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. 6856 June 29, 1995 STATE ACCIDENT FUND: Inclusion of proceeds received by the State of Michigan from the sale of the State Accident Fund in computing total state revenues under Const 1963, art 9, Sec. 26. The proceeds received by the State of Michigan from the sale of the State Accident Fund are not included in computing total state revenues under Const 1963, art 9, Sec. 26. Honorable David Jaye State Representative The Capitol Lansing, Michigan Mark Murray Acting Director Department of Management and Budget P.O. Box 30026 Lansing, Michigan Douglas B. Roberts State Treasurer Department of Treasury P.O. Box 15128 Lansing, Michigan You have asked if the proceeds received by the State of Michigan from the sale of the State Accident Fund are included in computing total state revenues under Const 1963, art 9, Sec. 26. The consideration received for the sale of the State Accident Fund is "the property of the State of Michigan." MCL 418.701a(2); MSA 17.237 (701a)(2). In re Certified Question (Fun 'N Sun RV, Inc v Michigan), 447 Mich 765, 769; 527 NW2d 468 (1994). In 1978, the people adopted the tax limitation amendment, commonly called the Headlee Amendment, found in Const 1963, art 9, Secs. 25-34. Const 1963, art 9, Sec. 26, which limits the total taxes that the Legislature may impose in any fiscal year on the taxpayers of this state, provides, in pertinent part: There is hereby established a limit on the total amount of taxes which may be imposed by the legislature in any fiscal year on the taxpayers of this state. This limit shall not be changed without approval of the majority of the qualified electors voting thereon, as provided for in Article 12 of the Constitution. Effective with fiscal year 1979-1980, and for each fiscal year thereafter, the legislature shall not impose taxes of any kind which, together with all other revenues of the state, federal aid excluded, exceed the revenue limit established in this section. The revenue limit shall be equal to the product of the ratio of Total State Revenues in fiscal year 1978-1979 divided by the Personal Income of Michigan in calendar year 1977 multiplied by the Personal Income of Michigan in either the prior calendar year or the average of Personal Income of Michigan in the previous three calendar years, whichever is greater. [Emphasis added.] In Traverse City School Dist v Attorney General, 384 Mich 390, 405; 185 NW2d 9 (1971), the Michigan Supreme Court declared the primary rules of constitutional interpretation as follows: This case requires the construction of a constitution, where the technical rules of statutory construction do not apply. McCulloch v. Maryland (1819), 17 US (4 Wheat) 316, 407 (4 L Ed 579). The primary rule is the rule of "common understanding" described by Justice Cooley: "A constitution is made for the people and by the people. The interpretation that should be given it is that which reasonable minds, the great mass of the people themselves, would give it. 'For as the Constitution does not derive its force from the convention which framed, but from the people who ratified it, the intent to be arrived at is that of the people, and it is not to be supposed that they have looked for any dark or abstruse meaning in the words employed, but rather that they have accepted them in the sense most obvious to the common understanding, and ratified the instrument in the belief that that was the sense designed to be conveyed.' (Cooley's Const Lim 81)." (Emphasis added.) A second rule is that to clarify meaning, the circumstances surrounding the adoption of a constitutional provision and the purpose sought to be accomplished may be considered. On this point this Court said the following: "In construing constitutional provisions where the meaning may be questioned, the court should have regard to the circumstances leading to their adoption and the purpose sought to be accomplished." Kearney v. Board of State Auditors (1915), 189 Mich 666, 673. Thus, in interpreting Const 1963, art 9, Sec. 26, it is the common understanding test that applies, not technical accounting principles. Applying the common understanding test to the concept of total state revenues, it must first be noted that the money received from the sale of the State Accident Fund is neither the result of a tax increase nor an increase in fees paid to state government. It should also be noted that under the statute controlling the sale of the Accident Fund, the sale could not be made until a nationally recognized banking firm issued its opinion that the State of Michigan would receive fair consideration for the assets it was transferring. MCL 418.701a(1)(a); MSA 17.237(701a)(1)(a). That opinion was provided to the State Administrative Board before the sale was made and the amount paid by the purchaser was the amount determined to be fair consideration. Moreover, in discussing the sale of the State Accident Fund, the Michigan Supreme Court quoted, with approval, the Michigan Court of Appeals observation that a provision in the statute creating the State Accident Fund provided that it should be no more or less than self-supporting meant that the State of Michigan cannot "receive any 'profits' from the fund." The mandate that the State of Michigan should not "receive any 'profits' from the fund" was recognized by the Supreme Court later in its opinion when it observed: Under the authorizing legislation, the assets and liabilities of the fund will transfer to the buyer. The surplus is not being retained by the State. It will remain as surplus under the terms of the sale. In re Certified Question (Fun 'N Sun Rv, Inc v Michigan), supra, 447 Mich, at pp 774 and 794. Based on the foregoing, it is clear that the State of Michigan exchanged one asset, the State Accident Fund, for another asset, approximately 254 million dollars, its market value. Instead of owning the State Accident Fund and its building, the State of Michigan now has money that simply represents fair consideration for the value of the assets it transferred. In the common understanding, this even exchange of assets did not result in an increase in total state revenues under Const 1963, art 9, Sec. 26. Next, we look at the purposes to be achieved by the Headlee Amendment. The Michigan Supreme Court stated the purposes of the Headlee Amendment as follows: Article 9, Secs. 25-34 was presented to the voters under the popular term "Headlee Amendment," named after its original proponent, Richard Headlee. It was proposed as part of a nationwide "taxpayer revolt" in which taxpayers were attempting to limit legislative expansion of requirements placed on local government, to put a freeze on what they perceived was excessive government spending, and to lower their taxes both at the local and the state level. [Footnote omitted.] Durant v State Bd of Education, 424 Mich 364, 378; 381 NW2d 662 (1985). Excluding the proceeds of the sale of the State Accident Fund from total state revenues under Const 1963, art 9, Sec. 26, is not inconsistent with the purposes of the Headlee Amendment. The sale of the State Accident Fund is not a legislative expansion of requirements for local units of government. The sale represents the fair exchange of one asset for another, not additional government spending. Finally, the sale does not represent any increase in state taxation. In addition, the term "Total State Revenues" found in Const 1963, art 9, Sec. 26, is defined in Const 1963, art 9, Sec. 33, as follows: "Total State Revenues" includes all general and special revenues, excluding federal aid, as defined in the budget message of the governor for fiscal year 1978-1979. Total State Revenues shall exclude the amount of any credits based on actual tax liabilities or the imputed tax components of rental payments, but shall include the amount of any credits not related to actual tax liabilities. [Emphasis added.] This office has been informed by the State Treasurer that the Governor's budget message for fiscal year 1978-1979 did not contain any proceeds from the sale of any state-owned property as revenue items. Thus, the historical implementation of Const 1963, art 9, Sec. 26, did not consider the proceeds received from the sale of assets as part of Total State Revenues. Const 1963, art 9, Sec. 34, directs the Legislature to implement the Headlee Amendment. In 1988 PA 504, the Legislature added section 350a to the Management and Budget Act, MCL 18.1350a; MSA 3.516(350a). Section 350a(b) defines total state revenues, as used in sections 26 to 28 of article IX of the 1963 Michigan Constitution, as follows: "Total state revenues" means the combined increases in net current assets of the general fund and special revenue funds, except for component units included within the special revenue group for reporting purposes only. For fiscal years beginning after September 30, 1986, total state revenues shall be computed on the basis of generally accepted accounting principles as defined in this act. However, total state revenues shall not include the following: (i) Financing sources which have previously been counted as revenue, for the purposes of section 26 of article IX such as, beginning fund balance, expenditure refunds, and residual-equity and operating transfers from within the group of funds. (ii) Current assets generated from transactions involving fixed assets and long-term obligations in which total net assets do not increase. (iii) Revenues which are not available for normal public functions of the general fund and special revenue funds. (iv) Federal aid. (v) Taxes imposed for the payment of principal and interest on voter-approved bonds and loans to school districts authorized under Section 16 of article IX of the state constitution of 1963. (vi) Tax credits based on actual tax liabilities or the imputed tax components of rental payments, but not including the amount of any credits not related to actual tax liabilities. (vii) Refunds or payments of revenues recognized in a prior period. (viii) The effects of restatements of beginning balances required by changes in generally accepted accounting principles. [Emphasis added.] Although the Legislature may pass statutes implementing constitutional provisions, the statutes must be consistent with the relevant provisions of the state constitution. The Legislature may not define a constitutional term in a manner that is inconsistent with its use in the state constitution. Richardson v Secretary of State, 381 Mich 304, 310-311; 160 NW2d 883 (1968). Here, as a matter of constitutional law, there has been no increase in the total revenues of the State of Michigan under Const 1963, art 9, Sec. 26. The State of Michigan simply exchanged one asset, the State Accident Fund, for another asset, money. Section 350a(b)(ii) recognizes this concept, in part, by excluding assets generated from the sale of fixed assets in computing total state revenues when the total net assets do not increase. But this statutory provision is limited to transactions involving fixed assets. The calculation of total state revenues under Const 1963, art 9, Sec. 26, as understood by the people who approved it, is not so limited. It is my opinion, therefore, that the proceeds received by the State of Michigan from the sale of the State Accident Fund are not included in computing total state revenues under Const 1963, art 9, Sec. 26. (1) The second paragraph of Const 1963, art 9, Sec. 26, provides for a refund to taxpayers of total state revenues exceeding a constitutionally prescribed limit. There is nothing in either the language of Const 1963, art 9, Sec. 26, or this opinion that precludes the Legislature from approving either a tax refund or a tax decrease if it determines that either one is in the public interest. Frank J. Kelley Attorney General (1)