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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)



Opinion No. 5932

July 22, 1981


Use of investment income from proceeds of bond for construction of project


Use of investment income from proceeds of bond for construction of project

Investment income on the proceeds of bonds issued for the construction of a county hospital may be used to complete the project in accordance with the bond contract. After completion of the project, any money remaining in the construction fund and investment income therefrom must be placed in the debt retirement fund to be applied on the outstanding indebtedness.

Earl H. Morgan, Jr.

Prosecuting Attorney

Lapeer County

255 Clay Street

Lapeer, Michigan 48446

You have requested my opinion in relation to interest earned on proceeds of a $14,000,000 general obligation bond issue of Lapeer County of December 1, 1976 pursuant to 1923 PA 118, as amended; MCLA 141.61 et seq; MSA 5.2251 et seq, for the purpose of hospital construction. You ask specifically the following question:

May the interest earned on hospital construction bonds be used for the construction of said hospital facility, or must the interest be devoted to the retirement of the bonds?

A similar question was considered by Attorney General Paul Adams at the request of the Auditor General with respect to bonds which were also issued under 1923 PA 118, supra. Opinion M176 was rendered on May 9, 1958, which concluded:

'It is therefore my opinion that interest earned on investments lawfully made from proceeds of bonds sold could be credited to the building construction fund for the project and used for purposes consistently a part of such project. Such earnings could, with equal propriety, be transferred to the debt retirement fund for the bonds.'

Thus, under 1923 PA 118, supra, interest earned on bond proceeds may be used to finance part of the cost of the project or may be applied to the debt service on the bonds unless the bond contract otherwise limits the use of such interest income.

Review of the transcript of the subject bond issue filed with the Municipal Finance Commission prior to the issuance of the bonds indicates a certification that the bonds were approved by the electors of the county for the purpose of paying part of the cost of the project.

The transcript further indicates that the county board of commissioners authorized bonds to be issued in the principal sum as approved by the electorate to defray the cost of the project and that the difference between the bond issue and the total cost of the project would be funded in part by interest earned on the bond proceeds during the construction period.

It is my opinion, therefore, that where, as here, it is contemplated that the investment income on bond proceeds will be used to defray part of the cost of the project, investment income must in fact be so utilized in order to assure, to the extent possible, completion of the project. After completion of the project, however, any money remaining in the construction fund, including investment income thereon, if any, must be returned to the debt retirement fund to be applied to the outstanding indebtedness.

Frank J. Kelley

Attorney General

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