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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. 5658

February 27, 1980

STATE HOUSING AUTHORITY:

Commercial Facilities

The financing activity of the State Housing Development Authority must relate to its purpose of the encouragement of the construction of safe and sanitary dwelling accommodations within the financial means of low and moderate income families.

The State Housing Development Authority may finance commercial facilities which serve and improve the residential area in which an authority project is located or planned to be located. Such facilities must provide basic domestic needs.

Where the State Housing Development Authority finds that commercial facilities are necessary to serve and improve a residential area, such commercial facilities must be within walking distance of the residential facilities.

Commercial facilities which are a component of a housing project may be financed by a mortgage loan separate from the mortgage loan financing residential housing.

Mr. Richard K. Helmbrecht

Executive Director

Michigan State Housing Development Authority

Plaza One Building, Fourth Floor

Lansing, Michigan 48909

You have asked for my opinion concerning whether several amendments to 1966 PA 346, MCLA 125.1401 et seq; MSA 16.114(1) et seq, being the Michigan State Housing Development Authority Act (hereinafter referred to as the 'Act'), empower the Michigan State Housing Development Authority (hereinafter referred to as the 'Authority') to finance the construction or rehabilitation of commercial facilities located in a residential area in which an Authority financed project is or is planned to be located. Specifically, you asked the following questions:

'1. If the Authority is empowered to finance the construction or rehabilitation of commercial facilities, what type of commercial facilities are contemplated by the 1966 PA 346, as amended?

'2. Where must the commercial facilities be located and what must the relationship be between the commercial facilities and the residential housing financed pursuant to 1966 PA 346, as amended?

'3. Can the Authority finance the construction or rehabilitation of commercial facilities by means of a mortgage loan separate from the mortgage loan which finances the residential housing component of a 'housing project'?'

It is important to note that the corporate purpose of the Authority is to foster the construction and rehabilitation of housing for low and moderate income persons. Advisory Opinion re Constitutionality of PA 1966, No. 346, 380 Mich 554; 158 NW2d 416 (1968). That a majority of the justices recognized that the Act was passed to satisfy a seriously inadequate supply of safe and sanitary dwelling accommodations within the financial means of low and moderate income persons is evident throughout the opinion upholding the validity of the Act. The opinion repeatedly emphasizes that basic statutory aim. For example:

'. . . [T]here can be no doubt that it is a proper public purpose for the State to concern itself with the housing of its inhabitants.' p 573

'It is clearly a public purpose and a proper governmental function to encourage the private sector of the economy to build houses. . . .' p 574

'The construction of housing has become in our times an enterprise affected with a public interest.' p 575

'. . . The major thrust of the legislation is to fill a gap in the housing market . . . The conclusion is inescapable that the construction of housing envisioned in the act is not a work of public internal improvement.' p 582

The opinion further noted the importance of measuring the Authority's financing activities by the relation of those activities to the Authority's purposes.

'. . . If a public body corporate has been validly and constitutionally created by the legislature, its borrowing and spending, insofar as any test of purpose is concerned, will be held to be valid whenever they are properly related to its corporate purposes.' 380 Mich at 565

Thus, any financing activity in which the Authority engages must relate to and satisfy the mandated purpose which is the encouragement of the construction of safe and sanitary dwelling accommodations within the financial means of low and moderate income families. In addition, before the Authority undertakes a program of financing activity involving commercial facilities, considerable care should be taken to assure that such activity does not constitute a breach of the Authority's covenants to its bondholders.

The Act, section 44, was amended by 1976 PA 410 and provides in pertinent part:

'The Authority may make loans to any nonprofit housing corporation, consumer housing cooperative, or limited dividend housing corporation or to any public body or agency for the construction or rehabilitation, and for the long-term financing, or housing for low income or moderate income persons, or social, recreational, commercial, or communal facilities necessary to serve and improve the residential area in which an authority financed housing project is located or is planned to be located thereby enhancing the viability of such housing . . .' (Emphasis supplied)

The statutory definition of 'housing projects,' as set forth in the Act, section 11(g) was amended by 1979 PA 49. This section, as amended, reads in pertinent part as follows:

"Housing project' means any of the following:

(i) Residential real property developed or to be developed or receiving benefits under this act.

(ii) A specific work or improvement either for rental or for subsequent sale to an individual purchaser undertaken by a non-profit housing corporation, consumer housing cooperative, or limited dividend housing corporation pursuant to or receiving benefits under this act to provide dwelling accommodations, including the acquisition, construction, or rehabilitation of lands, buildings, and improvements.'

(iii) Social, recreational, commercial, and communal facilities as the authority finds necessary to serve and improve a residential area in which housing pursuant to subparagraph (i) or (ii) is located or is planned to be located, thereby enhancing the viability of the housing.'

The above-quoted sections empower the Authority to finance commercial facilities under the circumstances set forth in the above-quoted sections of the Act. Thus, under the Act, section 44(1), the Authority may finance the construction or rehabilitation of commercial facilities where:

1. The borrower is an eligible, legal entity under the Act.

2. The commercial facility is necessary to serve and improve the residential area in which a low and moderate Authority financed housing project is located or is planned to be located.

3. The commercial facility will enhance the viability of the presently existing or planned low and moderate Authority financed housing.

Also included in the statutory definition of 'housing project' as set forth in the Act, section 11(f), are those commercial facilities which the Authority finds necessary to serve and improve the residential area in which Authority financed housing is located or planned and which enhances the viability of housing for low and moderate income persons financed pursuant to the Act.

The Act, section 1, was also amended by 1976 PA 410 and was further amended by 1977 PA 130 to read as follows:

'(1) It is determined that there exists in the state a seriously inadequate supply of and a pressing need for safe and sanitary dwelling accommodations within the financial means of low income or moderate income families or persons including, but not limited to, those families and persons displaced by clearings of slums and blighted areas or other public programs. It is further determined that there exists in the state a high incidence of residential real property occupied by persons of low and moderate income which is not safe, sanitary, or adequate and there exists a pressing need for rehabilitation of that property. It is further determined that there are inadequate social, recreational, commercial, and communal facilities in residential areas inhabitated by low income or moderate income families or persons and that low or moderate income housing financed pursuant to this act will not be viable without adequate social, recreational, commercial, and communal facilities in the area of authority financed housing. It is further determined that it is a valid public purpose to construct housing for those low or moderate income families and persons who would otherwise be unable to obtain adequate dwellings which they could afford, to rehabilitate residential real property occupied or to be occupied by persons and families of low and moderate income who would otherwise be unable to afford to make the residential real property safe, sanitary, or adequate, to construct social, recreational, commercial, and communal facilities to serve those families or persons to enhance authority financed low or moderate income housing, and to acquire land for present or future development including the housing and social, recreational, commercial, and communal facilities.' MCLA 125.1401; MSA 16.114(1)

In amending this section, the legislature made express findings concerning the Authority's financing of commercial facilities.

1. Inadequate commercial facilities exist in residential areas inhabited by low or moderate income persons.

2. Housing for low and moderate income persons financed pursuant to the Act would not be viable without adequate commercial facilities located in the area where the housing is located.

3. Financing the construction of commercial facilities in order to enhance the viability of housing financed pursuant to the Act is a valid public purpose.

Commercial facilities could improve residential areas deficient in those types of facilities and thereby improve the economic feasibility of an Authority financed housing project in such areas. Although the Act does not define the term 'commercial facilities,' the term has commonly accepted and plain meaning, particularly when considered in light of the purpose of the Authority in fostering needed low and moderate income housing.

Accordingly, in answer to your first question, it is my opinion that the Authority may finance commercial facilities which serve and improve the residential area in which an Authority project is located or planned to be located. Such facilities must provide basic domestic needs such as those provided by a supermarket, a clothing store, a hardware store or drug store when these facilities are not already available in the immediate vicinity of the residential area. It must be stressed that the basic function of the Authority is to provide housing, not commercial development; therefore, the commercial use must be incidental to the housing.

The answer to your second question is also to be found in sections 11(f) and 44 of the Act. Where the Authority finds the commercial facilities are 'necessary to serve and improve the residential area in which an Authority financed housing project is located or is planned to be located thereby enhancing the viability of such housing,' such commercial facilities financed by the Authority must be within walking distance of the residential facilities.

Your third question is also to be considered in light of the Authority's purpose. The Act, section 44(1), provides that mortgage loans can be made for housing 'or' commercial facilities. That section further provides that commercial facilities may be constructed prior to the time that residential housing financed under the Act is constructed. Commercial facilities, as a component of a housing project, may be financed by a mortgage loan separate from the mortgage loan financing residential housing. Therefore, the Authority is empowered to make separate mortgage loans for the construction or rehabilitation of the commercial facilities component of a housing project.

Frank J. Kelley

Attorney General


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