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. 5212

August 17, 1977

MUNICIPAL CORPORATIONS:

Contributions to private, nonprofit corporations

CONSTITUTION OF MICHIGAN:

Art VII, Sec. 26

In the absence of authorizing legislation, a city or village may not appropriate funds to a private, nonprofit corporation, even if the private, nonprofit corporation is performing a public purpose.

A city or village may enter into a contract with a private, nonprofit corporation pursuant to which the private, nonprofit corporation performs services on behalf of the city or village.

Honorable Richard D. Fessler

State Representative

The Capitol

Lansing, Michigan 48901

You have requested my opinion upon a question which may be restated as follows:

May a municipality contribute or appropriate its public funds to: (a) a private nonprofit corporation providing services to young people facing problems with their families, with drug abuse, or other adjustment problems; and (b) a private nonprofit free employment agency that is also funded by the county and federal governments?

The authority germane to your question is Const 1963, art 7, Sec. 26, which 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.'

This constitutional article, which prohibits a city or village from lending its credit for private purposes, or for public purposes except as provided by law, was interpreted by the Supreme Court in Sinas v City of Lansing, 382 Mich 407; 170 NW2d 23 (1969), as meaning that, in the absence of statutory authority, a city may not appropriate its public funds or property even for a public purpose. The court's interpretation in Sinas reflects the change in scope between Const 1963, art 7, Sec. 26, supra, and former Const 1908, art 8, Sec. 25, which provided in part:

'No city or village shall have power . . . to loan its credit, nor to assess, levy or collect any tax or assessment for other than a public purpose. . . .' [Emphasis added]

Whereas the 1908 Constitution prohibited cities and villages from lending their credit 'for other than a public purpose,' the 1963 Constitution imposes the additional requirement of statutory sanction, by prohibiting cities and villages from lending their credit, even for public purposes, 'except as provided by law.'

The Supreme Court has considered the appropriation of public funds for public and private purposes in a line of decisions under both the 1908 and 1963 Constitutions. See: Detroit Museum of Art v Engel, 187 Mich 432; 153 NW 700 (1915); Skutt v City of Grand Rapids, 275 Mich 258; 266 NW 344 (1936); Hays v City of Kalamazoo, 316 Mich 443; 25 NW2d 787 (1947); Younglas v City of Flint, 345 Mich 576; 77 NW2d 84 (1956); Summers v City of Flint, 355 Mich 655; 96 NW2d 119 (1959); City of Gaylord v Gaylord City Clerk, 378 Mich 273; 144 NW2d 460 (1966); Sinas v City of Lansing, supra; and Alan v Wayne County, 388 Mich 210; 200 NW2d 628 (1972).

In Detroit Museum of Art v Engel, supra, the Supreme Court stated:

'It is conceded that the Detroit Museum of Art was incorporated as a private corporation, and it must be conceded that it is now a private corporation, unless its organization has been changed. It has surrendered its real property to the city and granted to it a minority representation on the board of directors, but it is still managed by a private board of directors. Then just how and when was the character of this corporation changed, so that it could be the lawful recipient of public funds? It is said that its object is a public one. Grant that this is so, the change cannot be ascribed to this fact, as its object now is the same as it was when it was first organized. It is of no importance how public the aims and purposes of the corporation may be, unless it takes on the form of a municipal agency, it is still under the ban of the constitutional inhibition.

. . . [B]ut the fact still remains that it is a private corporation. . . .

The object and purpose of relator is a public purpose in the sense that it is being conducted for the public benefit, but it is not a public purpose within the meaning of our taxing laws, unless it is managed and controlled by the public. . . .' [388 Mich at pp 440, 442; 200 NW2d at 702, 703]

This language has been quoted and followed by the Attorney General in a number of opinions concluding that public bodies corporate may not appropriate or contribute public funds to private nonprofit corporations even though the private nonprofit corporation is performing activities for the public benefit and although appropriations for the same type of activity, when performed by a public body corporate, would be proper. See OAG, 1935-1936, No 74, p 209 (June 6, 1935); OAG, 1937-1938, p 59 (March 5, 1937); OAG, 1943-1944, No 0-2372, p 786 (June 21, 1944); OAG, 1945-1946, No 0-3025, p 345 (May 28, 1945); 2 OAG, 1956, No 2554, p 204 (April 10, 1956); 1 OAG, 1957, No 3066, p 476 (October 9, 1957); and OAG, 1973-1974, No 4851, p 196 (November 4, 1974). Compare OAG, 1976-1977, No 5047, p ___ (June 14, 1976).

1976 PA 179; MCLA 123.461; MSA 5.3440(1), authorizes a public body corporate to provide the youth care services and 1931 PA 306; MCLA 123.451; MSA 5.341, authorizes cities and villages to operate free employment bureaus.

If the legislature were to authorize the city to make a grant to such an organization for such public purposes, it could do so under the conditions specified.

In the absence of such legislation, a city or village may not appropriate funds to a private nonprofit corporation offering such services. However, a city or village may enter into a contract with a private, nonprofit corporation pursuant to which the private corporation would perform the services on behalf of the city or village. Such a contract would provide control over the manner in which its funds are spent and provide assurance that the funds are being used for a public purpose.

Frank J. Kelley

Attorney General