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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. 5631

January 23, 1980

CONSTITUTION OF MICHIGAN:

Art 9, Secs. 25, 26, 27, 28, 29, 30, 31, 32, 33 and 34 (Tax limitations)

TAXATION:

Constitutional limitations for ad valorem taxes

MUNICIPAL FINANCE COMMISSION:

Bonds containing pledge to levy taxes without limitation as to rate or amount

BONDS:

Pledge to levy taxes without limitation as to rate or amount

Bonds or other evidences of indebtedness which contain a pledge to levy taxes without limitation as to rate or amount may not be delivered after December 22, 1978, unless such bonds or other evidences of indebtedness have been approved by the electors.

1978 PA 529, which purports to authorize the Municipal Finance Commission to approve such bonds or other evidences of indebtedness for sale by a municipality, is unconstitutional.

Mr. Loren E. Monroe

State Treasurer

P.O. Box 15128

Lansing, Michigan 48901

You have asked whether a proposed bond issue approved by the governing body of a municipality before the effective date of Proposal E to the Michigan Constitution ratified by the voters at the November 7, 1978, general election, may be approved for sale by the Municipal Finance Commission if application for approval is made to the Commission by December 22, 1979, as provided in 1978 PA 529. Such bonds would be guaranteed by the obligation of the municipality to impose taxes without limitation as to rate or amount if so provided in the enabling law and bond resolution.

Proposal E (the 'Headlee Amendment' which took effect on December 23, 1978) amended Const 1963, art 9, Sec. 6 and added Secs. 25 through 34 to Const 1963, art 9.

In OAG, 1977-1978, No 5417, p ___ (December 20, 1978), it was held that a municipality may not issue bonds supported by an obligation to levy taxes unlimited as to rate or amount without a vote of the electors after December 22, 1978.

Const 1963, art 9, Sec. 6, as so amended, with the changes noted in capital letters, provides in pertinent part:

'Sec. 6. Except as otherwise provided in this constitution, the total amount of general ad valorem taxes imposed upon real and tangible personal property for all purposes in any one year shall not exceed 15 mills on each dollar of the assessed valuation of property as finally equalized. Under procedures provided by law, which shall guarantee the right of initiative, separate tax limitations for any county and for the townships and for school districts therein, the aggregate of which, shall not exceed 18 mills on each dollar of such valuation, may be adopted and thereafter altered by the vote of a majority of the qualified electors of such county voting thereon, in lieu of the limitation hereinbefore established. These limitations may be increased to an aggregate of not to exceed 50 mills on each dollar of valuation, for a period of not to exceed 20 years at any one time, if approved by a majority of the electors, qualified under Section 6 of Article II of this constitution, voting on the question.

'The foregoing limitations shall not apply to taxes imposed for the payment of principal and interest on bonds APPROVED BY THE ELECTORS or other evidences of indebtedness APPROVED BY THE ELECTORS or for the payment of assessments or contract obligations in anticipation of which bonds are issued APPROVED BY THE ELECTORS, which taxes may be imposed without limitations as to rate or amount; OR, SUBJECT TO THE PROVISIONS OF SECTIONS 25 THROUGH 34 OF THIS ARTICLE, to taxes imposed for any other purpose by any city, village, charter county, charter township, charter authority, or other authority, the tax limitations of which are provided by charter or by general law.'

The language of this section is clear and unambiguous. It unequivocally sets forth the maximum millage that may be imposed upon real or tangible personal property. It also provides that these limitations shall not apply to certain enumerated municipalities if their tax limits are provided by charter or general law. It is also subject to Const 1963, art 9, Secs. 25 through 34.

Const 1963, art 9, Sec. 6 further provides that the limitations as set forth therein do not apply to bonds or other evidences of indebtedness which have been approved by the electors. Taxes for such obligations must be imposed in an amount sufficient to pay principal and interest on the bonds and, for this purpose, may be imposed without limitation as to rate or amount.

It is clear that exception to the maximum millage is permitted only after approval by the electors.

Const 1963, art 9, Sec. 31, as added, further provides:

'Sec. 31. Units of Local Government are hereby prohibited from levying any tax not authorized by law or charter when this section is ratified or from increasing the rate of an existing tax above that rate authorized by law or charter when this section is ratified, without the approval of a majority of the qualified electors of that unit of Local Government voting thereon. If the definition of the base of an existing tax is broadened, the maximum authorized rate of taxation on the new base in each unit of Local Government shall be reduced to yield the same estimated gross revenue as on the prior base. If the assessed valuation of property as finally equalized, excluding the value of new construction and improvements, increases by a larger percentage than the increase in the General Price Level from the previous year, the maximum authorized rate applied thereto in each unit of Local Government shall be reduced to yield the same gross revenue from existing property, adjusted for changes in the General Price Level, as could have been collected at the existing authorized rate on the prior assessed value.

'The limitations of this section shall not apply to taxes imposed for the payment of principal and interest on bonds or other evidence of indebtedness or for the payment of assessments on contract obligations in anticipation of which bonds are issued which were authorized prior to the effective date of this amendment.' [Emphasis added]

Prior to the adoption of Proposal E, certain municipalities could incur indebtedness by issuance of bonds and could levy taxes without limitation as to rate or amount to retire such indebtedness without a vote of the people. Butcher v Township of Grosse Ile, 387 Mich 42; 194 NW2d 845 (1972). See also OAG, No 5417, supra.

As is manifest from the circumstances surrounding the adoption of Proposal E, as well as the Proposal itself, the intent of the voters was to return control of taxation beyond the limits set forth in Const 1963, art 9, Sec. 6 to the electorate. In doing so, however, recognition was given in the second paragraph of Const 1963, art 9, Sec. 31 that the pre-existing contractual rights of bondholders or holders of other evidences of indebtedness could not be impaired by constitutional amendments. Therefore, the second paragraph excepts from the restrictions of the taxing power of the municipalities as set forth in the first paragraph of section 31, taxes imposed to meet debt service on pre-existing indebtedness.

By enactment of 1978 PA 529, the legislature amended the municipal finance act, 1943 PA 202; MCLA 131.1 et seq; MSA 5.3188(1) et seq, by adding the following section 4 to chapter I.

'If before December 23, 1978, the governing body of municipality adopts an ordinance or resolution directing that obligations be issued and establishing the terms of the proposed obligations, except the rates of interest on those obligations, and an application for approval of the obligations is made to the municipal finance commission by December 22, 1979, the obligations directed to be issued by the ordinance or resolution shall be considered for the purposes of the state constitution of 1963 to have been authorized before the addition of the second paragraph of section 31 of article 9 and the amendment to section 6 of article 9, as approved by the electors at the November general election of 1978, became part of the state constitution of 1963. If the obligations have been so authorized, the municipality may impose taxes without limitation as to rate or amount for the payment of principal and interest on the obligations or for the payment of an assessment or contract obligation in anticipation of which the obligations are issued. The ordinance or resolution directing that obligations be issued may be amended subsequent to December 22, 1978 to alter the terms of the proposed obligations, but the amendment shall not increase the principal amount of the obligations to be issued or change the general purpose for which the obligations are issued.'

The key element in the added section is the passage before December 23, 1978, of an 'ordinance or resolution directing that obligations be issued' by the municipality. The ordinance(s) or resolution(s) may later be amended to alter the terms of the proposed obligations within the parameters set forth in the section. Since the date of the required submission to the municipal finance commission may also be amended and extended indefinitely by the legislature to meet municipal needs, the effect of 1978 PA 529 is to create a procedure by which a municipality could adopt a number of bond ordinances or resolutions backed by an unlimited tax pledge and implement them without a vote of the electorate. In Lockwood v Com'r of Revenue, 357 Mich 517, 557-558; 98 NW2d 753 (1959), the Michigan Supreme Court said:

'. . . A constitutional limitation must be construed to effectuate, not to abolish, the protection sought by it to be afforded. It was Mr. Justice Campbell who wrote as long ago as the 13th volume of the Michigan reports that:

"If the people, in establishing their government, see fit to place restrictions upon the exercise of any privilege, it must be assumed that in their view the exercise of the privilege without the restriction would be expedient and dangerous, and would not, therefore, have been permitted. Every restriction imposed by the Constitution must be considered as something which was designed to guard the public welfare, and it would be a violation of duty to give it any less than the fair and legitimate force which its terms require. What the people have said they design, they have an absolute and paramount right to have respected."

The Court continued:

'The presumption of constitutionality cloaking all the acts of our coordinate branch of government cannot prevail where the statute is 'prohibited by the express language of the Constitution or by necessary implications.' [Citation omitted]'

However, even if the legislative definition of 'authorized' in the second paragraph of Const 1963, art 9, Sec. 31 was construed to be a valid interpretation of Proposal E, it was noted previously that the millage limitations of Const 1963, art 9, Sec. 6 contains no savings clause. Therefore, allowing unlimited tax bonds to be issued after the effective date of Proposal E without a vote of the electors would be a clear violation thereof.

Therefore, it is my opinion that 1978 PA 529 is constitutionally invalid. Bonds or other evidences of indebtedness which contain a pledge to levy taxes without limitation as to rate or amount may not be delivered after December 22, 1978 unless such bonds or other evidences of indebtedness have been approved by the electors.

Frank J. Kelley

Attorney General

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