STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 5834

December 16, 1980

COMMERCE, DEPARTMENT OF:

Supervisory powers of director

EXECUTIVE ORGANIZATION ACT OF 1965:

Transfer of Michigan State Housing Development Authority to Department of Commerce

LEGISLATURE:

Authority to disapprove proposed executive order requiring force of law

MICHIGAN STATE HOUSING DEVELOPMENT AUTHORITY:

Effect of transfer of agency upon bond and note contracts

The proposed transfer of the Michigan State Housing Development of Commerce would not impair any obligation of any bond or note contract of the Authority.

The Legislature, by resolution adopted by a majority vote of the members elected to and serving in each house, may disapprove an executive order for whatever reason it chooses.

Under the transfer, the Michigan State Housing Development Authority would continue to exercise its powers, duties and functions independently of the Department of Commerce, except that budgeting, procurement and other related services, not including personnel, may be supervised by the director of the Department of Commerce. In exercising powers of supervision over budget, the director of the Department of Commerce must be cognizant of the covenants of the Authority in its outstanding bond and note contracts.

Honorable William A. Ryan

State Representative

The Capitol

Lansing, Michigan

You have requested my opinion on the following questions relating to the proposed transfer by Executive Order 1980-1A of the Michigan State Housing Development Authority (MSHDA) from the Department of Social Services to the Department of Commerce:

The MSHDA has been placed by the Legislature within the Department of Social Services in accordance with 1966 PA 346, Sec. 21(4), as last amended by 1979 PA 49; MCLA 125.1421; MSA 16.114(21). Because Executive Order 1980-1A places MSHDA within the Department of Commerce, the Executive Order is subject to disapproval by a resolution concurred in by a majority of the members elected to and serving in each house as set forth in Const 1963, art 5, Sec. 2. Executive Order 1980-1A is dated October 23, 1980 and the Legislature has sixty (60) calendar days to disapprove the Executive Order.

Your first question asks whether Executive Order 1980-1A adequately protects the rights of Authority bondholders.

The Governor has proposed to transfer the MSHDA from the Department of Social Services to the Department of Commerce. This portion of the Executive Order provides:

'4. Michigan State Housing Development Authority

On its face, the terms of Executive Order 1980-1A, 4, supra, transfer the MSHDA from one department and places it within another. The terms of the Executive Order expressly retain in the MSHDA all of its statutory, powers, duties and responsibilities. Further, all records, property, personnel, monies, funds of any kind, and unexpended balances of appropriations and allocations to the Authority shall be transferred with and shall remain under the control of the Authority, subject to any agreements of the Authority with its note and bondholders. Thus, the contractual obligations between MSHDA and its bondholders and noteholders are not in any way altered or amended by the express terms of Executive Order 1980-1A, 4.

No bond or note contract of MSHDA contains any covenant or agreement that MSHDA shall remain within the Department of Social Services during the life of the contract since MSHDA is without authority to enter into such a contract.

In OAG, 1965-1966, No 4468, p 291 (May 24, 1966), the Attorney General reviewed the transfer of the Mackinac and International Bridge Authorities by Type I transfer to the Department of State Highways. It should be noted that both authorities had issued bonds. The Attorney General concluded that the Bridge Authorities did not preserve their autonomous nature by virtue of the Type I transfer and found that the Type I transfer under the Executive Organization Act did not impair the obligation of any outstanding bonds and trust indentures security therefor, citing Const 1963, art 1, Sec. 10 and Bullinger v Gremore, 343 Mich 516; 72 NW2d 777 (1955).

Executive Order 1980-1A, 4, may not and, on its face, does not impair the obligation of any bond or note contract of MSHDA.

It is my opinion, therefore, in answer to your first question, that Executive Order 1980-1A, 4, does not impair the rights of MSHDA bondholders or noteholders.

In your second question, you ask, given the Authority's status as a quasi-corporation, if there are any special considerations which should be brought to the Legislature's attention in evaluating the merits of the proposed transfer.

The Michigan Supreme Court has defined a 'quasi-corporation' as an agency or instrumentality of state government with corporate powers to perform some public work in the course of administration of civil government. Advisory Opinion re Constitutionality of PA 1966, No 346, 380 Mich 554; 158 NW2d 416 (1968). As a quasi-corporation, it remains a public instrumentality of the state and its members are engaged in a public work. Comparing 1966 PA 346, Sec. 21, supra, with the Executive Order 1980-1A, 4, the powers, duties and functions of MSHDA as a quasi-corporation would remain unchanged, assuming that Executive Order 1980-1A becomes effective.

The authority of the Legislature to disapprove an Executive Order by a resolution adopted in each house and concurred in by a majority of the members elected to and serving therein is not limited. Const 1963, art 5, Sec. 2. The Legislature may, in its discretion, disapprove the resolution for whatever reason it chooses.

It is my opinion, therefore, in response to your second question that the Legislature may disapprove Executive Order 1980-1A for whatever reason it chooses.

Questions 3 and 4 are related and will be considered together.

The Legislature has created the MSHDA as a public body corporate and politic pursuant to 1966 PA 346, Sec. 21, supra, and expressly empowered it to employ an executive director, legal and technical experts, and other officers, agents and employees, and shall determine their qualifications, duties and compensation. This same section of the statute placed the MSHDA within the Department of Social Services, noting that MSHDA 'shall exercise the authority's prescribed statutory powers, duties and functions independently of the head of that department. However, the budgeting, procurement and related functions of the Authority shall be performed under the direction and supervision of the director of social services.' 1966 PA 346, Sec. 21, supra.

Executive Order 1980-1A, 4, purports to transfer the MSHDA intact into the Department of Commerce and expressly notes that MSHDA shall retain all of its powers, duties and functions independent of the head of that department. However, budgeting, procurement and related functions of the Authority shall be performed under the direction and supervision of the director of the Department of Commerce.

OAG, 1965-1966, No 4468, supra, examined the Type I transfer of the Mackinac and International Bridge Authorities to the Michigan Department of State Highways. The opinion concluded that the housekeeping functions of the bridge authorities having been placed under the direction and supervision of the head of the Department of State Highways, by implication the Legislature had repealed the parts of statutes conferring authority upon the bridge authorities to hire employees and fix their compensation. It should be noted that the Executive Organization Act was enacted after the statutes providing for the creation of the respective bridge authorities.

Here, 1966 PA 346, Sec. 21, supra, confers power upon MSHDA to hire its employees and determine their compensation, subject to appropriate rules of the Civil Service Commission. Const 1963, art 11, Sec. 5. At the same time, this section also gave supervision over budget, procurement and other related matters of MSHDA to the director of the Department of Social Services. Executive Order 1980-1A, 4, supra, purports to maintain the same relationship between MSHDA and the director of the Department of Commerce that existed when 1966 PA 346, Sec. 21, supra, was enacted by the Legislature.

It must be concluded that should Executive Order 1980-1A, 4, become effective, the director of the Department of Commerce has supervisory authority over budget procurement and other related matters by MSHDA, but has no supervisory authority over personnel. All other powers, duties and functions of MSHDA are to be exercised by MSHDA independent of the director of the Department of Commerce.

It should be noted that certain covenants of bond and note contracts of MSHDA require that it either maintain sufficient personnel or contract for such services to plan its programs and to supervise enforcement and where necessary, foreclosure of its mortgage agreements. Thus, failure of MSHDA to receive sufficient budgetary authorization to fulfill its bond or note covenants may result in an impairment of rights enjoyed by bondholders or noteholders. The director of the Department of Commerce, in exercising supervisory authority over budget of MSHDA, must be cognizant of the rights of bondholders or noteholders in this regard.

It is, therefore, my opinion in answer to your third and fourth questions that the MSHDA may exercise all of its power, duties and functions, including personnel functions, independent of the supervision of the director of the Department of Commerce, should Executive Order 1980-1A, supra, become effective, except for budget and procurement which must be exercised under supervision of the director of the Department of Commerce.

Your last question asks if any covenants of the MSHDA in its bond or note contracts may limit the exercise of the director of the Department of Commerce's powers and duties over MSHDA assuming Executive Order 1980-1A, 4, supra, takes effect.

The answer to the third and fourth questions demonstrate that the authority of the director of the Department of Commerce would be limited to budgeting, procurement and other related functions, but not including personnel. The answer to the first question contained the caveat that the Executive Order 1980-1A, 4, may not and, in fact, does not impair any bond or note contract to which the MSHDA is a party. The answer to questions 3 and 4 also pointed out that certain covenants contained in bond and note contracts of MSHDA require that the MSHDA maintain sufficient qualified employees or contract for such a service to operate its programs and to make certain that mortgages are enforced, and where necessary, foreclosed. In exercising the authority to supervise the budget of MSHDA, the director of the Department of Commerce must be cognizant of this contractual obligation of MSHDA. As the director of the Department of Commerce is a member of MSHDA, it must be presumed that he is aware of these contractual obligations. Thus, there is no basis to assume that the director of the Department of Commerce will take any action not consonant with any bond or note contract of MSHDA.

It is my opinion, therefore, in response to your last question, assuming that Executive Order 1980-1A, supra, becomes effective, that the powers of the director of the Department of Commerce relating to supervision over budgeting, procurement and related functions of MSHDA must be performed by the director of the Department of Commerce consistent with the terms of Executive Order 1980-1A, 4, and not in derogation of the terms of any bond or note contract issued by MSHDA.

Frank J. Kelley