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. 5225

September 14, 1977

CONSTITUTION OF MICHIGAN:

Art 9, Sec. 13; art 7, Sec. 11

BONDS:

Sewer improvement bonds issued by a county

COUNTIES:

Sewer improvement bonds issued by a county

A county may issue bonds for the purpose of acquiring a sewer disposal system where, as security for payment of the bonds, the county has pledged contractual payments to be received and, as additional security, its full faith and credit.

Honorable Russell Hellman

State Representative

The Capitol

Lansing, Michigan 48901

You have asked for my opinion as to whether the Houghton County Board of Commissioners may pledge the full faith and credit of Houghton County as additional security for the issuance of bonds by the county, the proceeds of which are to be used to finance sewer improvements in the City of Houghton pursuant to contract with the city.

Const 1963, art 9, Sec. 13, provides:

'Public bodies corporate shall have power to borrow money and to issue their securities evidencing debt, subject to this constitution and law.'

In II Official Record, Constitutional Convention, 1961, p 3391, the members of the Convention made the following comment in regard to Const 1963, art 7, Sec. 11, which is applicable to this situation:

'This is a revision of Sec. 12, Article VIII, of the present [1908] constitution. The limitation on the power of the county to incur debt is increased from 3 per cent to 10 per cent of its assessed valuation to give counties greater power to meet current problems.

'Counties are not extending their credit for both primary and secondary purposes. Secondary obligations are incurred by placing the full faith and credit of the county behind bonds of cities and townships to enable them to borrow at the lowest possible interest rate for the construction of water and sewage systems and other public works.

'Secondary debt may easily exceed the 3 per cent limitation set in the present constitution. It is payable out of the revenues of waterworks, sewage fees, airport activities and the like.'

1957 PA 185; MCLA 123.731 et seq; MSA 5.570(1) et seq, authorizes municipalities to incur contract obligations and to issue bonds or notes secured by a pledge of its full faith and credit for the purpose of making certain improvements. 1957 PA 185, supra, Sec. 7 provides:

'A county establishing a department of public works shall have the following powers to be administered by the board of public works subject to any limitations thereon:

(b) To acquire a sewage disposal system within 1 or more areas in the county and to improve, enlarge, extend, operate, and maintain the system.'

1957 PA 185, supra, Sec. 11, further provides for the following procedures by which a sewage disposal system may be financed:

'(1) The acquirement of a water supply, sewage disposal or refuse system, or the making of a lake improvements or erosion control systems, or the improvement, enlargement, or extension thereof may be financed in any of the following methods, or any combination thereof:

(b) By the issuance of bonds in anticipation of payments to become due under contracts whereby 1 or more municipalities agree to pay to the county operating under this act certain sums toward the cost of the acquisition, improvement, enlargement, or extension of a project which may be made under this act.

(2) Bonds issued under this act shall be authorized by an ordinance or a resolution approved by the board of public works and adopted by the county board of commissioners of the county operating under this act. The county board of commissioners is authorized by a 3/5 vote of its members elected, to pledge the full faith and credit of the county for the prompt payment of the principal of and interest on any bonds issued pursuant to this act . . . If the faith and credit of the county is pledged for the payment of principal and interest on any bonds issued pursuant to this act, the county may, in the case of insufficiency of funds pledged for the payment, pay the same from its general fund or levy taxes without limitation as to rate or amount therefor in addition to any other taxes that the county is authorized to levy but not in excess of the rate or amount necessary to make up the deficiency. . . .'

The Michigan Supreme Court examined 1957 PA 185, supra, in light of Const 1908, art 10, Secs. 12 and 20, which were provisions similar to those in Const 1963, art 9, Sec. 13, and, by an equally divided court affirmed a lower court decision which upheld the constitutionality of the act. Cohn v County of Oakland, 354 Mich 180, 189; 92 NW2d 502, 506 (1958). See also Renne v Waterford Township, 73 Mich App 685; ---- NW2d ---- (1977).

I am therefore of the opinion that a county may issue bonds for the purpose of acquiring a sewage disposal system; that, as security for the payment of such bonds, the county may pledge the contractual payments to be received and that, as additional security, the county may pledge its full faith and credit for the repayment of the bonds.

Frank J. Kelley

Attorney General