STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 5666

February 26, 1980

CITIES:

Resolution of legislative body as to tax exemption and annual service charges

HOUSING:

Exemption from taxes for low-income housing

TAXATION:

Exemption from taxes for low-income housing

The legislative body of a munitipal corporation may, by resolution confirming the term of a tax exemption and confirming the amount of the statutory annual service charges for the term of the tax exemption, bind its successors as to the term of the tax exemption and the annual service charges for such low-income housing during such term.

Honorable William A. Ryan

State Representative

The Capitol

Lansing, Michigan

You have requested my opinion whether the City Commission of the City of Muskegon may, by adoption of a resolution, affirm that Bayview Towers Limited Dividend Housing Association, a proposed development for low-income elderly persons to be erected within the City of Muskegon, would have a tax exemption under Ordinance 2-6 which will bind the City. The proposed resolution also seeks to effectuate a contract between the City and Bayview Towers with the Michigan State Housing Development Authority, the Mortgagee, as third party beneficiary as to the length of the term of the tax exemption and the amount of the service charge to be paid by the Association during the life of the mortgage.

Muskegon Ordinance 2-6 was adopted pursuant to the Michigan State Housing Development Authority Act, 1966 PA 346, Sec. 15a, added by 1968 PA 334, as last amended by 1979 PA 49; MCLA 125.1415a; MSA 16.114(15a), which provides that a tax exemption shall be granted to housing developments constructed with a federally-aided or authority-aided mortgage. Under 1966 PA 346, Sec. 15a(5), supra, a municipality may determine by ordinance to exclude any or all classes of housing projects from the statutory tax exemption.

In the absence of an ordinance, the statutory exemption provided by the Legislature in 1966 PA 346, Sec. 15a(1), supra, controls. As stated in Lexington Townhouses Cooperative v City of Warren, 32 Mich App 523, 529; 189 NW2d 138, lv app den, 385 Mich 765 (1971):

The City Commission of the City of Muskegon has enacted Ordinance 2-6 which excludes tax exemption for housing projects, except for low-rent housing for the elderly pursuant to the section 8 housing assistance payment program for new construction provided by the United States Housing Act of 1937; 42 USC 1401-1430. In enacting Ordinance 2-6, the City Commission has exercised its statutory discretion pursuant to 1966 PA 346, Sec. 15a(5), supra, which authorizes a municipality to provide by ordinance that all classes or any class of housing projects shall not be exempt from taxation, as provided in 1966 PA 346, Sec. 15a(1), supra.

A city may adopt a contract by resolution of its legislative body unless the city charter provides that contracts be entered into only by ordinance. Rollingwood Home Owners Corp, Inc v City of Flint, 386 Mich 258; 191 NW2d 325 (1971). The Muskegon City Charter pertinently provides, in Chapter XIV, Section 1, that the City must contract by ordinance only in the granting of public facility franchises. With that exception, the City Commission possesses the power to enter into all other contracts by resolution. 'A resolution is not a law or an ordinance, but merely the form in which a legislative body expresses a determination or directs a particular action.' Kalamazoo Municipal Utilities Association v City of Kalamazoo, 345 Mich 318, 328; 76 NW2d 1 (1956). Inasmuch as the proposed resolution seeks to implement Ordinance 2-6 and the provisions of 1966 PA 346, Sec. 15a, supra, it would be a valid exercise of municipal authority by the City Commission.

1966 PA 346, Sec. 15a(3), supra, provides in pertinent part:

Similar to 1966 PA 346, Sec. 15a(5), supra, a municipality is accorded statutory discretion under 1966 PA 346, Sec. 15a(3), supra, to approve the allowable maximum duration of the exemption, or, by ordinance, to determine a different time period for the exemption to remain in effect. Thus, under Ordinance 2-6, which permits a tax exemption for low-rent housing constructed for the elderly, the City Commission possesses discretion to determine the duration of the tax exemption for any low-rent housing project under 1966 PA 346, Sec. 15a(3), supra. See, Alco Universal, Inc. v City of Flint, 386 Mich 359, 362; 192 NW2d 249, 253 (1971). While 1966 PA 346, Sec. 15a(3), supra, authorizes a municipality to 'establish' by ordinance the duration of exemption for a particular project, the statute does not authorize a municipality to change the duration once established.

In addition, the fixing of the duration of the exemption by ordinance for the specific low-rental housing project granted by the municipality under 1966 PA 346, Sec. 15a(3), supra, being the result of municipal discretion, binds the city and may not be unilaterally changed or repudiated by the city. See also, Troy Towers Redevelopment Co v City of Troy, 51 App Div 173; 380 NYS2d 89 (App Div 1976), aff'd 393 NYS 2d 397; 361 NE2d 1045 (1977); Sampson v City of Cedar Falls, 231 NW2d 609, 613 (Iowa 1975); Terminal Enterprises, Inc v Jersey City, 54 NJ 568; 258 A2d 361 (1969). In addition, it should be observed:

In City of Detroit v Detroit Citizens' State R Co, 184 US 368; 22 S Ct 410; 46 L Ed 592 (1902), the United States Supreme Court held that the Michigan Legislature, unless constitutionally prohibited, could authorize a city to contract with a street railway company as to rates of fare, and so bind, during the contractually-specified period, any subsequent council from altering or in any way interfering with such contract. Thus, where a municipal body has determined the duration of tax exemption, pursuant to 1966 PA 346, Sec. 15a(3), supra, whether by following the statutorily-prescribed duration or through the adoption of an ordinance, the city is bound by the determination.

It should also be noted that 1966 PA 346, Sec. 15a(2), supra, provides that a housing project exempt from taxation 'shall pay to the municipality in which the project is located an annual service charge for public service in lieu of all taxes.' 1966 PA 346, Sec. 15a(2), supra, continues in pertinent part:

1966 PA 346, Sec. 15a(2), supra, clearly reposes discretion in the municipality to determine the amount of the service charge to be imposed in lieu of taxes (1) by electing to follow the statutorily-authorized method, or (2) by the adoption of an ordinance.

1966 PA 346, Sec. 15a(2), supra, provides that the amount to be paid as a service charge in lieu of taxes for a new construction project shall be the greater of (a) the property tax on which the project is located for the tax year prior to the date when construction was commenced, or (b) 10% of the annual shelter rents from the housing project. However, 1966 PA 346, Sec. 15a(2), supra, further provides that the municipality, by ordinance, may establish the service charge to be paid in lieu of taxes, or may change the service charge to be paid in lieu of taxes, by any amount it chooses, for all or any class of housing projects, so long as the amount does not exceed the taxes that would have been paid but for the exemption. Therefore, where a municipality does not enact an ordinance providing for a service charge, 1966 PA 346, Sec. 15a(2), supra, provides that the service charge in lieu of taxes shall be as provided in the statute. However, the authority of the municipality to change the service charge by ordinance may not be construed as extending to a housing project which pays a service charge based upon the statutorily-authorized method described in 1966 PA 346, Sec. 15a(2), supra, or pursuant to a different service charge established by ordinance, unless the municipality in its ordinance establishing the annual service charge expressly reserves the power to change subsequently the annual service charge. Once a municipality has exercised its discretion and has determined the level of a service charge in lieu of taxes to be paid by an exempt project, this determination binds future legislative bodies. Troy Towers, Sampson, Terminal Enterprises, Inc, supra. Further, as the establishment of a service charge in lieu of taxes under 1966 PA 346, Sec. 15a(2), supra, has been authorized by the Legislature, there can be no question that a contractual agreement on service charges entered by a local legislative body may not be repudiated subsequently. City of Detroit, supra. In Troy Towers, supra, the New York Court of Appeals held that a resolution providing for the payment of an annual sum in lieu of taxes, pursuant to statute, was binding upon the city and could not be repudiated by an attempted levy of taxes on the housing project.

Thus, where a municipality determines the method and level of the same charge which is to be paid by an exempt project during the project's exemption from taxation, pursuant to 1966 PA 346, Sec. 15a(2), supra, such determination may not be repudiated or unilaterally altered by subsequent action of the municipality.

A proposed resolution would confirm the term of the tax exemption for Bayview Towers and would confirm the annual service charge for the duration of such term pursuant to the statute. In the proposed resolution, the City Commission would acknowledge the benefit of the project to the City in that the housing project to be financed by an authority-aided mortgage will provide needed housing for senior citizens and constitute new construction in a rehabilitation area, which will promote beneficial development in an economically feasible manner. Further, the developer of Bayview Towers would bind itself to make payments to the City of Muskegon in lieu of taxes for the duration of the tax exemption, in addition to making mortgage payments to the Authority. Assuming such a resolution is adopted, the developer of Bayview Towers will then construct and operate a housing project for elderly persons of low income.

Taking the resolution in its entirety, it is evident that there is mutuality of obligations between the City and the developer of Bayview Towers sufficient to support a valid contract. Bastian v J. H. DuPrey Co, 261 Mich 94; 245 NW 581 (1932).

This construction of 1966 PA 346, Sec. 15a, supra, gives meaning and effect to the legislative intent to permit the development, financing, construction and the granting of tax exemption for, housing for low-income persons and families. To construe the statute to authorize municipalities to take away or diminish tax exemptions absent an express reservation in the authorizing ordinance, after a project has been commenced, either by a total withdrawal of the exemption or by an increase in annual service charges, would defeat the legislative intent. In re Advisory Opinion on Constitutionality of Act No 346 of Public Acts of 1966, 380 Mich 554; 158 NW2d 416 (1968); In re Requests of Governor and Senate on Constitutionality of Act No 294 of Public Acts of 1972, 389 Mich 441; 208 NW2d 469 (1973). The discretion to confirm the tax exemption during the life of the mortgage and to confirm the statutory service charges in a definitive manner during the life of the mortgage of the project rests in the municipality, and once exercised with respect to a particular project, may not be unilaterally altered by the municipality.

It is, therefore, my opinion that such a proposed resolution in furtherance of Ordinance 2-6 will, if adopted by the Muskegon City Commission, subsequently bind the City in accordance with the statute.

Frank J. Kelley