Advisory Opinion on Constitutionality of Act No. 346 of Public Acts of 1966, In re, 11

• Court: Michigan Supreme Court
• Writing for the Court: BRENNAN; DETHMERS, C. J., and KELLY, BLACK and O'HARA, JJ., concurred with BRENNAN; ADAMS; KAVANAGH, J., concurred with ADAMS; SOURIS
• Citation: Advisory Opinion on Constitutionality of Act No. 346 of Public Acts of 1966, In re, 158 N.W.2d 416, 380 Mich. 554 (Mich. 1967)
• Decision Date: 01 January 1967
• Docket Number: No. 11,11
• Parties: In the Matter of the Request of the Governor for an ADVISORY OPINION ON the CONSTITUTIONALITY OF ACT NO. 346 OF the PUBLIC ACTS OF 1966. ,

Page 416

158 N.W.2d 416

380 Mich. 554

In the Matter of the Request of the Governor for an ADVISORY OPINION ON the CONSTITUTIONALITY OF ACT NO. 346 OF the PUBLIC ACTS OF 1966.

No. 11, Jan. Term, 1967.

Supreme Court of Michigan.

May 6, 1968.

Frank J. Kelley, Atty. Gen., Robert A. Derengoski, Sol. Gen., Maxine Boord Virtue, Curtis G. Beck, Asst. Attys. Gen., Lansing, on the brief of the Attorney General.

Michael Domonkos, Detroit, Atty., Urban Law Program, Patrick E. Kowaleski and Michael C. Moran, Student Staff Assts. (Mich.Gen.Ct. Rule 921), Urban Law Program, Urban Law Program of The University of Detroit, School of Law, Detroit, on the brief of amicus curiae of the Urban Law Program.

Before the Entire Bench.

BRENNAN, Justice.

On January 4, 1967, this Court received the following request for an advisory opinion:

'Now comes George Romney, Governor of the State of Michigan, and invokes the jurisdiction of this Court under the provisions of Article III, Section 8, Constitution of 1963. In support of this request the Governor shows unto the Court the following:

'1. That on October 28, 1966, Enrolled House Bill No. 3898, having been duly enacted by the Legislature, was signed by me into law and became Act No. 346 of the Public Acts of 1966.

'2. That said Act No. 346 was not given immediate effect by the Legislature, is not presently effective, and will not become effective until March 10, 1967.

'3. That said Act No. 346 has as its general purpose the providing of low cost housing, and the creation of a State Housing Development Authority which is the vehicle for accomplishing this purpose. (Attached hereto for the information and convenience of the Court is a copy of Public Act No. 346) The Act contemplates that the Authority would borrow money and make loans to associations for the purpose of providing financing for the construction of low cost housing; that bonds issued by the Authority would pledge for their payment the moneys received from the repayment of the loans to the Authority by the associations; that a capital reserve fund is established which includes the borrowed money and state appropriations.

'4. That Article IX, Section 18 of the Constitution of 1963 prohibits the state from granting its credit to any person, association or corporation, public or private. Thus, a question arises as to whether Public Act 346 lends the credit of the state so as to violate the provisions of Article IX, Section 18 of the Constitution of 1963.

'6. ¹ That Public Act 346 allows the Legislature to appropriate funds to the capital reserve fund, which would be used to pay principal and interest on the bonds, and a question arises as to whether this is such a borrowing by the state which would require a two-thirds vote of the Legislature and approval by the electors as provided in Article IX, Section 15, of the Constitution of 1963.

'7. That the questions involved are of great statewide importance and solemn concern to the people of the State of Michigan, and serious questions have arisen relative to the constitutionality of Public Act 346.

'WHEREFORE, and pursuant to the above-cited provisions of the Constitution of 1963, I, George Romney, Governor of the State of Michigan, request the Supreme Court of this state to render its opinion as to the constitutionality of Act No. 346, Public Acts of 1966.

'Respectfully submitted,

/s/ George Romney

George Romney

GOVERNOR

January 3, 1967.'

I. DESCRIPTION OF THE ACT

P.A.1966, No. 346, was adopted by the legislature and approved by the governor on October 28, 1966. It is an act to create a state housing authority, to define the powers and duties of the authority, to establish a housing development revolving fund and a capital reserve fund, to authorize loans to qualified nonprofit sponsors and municipalities, to provide tax exemptions and to authorize payments in lieu of taxes by nonprofit housing corporations.

The act declares that there is a seriously inadequate supply of safe and sanitary dwelling accommodations within the financial means of low income or moderate income families. It declares that the construction of such housing is a valid public purpose and declares further that the authority and powers conferred by the act to be known as the state housing development authority act of 1966 constitute a necessary program and serve a valid public purpose.

The act creates the state housing development authority which is declared to be a body politic and corporate. It gives the authority general corporate powers, including the power to borrow and to loan money, to hold and convey real estate, to sue and be sued, and to do all other things necessary for the accomplishment of the purposes of the act.

II. THE BORROWING POWER OF THE STATE OF MICHIGAN

In considering the constitutionality of Act No. 346, it is well at the outset to have in mind the limited power of the State of Michigan to borrow money. The State of Michigan is not authorized generally to borrow. Article 9, § 12, of the Constitution of 1963, says,

'No evidence of state indebtedness shall be issued except for debts authorized pursuant to this constitution.'

The prohibition is clear and unequivocal. The State is without authority to borrow money except as constitutionally granted.

The Constitution of 1963 discloses only four specific instances in which the State is constitutionally permitted to borrow:

A. Short term borrowing to meet current appropriations. ²

B. Long term borrowing adopted by two-thirds of the legislature, and approved by the electorate. ³

C. For the making of loans to school districts. ⁴

D. To retire Mackinac Bridge bonds. ⁵

The framers of the 1963 Constitution created a pay-as-you-go government for the State of Michigan. In furtherance of that scheme, the State of Michigan is specifically prohibited from becoming a guarantor or surety for anyone. It would be an obviously useless thing for the Constitution to prohibit the State from borrowing money and then permit the State to incur liabilities by becoming party to the borrowing of others. Thus, article 9, § 18, of the Constitution provides:

'The credit of the state shall not be granted to, nor in aid of any person, association or corporation, public or private, except as authorized in this constitution.'

The purpose of this provision is to make certain that the State, which itself cannot borrow, except as authorized, does not accumulate unauthorized debts by indorsing or guaranteeing the obligations of others.

III. THE BORROWING POWER OF STATE AUTHORITIES AND PUBLIC CORPORATIONS

While the State of Michigan has no authority to borrow money except as specifically authorized in the Constitution, this is not true of public bodies corporate. Article 9, § 13, of the Constitution of 1963, provides:

'Public bodies corporate shall have power to borrow money and to issue their securities evidencing debt, subject to this constitution and law.'

Public corporations, unlike the State, have general power to borrow money Except as prohibited by the Constitution and by the statutes.

Nothing in section 13 refers to the purposes for which public bodies corporate may borrow money. Nor does the Constitution expressly limit the purposes for which public bodies corporate may spend money, which they obtain either by process of borrowing or by gift, appropriation or profit-making.

Article 7, § 21, of the Constitution of 1963, specifically provides that cities and villages may levy taxes only for public purposes. When attempting to assess the validity of borrowing by public corporations, other than cities and villages, however, no such constitutional guidelines are to be found. The validity of any borrowing by public corporations must be measured by the corporate purposes of the public body corporate itself, as contained in its charter or in the act of the legislature establishing the public body corporate. If a public body corporate has been validly and constitutionally created by the legislature, its borrowing and spending, insofar as any test of purpose is concerned, will be held to be valid whenever they are properly related to its corporate purposes.

This is not to say that the test of public purpose is irrelevant in this case. The existence of a public purpose is important here in three different respects, and will be dealt with later in this Opinion.

IV. BORROWING BY THE STATE HOUSING AUTHORITY

Before passing to a discussion of public purpose, we must resolve the question of whether Act 346 does in fact involve an unconstitutional grant of the credit of the State of Michigan to the authority contrary to § 18, art. 9, of the 1963 Constitution.

As has been often held by our Court, revenue bonds and self-liquidating bonds do not constitute the obligations of the State of Michigan. A reading of Act 346 indicates that great care has been taken in the drafting of the act of bring it within this general scheme. Section 25(3) of the act provides:

'Except as may otherwise be expressly provided by the authority, every issue of its notes or bonds shall be general obligations of the authority payable out of any revenues or moneys of the authority, * * *.'

Section 31 of the act specifically provides:

'The state shall not be liable on notes or bonds of the authority and such notes and bonds shall not be a debt of the state. The notes and bonds shall contain on the face thereof a statement to such effect.'

While section 32(4) of the act provides that the authority shall certify to the governor the amount necessary to restore the capital reserve fund of the authority to an amount equal to the maximum amount of principal and interest maturing and becoming due in any succeeding calendar year on bonds then outstanding, the appropriations contemplated thereby are Permissive only. The State does not assume any obligation to appropriate moneys necessary to pay the bonds.

Further, section 41 of the act provides that the authority from time to time at its...