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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)


STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6398

November 5, 1986

CONSTITUTIONAL LAW:

Const 1963, art 9, Sec. 18--pledge of credit by county through loans to private businesses

COUNTIES:

Loans of general revenues to private businesses

A county may not use its general revenues to establish and maintain a revolving loan fund to make loans to private businesses.

Honorable Paul Hillegonds

State Representative

The Capitol

Lansing, MI 48909

Honorable Ed Fredricks

State Senator

The Capitol

Lansing, MI 48909

You have asked for my opinion on the question whether a county may use its general revenues to establish and maintain a revolving loan fund to make loans to private businesses.

As background to your question, you have provided the following information:

"Allegan County currently has an application pending with the US Economic Development Administration to assist in the capitalization of a $500,000 Revolving Loan Fund. Under this application, the loan fund would be capitalized initially using $250,000 from the Title IX Federal funds and $250,000 from Allegan County's General Revenue Fund.

"The money would be used for economic development purposes: to assist business and industry in Allegan County by leveraging private dollars. We anticipate the loan funds would be used to encourage banks to make more high risk loans, since the County loan funds would assume a secondary collateral position to the regulated lender. Once repaid by the borrower, the loan funds would return to the fund and would be recycled for similar purposes."

It is elementary that a county has only such powers as have been granted to it by the Michigan Constitution or the State Legislature. Alan v Wayne County, 388 Mich 210, 245; 200 NW2d 628, reh den, 388 Mich 626; 202 NW2d 277 (1972).

Const 1963, art 7, Sec. 1, provides:

"Each organized county shall be a body corporate with powers and immunities provided by law."

Const 1963, art 7, Sec. 8, provides:

"Boards of supervisors [now referred to as commissioners] shall have legislative, administrative and such other powers and duties as provided by law."

Const 1963, art 7, Sec. 34, provides:

"The provisions of this constitution and law concerning counties, townships, cities and villages shall be liberally construed in their favor. Powers granted to counties and townships by this constitution and by law shall include those fairly implied and not prohibited by this constitution."

In Const 1963, art 9, Sec. 18, the people have, in pertinent part, provided:

"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."

OAG, 1973-1974, No 4851, pp 196, 197 (November 4, 1974), considered the question of whether a county could satisfy a requirement for disbursement of federal revenue sharing funds that the county be able to use its own general funds to provide financial assistance to a private, nonprofit hospital. The opinion concluded that a county could not use its general funds to provide such financial assistance:

"A search of applicable statutory law fails to disclose authority for the county to use its fund in support of a private entity. However, Oakland County Drain Commissioner v City of Royal Oak, 306 Mich 124; 10 NW2d 435 (1943), holds that counties are subject to the constitutional prohibition against grant of the credit of the state to any person, association or corporation, public or private, as set forth in Const 1908, art 10, Sec. 12. ... In substance, Const 1963, art 9, Sec. 18 is the same ..."

Similarly, in OAG, 1975-1976, No 4904, p 193 (November 3, 1975), it was held that a county is prohibited by Const 1963, art 9, Sec. 18, from appropriating its funds to assist in the construction and operation of a public television station operated by a state university.

OAG, 1983-1984, No 6116, pp 4, 6 (January 12, 1983), concluded that a city may use repaid federal urban development grant moneys to make loans to profit-making enterprises in accordance with federal law, federal regulations, and a federal grant agreement without violating Const 1963, art 7, Sec. 26, in view of the authorization by the Legislature to cities to participate in federal programs:

" 'The Michigan legislature has given municipalities broad authority to accept grants from agencies of the federal government for any governmental purpose and to enter into agreement with those agencies to effectuate those purposes. See 1942 PA ex sess 12; MCLA 3.541 et seq; MSA 4.826 et seq, and the urban cooperation act, 1967 PA ex sess 7; MCLA 124.501 et seq; MSA 5.4088(1) et seq.' "

It is noted that Const 1963, art 7, Sec. 26, provides:

"Except as otherwise provided in this constitution, no city or village shall have the power to loan its credit for any private purpose or, except as provided by law, for any public purpose."

There is no comparable constitutional provision permitting counties to pledge their credit for a public purpose.

Although MCL 123.872(a); MSA 5.3421(1), purports to authorize counties to use federal, state, and local grants to make loans and grants to businesses, Const 1963, art 9, Sec. 18, precludes counties from making such loans of general fund money to businesses. In addition, it is noted that MCL 123.873; MSA 5.3421(2), specifies that federal and state grant proceeds are not to be commingled with or become part of the general funds of a county or other municipality.

It is my opinion, therefore, that a county may not use its general revenues to establish and maintain a revolving loan fund to make loans to private businesses.

Frank J. Kelley

Attorney General

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