financing plan provided for in P.A. 1 & 2 of 1973 is not one authorized by secs. 14 or 15, and because it is not for funding capital expenditures but operating deficits, is not authorized by sec. 16.
Accordingly then we must determine whether the plan for state borrowing to establish the loan fund creates a 'debt' of the state, for if not sec. 12's injunction would have no application and--unless the plan be deemed to provide a grant of state credit--would not be barred by sec. 18.
In essence the plan provides:
(1) The State Treasurer will borrow up to $75,000,000 to create a fund to loan to school districts having an operating or projected operating deficit in excess of $100 per pupil. (The Detroit deficit exceeds $250 per pupil.) 1973 P.A. 2 provides that the State notes 'shall not be a general obligation of the state, shall not pledge the full faith and credit of the state and shall not be an indebtedness of the state within the meaning of any constitutional limitation on state indebtedness, but shall be payable solely and only from the payments of principal and interest on the loans made by the state treasurer to a district or districts as provided in this section.' M.C.L.A. § 388.1239; M.S.A. § 15.1919(639),
(2) The State notes are to mature serially with annual maturities in not more than 10 years. The notes of the school district to the State are to have corresponding maturities and pledge for their payment 'any funds of the district legally available therefor,' including a newly-levied income tax of not exceeding 1% Or a newly-levied ad valorem tax of not more than 2.25 mills (the power to levy such taxes being provided in 1973 P.A. 1), and as secondary security future 'State aid moneys and any other funds of the district legally available therefor.' M.C.L.A. § 388.1239(6), § 340.681(4); M.S.A. § 15.1919(639)(6), § 15.3681(4).
(3) The school district must authorize the State Treasurer, and in the event of default the Treasurer is required, to deduct from the next State school aid payment of the district an amount equal to the amount in default. M.C.L.A. § 388.1239(7); M.S.A. § 15.1919(639)(7).
OPINION REGARDING BORROWING BY THE STATEThe idea that some borrowed money is not a debt comes from cases approving the funding of 'self-liquidating public works' through 'revenue bonds.'
The history and theory of the 'revenue bond' exception is set forth in detail in Young v. Ann Arbor, 267 Mich. 241, 255 N.W. 579 (1934), and reaffirmed and extended in Attorney General ex rel. Eaves v. State Bridge Commission, 277 Mich. 373, 269 N.W. 388 (1936).
This latter case was followed and expanded in State Highway Commission v. Detroit Controller, 331 Mich. 337, 49 N.W.2d 318 (1963), where the 'revenue bond' concept was applied to 'analogous' bonds which looked for repayment only to the highway fund made up of vehicular 'privilege' taxes levied on users of highways built with proceeds of the bonds.
Thus, the concept of 'special obligation' bonds payable out of taxes levied for the privilege of use came to be recognized as another exception to the constitutional limitation on the incurement of State indebtedness and, whatever the logic of it, we are committed to its acceptance, since the people, presumably aware of the exception, did not eliminate it in the 1963 Constitution. See Schreman v. State Highway Commission, 377 Mich. 609, 141 N.W.2d 62 (1966).
The plan proposed by the acts now before us does not comprehend repayment of the loan from revenue derived from the operation of a facility. These are not 'revenue...
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