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. 6848 May 16, 1995 COUNTIES: County as "owner" or "operator" of real property acquired by mortgage foreclosure for purposes of Part 201 of the Natural Resources and Environmental Protection Act ENVIRONMENTAL PROTECTION: County as "owner" or "operator" of real property acquired by mortgage foreclosure for purposes of Part 201 of the Natural Resources and Environmental Protection Act A county that uses public funds to make an economic development loan secured by a mortgage on real property of the borrower and thereafter, due to the default of the borrower, forecloses on the real property, does not become the "owner" or "operator" of that property for liability purposes under Part 201 of the Natural Resources and Environmental Protection Act. Honorable Terry Geiger State Representative The Capitol Lansing, MI 48909-7514 You have asked a question which may be stated as follows: If a county uses public funds to make an economic development loan secured by a mortgage on real property of the borrower and thereafter, due to the default of the borrower, forecloses on that real property, does the county become the "owner" or "operator" of that property for liability purposes under Part 201 of the Natural Resources and Environmental Protection Act? Michigan's Natural Resources and Environmental Protection Act (NREPA), 1994 PA 451, MCL 324.101 et seq; MSA 13A.101 et seq, is a comprehensive recodification of Michigan's natural resources and environmental protection laws. Part 201 (1) of the NREPA provides the state with comprehensive authority to respond to releases of hazardous substances and to seek compensation for response costs. In section 20102, the Legislature clearly declares its intention to eliminate the dangers posed by releases of hazardous substances, to place the cost of responding to the releases on those responsible rather than on the public, and to promote the redevelopment and reuse of abandoned industrial property. Section 20126(1) of the NREPA specifies four categories of parties who are strictly, jointly, and severally liable for releases and threatened releases of hazardous substances: (1) owners, (2) operators, (3) arrangers, and (4) transporters. Current owners and operators, as well as those who have owned or operated the facility at or since the time of disposal, are liable. Section 20126(1)(a-c). Section 20101(s) defines an "owner" to mean a "person that owns a facility." Section 20101(r) defines an "operator" as a "person that is in control of or responsible for the operation of a facility." In section 301(g) "person" is defined to include, among other things, governmental entities. While, as an initial matter, the definitions of "owner," "operator," and "person" are broad enough to bring a county within the ambit of Part 201 of the NREPA, Part 201 also provides an exception from the definitions of "owner" and "operator" for the state and local units of government under limited circumstances. Section 20101(r)(ii) states: "Operator" means a person that is in control of or responsible for the operation of a facility. Operator does not include any of the following: (ii) The state or a local unit of government that acquired ownership or control of the facility involuntarily through bankruptcy, tax delinquency, abandonment, a transfer from a commercial lending institution pursuant to section 20127(9), or other circumstances in which the government involuntarily acquires title or control by virtue of its governmental function or as provided in this part ... The exclusion provided in this subparagraph shall not apply to the state or a local unit of government that caused or contributed to the release or threat of a release from the facility. [Emphasis added.] A similar exception to the definition of "owner" is found in section 20101(s)(ii). To fit within the "owner" and "operator" exception, the governmental unit must acquire the property involuntarily. The Michigan Court of Appeals interpreted identical language in the Michigan Environmental Response Act in Flanders Industries, Inc v Michigan, 203 Mich App 15, 26-31; 512 NW2d 328 (1993). In Flanders, the Michigan Court of Appeals held that, when Michigan gave its assent to admission to the Union, it acquired the bottomlands beneath the Great Lakes involuntarily. In reaching that conclusion, the Court of Appeals emphasized that the means of acquisition set forth in the involuntary acquisition exemptions (abandonment, escheat, and certain tax acquisitions), "all require some active government involvement." Id. at 29. In other words, a governmental entity need not be "completely passive" to acquire a facility involuntarily. Here, the acquisition of title to and control of property by foreclosure is caused by the default of the borrower rather than by any deliberate act of county; the foreclosure is, in effect, compelled by the default of the borrower and, accordingly, is involuntary within the meaning of Part 201 of the NREPA. In order to be entitled to the exemption, a government that involuntarily acquires property must, in addition, acquire title or control by "virtue of its governmental function." The term "governmental function" was neither defined in Part 201 of the NREPA nor by the Court of Appeals in Flanders. The Flanders court nonetheless held that assumption of ownership of the bottomlands by Michigan upon admission to the Union was the "clearest possible example" of the state acquiring ownership "because it was a government." Id. at 29-30. The Michigan Supreme Court has concluded that, for purposes of the governmental tort liability act, MCL 691.1401 et seq; MSA 3.996(101) et seq, governmental functions encompass any "activity which is expressly or impliedly mandated or authorized by constitution, statute, or other law." Ross v Consumers Power Company (On Rehearing), 420 Mich 567, 620; 363 NW2d 641 (1984). See also, Adam v Sylvan Glynn Golf Course, 197 Mich App 95, 97; 494 NW2d 791 (1992). Conversely, a proprietary governmental activity must be conducted "primarily for the purpose of producing a pecuniary profit" and not "normally be supported by taxes or fees." Hyde v University of Michigan Bd of Regents, 426 Mich 223, 258; 393 NW2d 847 (1986). See also, Detroit Edison v Detroit, 180 Mich App 145, 151; 446 NW2d 615 (1989), lv den, 434 Mich 905 (1990) (expansion of Cobo Hall is an exercise of a governmental, rather than a proprietary, function) Government activities designed to foster economic development in order to alleviate unemployment and revitalize an area's economic base constitute an essential public purpose, even if private interests may be incidentally benefited by these activities. Poletown Neighborhood Council v Detroit, 410 Mich 616, 634; 304 NW2d 455 (1981). See also, Detroit Edison Co v Detroit, 208 Mich App 26, 29-30; 527 NW2d 9 (1994). Thus, when a county loans money in order to restore a property's tax value, create jobs, and generate economic growth in a community; takes a mortgage in the property as security for the loan; and later forecloses on that property after default by the borrower, the county is exercising a governmental as opposed to a proprietary function. It is my opinion, therefore, that a county that uses public funds to make an economic development loan secured by a mortgage on real property of the borrower and thereafter, due to the default of the borrower, forecloses on the real property, does not become the "owner" or "operator" of that property for liability purposes under Part 201 of the Natural Resources and Environmental Protection Act. Frank J. Kelley Attorney General (1)