Request for Advisory Opinion on Constitutionality of 1986 PA 281, In re

Decision Date22 March 1988
Docket NumberDocket No. 80210
Citation422 N.W.2d 186,430 Mich. 93
PartiesIn re REQUEST FOR ADVISORY OPINION ON CONSTITUTIONALITY OF 1986 PA 281. 430 Mich. 93, 422 N.W.2d 186
CourtMichigan Supreme Court

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., James L. Stropkai, Chester W. Lewis, Thomas F. Schimpf, Asst. Attys. Gen., Appellate Div., Lansing, for Atty. Gen. in support of Constitutionality of 1986 PA 281.

Richard R. Roesch, Asst. Atty. Gen., Revenue Div., Lansing, for Atty. Gen. in opposition to Constitutionality.

Patterson, Phifer & Phillips, P.C. by Kurt D. Meyer, Detroit, for amicus curiae Annis Historic Properties, a Michigan Ltd. Partnership.

Lewis, White & Clay, P.C., David Baker Lewis, Reuben A. Munday, Tina M. Pompey, Detroit, for amici curiae City of Detroit Downtown Development Authority, Tax Increment Finance Authority and The Economic Development Corp.

J. David Reck, Reck, Reck & Erwin P.C., Howell, for amicus curiae City of Howell. Dickinson, Wright, Moon, Van Dusen & Freeman by Judson M. Werbelow, John A. Everhardus, Kester K. So, Lansing, for amici curiae Tax Increment Finance Authority of City of Lansing, Local Development Finance Authority of Auburn Hills, Tax Increment Finance Authority of City of Pontiac, Downtown Development Authority of City of St. Ignace, Local Development Finance Authority of City of Marysville, Lakeview Downtown Development Authority and Michigan Municipal League.

Honigman, Miller, Schwartz & Cohn by Norman Hyman, William G. Christopher, Mitchell R. Meisner, E. Powell Miller, Detroit, for City of St. Clair Shores and Tax Increment Finance Authority of City of St. Clair Shores.

Mika, Meyers, Beckett & Jones by James K. White, Ronald J. Clark, and Dale A. Mattis, Grand Rapids, for Gaines Tp. and the Local Development Financing Authority.

Larry A. Salstrom, Cohl, Salstrom, Stoker & Aseltyne, P.C., Lansing, for amicus curiae Livingston County.

Dennis O. Cawthorne, James G. Cavanagh, Fitzgerald, Hodgman, Cox, Cawthorne & McMahon, Lansing, for amicus curiae Michigan Ass'n of Counties.

Clark, Hardy, Lewis, Pollard and Page, P.C., Dennis R. Pollard, Birmingham, for amici curiae Michigan Ass'n of School Administrators, Michigan Community College Ass'n, Michigan Federation of Teachers, Michigan Out-Of-Formula District Ass'n, Middle Cities Ass'n, Michigan Federation AFSA Locals, AFL-CIO, School Dist. of the City of Pontiac, Avondale School Dist.

Linda L. Bruin, Lansing, for amicus curiae Michigan Assn. of School Boards.

Foster, Swift, Collins & Coey, P.C., Stephen O. Schultz, Matthew F. Pausch, Lansing, for Michigan Educ. Ass'n.

Bauckham, Reed, Lang, Sparks, Rolfe & Thomsen, P.C. by Richard D. Reed, James W. Porter, Kalamazoo, for amicus curiae Michigan Townships Ass'n.

BRICKLEY, Justice.

Pursuant to Const.1963, art. 3, Sec. 8, 1 the Governor, by way of a letter dated January 28, 1987, and the Senate, by way of Senate Resolution No. 30 of January 28, 1987, have requested an advisory opinion on two particular questions regarding the constitutionality of certain provisions of 1986 P.A. 281, M.C.L. Sec. 125.2151 et seq.; M.S.A. Sec. 3.540(351) et seq. That act, entitled the Local Development Financing Act (LDFA), was signed by the Governor on December 20, 1986, with an effective date of February 1, 1987.

The questions presented are:

"1. Do[ ] the capture of revenues by a local development finance authority (formerly 'tax increment financing authority') and use of such revenues by the authority for purposes authorized by the act unconstitutionally divert tax revenues from taxing entities in violation of the Const.1963, art. 9, Sec. 6?

"2. Do[ ] the capture of revenues by a local development finance authority (formerly 'tax increment financing authority') and use of such revenues by the authority for purposes authorized in the act unconstitutionally lend the credit of the state or a municipality in violation of Const.1963, art. 9, Sec. 18 or art. 7, Sec. 26?"

By order of March 4, 1987, we agreed to consider the requests for an advisory opinion and asked the Attorney General to brief both sides of the questions. Other interested parties were also invited to file briefs amicus curiae. The order further indicated that this Court would decide after oral argument whether to grant the requests.

In light of the specificity of the issues, 2 and the fact that resolution of these narrow but important 3 questions of law does not depend upon "factual situations the Court would be forced to hypothesize," 4 we agree to consider the questions presented. We conclude that the provisions of LDFA that allow the capture and use of tax increment revenues do not violate Const.1963, art. 9, Sec. 6. In addition, application of the same provisions does not on its face constitute an unconstitutional lending of credit in violation of Const.1963, art. 9, Sec. 18, or art. 7, Sec. 26.

However, in addition to the more obvious fact that our decision is not based on the policy merits of tax increment financing, we caution that the instant holdings are limited. The particular facts of a future litigation case, or questions premised upon other constitutional provisions or questions of statutory construction not presented in the request for advisory opinion, may present different problems that are not addressed here.

I

The Legislature enacted the LDFA "to encourage local development to prevent conditions of unemployment and promote economic growth...." Preamble to 1986 P.A. 281. It authorized the creation of local development finance authorities to carry out government programs that further the purposes of the act, and it grants to them certain powers.

Tax increment financing is one of the authorized means of financing these programs, see M.C.L. Sec. 125.2160(c), (d); M.S.A. Sec. 3.540(360)(c), (d), and represents the primary aspect of the LDFA that is in question here. The Legislature has authorized tax increment financing in the past, in the act establishing downtown development authorities, 1975 P.A. 197, M.C.L. Sec. 125.1651 et seq.; M.S.A. Sec. 5.3010(1) et seq., and in the Tax Increment Finance Authority Act (TIFAA), 1980 P.A. 450, M.C.L. Sec. 125.1801 et seq.; M.S.A. Sec. 3.540(201) et seq.

According to the bill analysis prepared by the House Legislative Analysis Section on House Bills 5728 and 5729, October 16, 1986, which became 1986 P.A. 281, the LDFA was designed to improve upon, and to eliminate some of the problems of the TIFAA. The analysis notes that the LDFA

"would duplicate much of the [TIFAA], yet would differ by expanding local government influence on authority decisions, narrow the scope of projects for which tax increment financing may be used and make other changes."

Initially, the LDFA empowers municipalities to establish not more than one local development financing authority, M.C.L. Sec. 125.2153(1); M.S.A. Sec. 3.540(353)(1), according to a prescribed notice and hearing process. M.C.L. Sec. 125.2154(1), (2); M.S.A. Sec. 3.540(354)(1), (2). After the hearing, should the municipality decide to proceed with creation of the authority, it must adopt a resolution establishing the authority and designating the boundaries of the authority district or districts. Id., subsection (3). The authority is under the supervision and control of a board appointed by the chief executive officer of the municipality. M.C.L. Sec. 125.2155; M.S.A. Sec. 3.540(355).

Sections 12, 13, 14, and 17 of the LDFA govern tax increment financing by the local development financing authorities. Basically, once a tax increment financing plan 5 has been approved, the property values covered by the tax increment financing plan are, in effect, frozen. 6 Future ad valorem tax revenues that are attributable to any subsequent increase in value above the base value are turned over to the authority in order to further implement the development plan. 7 Stated another way,

"[a] tax increment financing (TIF) plan allows a local government to finance public improvements in a designated area by capturing the property taxes levied on any increase in property values within the area. Under a TIF plan, a base year is established for the project area. In subsequent years, any increase in assessments above the base year level is referred to as the captured value. All, or a portion, of the property taxes levied on the captured value (SEV) is diverted to the area's development plan." Department of Treasury, Analysis of Tax Increment Financing in Michigan for 1986 (April, 1987), p. A-2.

Tax increment financing "is premised on the theory that, without the redevelopment project, property values would not increase," 8 or "that increases in land values and assessments in the project area are caused by the redevelopment authority's own construction of economic activity in the district." 9 The LDFA details the requirements for implementing a tax increment financing plan.

First, the LDFA requires the authority board to submit a tax increment financing plan to the governing body of the municipality, to be approved in accordance with the notice, hearing, disclosure, and approval provisions that apply to development plans. See M.C.L. Sec. 125.2162(2), (5); M.S.A. Sec. 3.540(362)(2), (5). The tax increment financing plan must conform to certain requirements, 10 and "shall only provide for the use of tax increment revenues for public facilities [ 11] for eligible property whose captured assessed value produces the tax increment revenues or, to the extent the eligible property is located within a certified industrial park, for other eligible property located in the certified industrial park." M.C.L. Sec. 125.2162(3); M.S.A. Sec. 3.540(362)(3).

If the construction of certain property will result in "transferring employment of 50 or more full-time jobs from 1 or more local governmental units ... to the municipality in which the eligible property is located," the affected local governmental units...

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