Sessa v. Macomb County

Citation559 N.W.2d 70,220 Mich.App. 279
Decision Date26 November 1996
Docket NumberDocket No. 192569
PartiesMichael SESSA, Taxpayer and Chairman of Macomb County Taxpayers Association, Eric Landers, Walter Graves, Ron Keine and Norman Brillhart, Plaintiffs, v. COUNTY OF MACOMB and Macomb County Building Authority, Defendants.
CourtCourt of Appeal of Michigan (US)

Pollard & Albertson, P.C. by Dennis R. Pollard and Mark K. Schwartz, Bloomfield Hills, for defendants.

Before SAAD, P.J., and WAHLS and MARKMAN, JJ.

SAAD, Presiding Judge.

Plaintiffs are Macomb County taxpayers 1 who invoke this Court's original jurisdiction pursuant to Const.1963, art. 9, § 32, and challenge the action of defendants in issuing limited tax obligation bonds to finance construction of a court and administrative complex for Macomb County at its county seat in Mt. Clemens.

FACTS

Over the past eight years, the Macomb County Board of Commissioners planned for the construction of a court and administrative complex to be located in downtown Mt. Clemens. The land for the project was acquired, and demolition of certain structures was completed by 1994. On the basis of the space needed, the board of commissioners concluded that the actual construction costs should be financed by the issuance of bonds.

Pursuant to Const.1963, art. 9, § 6, the approved level of ad valorem taxes in Macomb County for all purposes is fifteen mills. Pursuant to the allocation made by the Macomb County Tax Allocation Board under M.C.L. § 211.211; M.S.A. § 7.71, the county's share of the 15 mills is 5.19 mills. However, because property values have increased faster than general inflation, the "General Price Index" clause of the Headlee Amendment, Const.1963, art. 9, § 31, has meant a rollback in the authorized tax rate to 4.7431 mills. M.C.L. § 211.34d; M.S.A. § 7.52(4). Of its authorized 4.7431 mill tax rate, the board of commissioners has elected to levy 4.2 mills for general operating purposes.

On the basis of general economic and population growth in Macomb County, the board of commissioners projected that, by borrowing the money to construct the planned judicial and administrative complex, the cost of construction could be fully amortized over a ten-year period without increasing the tax levy above the current 4.2 mills. Accordingly, the board of commissioners adopted a resolution of intent to bond on March 23, 1995, and announced its intent to have the Macomb County Building Authority actually undertake construction of the project, lease the complex to the county, and sell bonds to finance the construction and furnishing of the complex. The bonds would be backed by the full faith and credit of the county, with the specified limitation that the revenue to pay the bondholders would come from a combination of lease payments received from the county and allocations from the county's general fund budget within its authorized 4.2-mill limitation.

The statutorily required notice of intent was published in The Macomb Daily, a newspaper of general circulation in Macomb County, on May 10, 1995. M.C.L. *72s 123.958b; M.S.A. § 5.301(8b). This notice advised Macomb County citizens of their right to petition for a referendum concerning the question whether this means of financing should be undertaken. The county clerk received no petitions calling for a referendum within the statutorily allowed forty-five-day period for presenting such a challenge. M.C.L. § 123.958b(3); M.S.A. § 5.301(8b)(3).

On October 6, 1995, the building authority adopted a resolution authorizing the sale of the bonds to finance the project. The amount of the bonds authorized was fixed not to exceed $16.425 million. Bids for the bonds were received and opened on January 23, 1996; the building authority made its award to the successful bidder on January 25, 1996. On February 5, 1996, the transaction was closed by delivering the bonds in the amount of $12,000,000 in exchange for receipt of the loan proceeds.

After the underwriters paid cash equivalents for the bonds and the bonds were sold on the open market, this action was filed on February 9, 1996.

ANALYSIS

The bonds, on their face, are designated as "limited tax obligation bonds." As compared with the numerous other forms of public obligation bonds recognized in Michigan jurisprudence, including general obligation bonds, revenue bonds, and tax increment financing bonds, Advisory Opinion on Constitutionality of 1986 PA 281, 430 Mich. 93, 422 N.W.2d 186 (1988), limited tax obligation bonds are structured such that the source of repayment is limited to the general fund revenues of the issuing public authority, including ad valorem taxes and other unrestricted revenue sources. See Advisory Opinion on Constitutionality of 1976 PA 295, 1976 PA 297, 401 Mich. 686, 710-711, 259 N.W.2d 129 (1977). Significant to plaintiffs' constitutional challenge to the issuance of bonds to finance this building, the pledge of the county's "full faith and credit" in this context, imposes no obligation on the county to levy additional taxes, beyond the rates or amounts authorized by law, in order to fulfill the repayment obligation to the bondholders. In this regard, a bond is a contract, State Hwy. Comm'r v. Detroit City Controller, 331 Mich. 337, 49 N.W.2d 318 (1951), and in this contract the county has limited its undertaking with respect to the obligation of repayment. This contrasts with general obligation or special assessment bonds backed by the full faith and credit of a municipality, which signify an undertaking to "levy a tax on all taxable property in the [municipality] for the payment of principal and interest on the bonds without limitation as to rate or amount and in addition to all the other taxes which the [municipality] may be authorized to levy." M.C.L. § 41.735; M.S.A. § 5.2770(65). Pleasant Ridge v. Royal Oak Twp., 328 Mich. 672, 44 N.W.2d 333 (1950).

Because the bonds that were issued were limited tax obligation bonds, we may dispose of the frivolous contention made by plaintiffs that such limitation is ineffectual by virtue of § 6097(1) of the Revised Judicature Act, M.C.L. § 600.6097(1); M.S.A. § 27A.6097(1). RJA § 6097(1) provides generally that if a judgment is rendered against any municipality (as after a suit by bondholders following a default), the legislative body of that municipality may issue certificates of indebtedness or bonds of that municipality for the purpose of raising money to pay the judgment. This argument fails for two reasons. One, if such bonds would cause the municipality to exceed its authorized rate of taxation, Const.1963, art. 9, § 31 would preclude issuance of such bonds without prior approval by the electorate. Indeed, RJA § 6097, as amended by 1984 P.A. 393, effectively incorporates this constitutional limitation by explicitly stating that such authorization grants permission to issue such bonds "unless otherwise provided."

With regard to plaintiffs' constitutional challenge, a bond is a contract between the bondholder and the issuing public authority, and a bondholder, as obligee, cannot demand any remedy or enforcement mechanism for fulfillment of the obligation greater than the undertaking of the contract itself. Keefe v. Clark, 322 U.S. 393, 64 S.Ct. 1072, 88 L.Ed. 1346 (1944). Accordingly, plaintiffs' argument that the limitation of the county's repayment obligation to existing general revenues is illusory is incorrect, and, for this reason, its challenge must fail under art. 9, § 32.

This is an original action brought pursuant to Const.1963, art. 9, § 32, which invokes this Court's jurisdiction as of right. It is to be noted that this action was commenced within one year not only of the issuance of the bonds themselves, but also of the adoption of the resolution of intent to bond. Accordingly, the present action is not barred by the one-year period of limitation established in § 308a(3) of the Revised Judicature Act, M.C.L. § 600.308a(3); M.S.A. § 27A.308a(3).

Nonetheless, we agree with defendants that the action is barred by a related preclusive doctrine established in Bigger v. Pontiac, 390 Mich. 1, 4-5, 210 N.W.2d 1 (1973). Bigger dealt with a constitutional challenge to the issuance of public obligation bonds that had been brought before actual issuance and sale of the bonds. There, the suit was deemed untimely because it was not commenced until soon before the planned date of issuance of the bonds and thus would have prevented an orderly process of adjudication. However, the applicability of Bigger is broader than this. As interpreted by this Court and the Supreme Court, the rule is designed to deal with challenges that could prevent or frustrate public improvements in general. Eby v. Lansing Bd. of Water & Light, 417 Mich. 297, 306, n. 10, 336 N.W.2d 205 (1983); Langs v. Pontiac, 96 Mich.App. 639, 642, 293 N.W.2d 659 (1980).

An equally important aspect of the Bigger rule comes into play here where suit was not begun until after the bonds had been issued and sold on the open market. The interests of third parties, the bondholders, who are bona fide purchasers for value and who, at the time of purchase, were not on notice of any such challenge, represents a vested interest that the entertaining of such litigation on its merits could defeat. In this regard, therefore, the Bigger rule is distinct from the statute of limitations and simply obligates those who would challenge such action to move promptly. Walled Lake Consolidated School Dist. v. Commerce Charter Twp., 174 Mich.App. 434, 436-437, 437 N.W.2d 16 (1989).

We note further that the Bigger rule, although predating the 1978 Headlee Amendment, Const.1963, art. 9, §§ 25-34, is not undermined by those constitutional changes. Nothing in the text of Const.1963, art. 9, §§ 25-34 addresses the Bigger principle or purports to...

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