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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. 6094

August 26, 1982

BONDS:

Commingling of debt retirement funds of bond issues of like character for investment purposes

CONSTITUTIONAL LAW:

Const 1963, art 4, Sec. 25--amendment of statute without reenacting and publishing statute

SCHOOLS AND SCHOOL DISTRICTS:

Commingling of debt retirement funds of bond issues of like character for investment purposes

WORDS AND PHRASES:

'Bonds of like character'

1975 PA 176, which amended 1943 PA 200, c VII, Secs. 1a and 1b to except school districts from the requirement that taxes levied to pay principal and interest on bonded indebtedness must be allocated to the bond issue for which it was levied and may not be used for any other purpose than to retire that funded indebtedness, is unconstitutional as violative of Const 1963, art 4, Sec. 25.

Debt retirement funds established for bond issues delivered by school districts prior to July 1, 1975 must be maintained as separate funds and may not be commingled in a common fund for investment purposes contrary to any outstanding bond contract.

General obligation school bond issues qualified by the Superintendent of Public Instruction and delivered by school districts after June 30, 1975 are bonds of like character for the purpose of commingling moneys in separate debt retirement funds of such bond issues for investment purposes only, provided that the school district has not convenanted with its bondholders to maintain a separate debt retirement fund.

General obligation school bond issues not qualified by the Superintendent of Public Instruction and delivered by school districts after June 30, 1975 are bonds of like character for the purpose of commingling moneys in separate debt retirement funds for such bond issues for investment purposes only, provided that the school district has not convenanted with its bondholders to maintain a separate debt retirement fund.

Existing balances of separate debt retirement funds of qualified, unlimited tax bond issues of school districts and existing balances of separate debt retirement funds of unqualified, unlimited tax bond issues of school districts, respectively, may be separately commingled for investment purposes only, provided that the bond issues were delivered after June 30, 1975 and the school district has not covenanted with its bondholders to maintain a separate debt retirement fund.

Mr. Loren E. Monroe

State Treasurer

Treasury Building

Lansing, Michigan

You have requested my opinion on several questions relating to the establishment of a common school district debt retirement fund by a school district. Your questions will be separately stated and answered.

Your first question is:

Must debt monies existing in separate debt retirement funds prior to enactment of enabling legislation be maintained separately or may they be commingled with new money collected for debt retirement and be placed into a common debt retirement fund where so authorized by resolution of the school district board?

Consideration of your question must begin with 1955 PA 269, Sec. 568, as originally enacted, which empowered the treasurer of a school district, upon authorization by resolution of the board of education, to invest debt retirement funds subject to the following pertinent limitation:

'Moneys in the several funds of a district shall not be commingled for the purpose of making any investment authorized by this section and all earnings on any such investment shall become a part of the fund for which such investment was made.

The Legislature amended 1955 PA 269, Sec. 568, by means of 1975 PA 127 to add the following italicized sentence to the aforesaid limitation so that it read:

'Moneys in the several funds of a district shall not be commingled for the purpose of making any investment authorized by this section. A school district, however, may establish and maintain one common debt retirement fund for all issues of bonds of like character. Earnings of an investment shall become a part of the fund for which the investment was made.' (Emphasis added.)

1955 PA 269, Sec. 568, was repealed by the Legislature and supplanted by 1976 PA 451, Sec. 1223; MCLA 380.1223; MSA 15.41223, and the present law, in part, provides:

'(3) Money in the several funds of a school district shall not be commingled for the purpose of making an investment authorized by this section. The board of a school district, however, may establish and maintain 1 common debt retirement fund for issues of bonds of similar character.

'(4) Earnings of an investment shall become a part of the fund for which the investment was made, . . .'

It is readily apparent that, except for paragraphing, 1976 PA 451, Sec. 1223(3) and (4), supra, is the same as the predecessor 1955 PA 269, Sec. 568.

1943 PA 202, c VII, Sec. 1a and 1b; MCLA 137.1a; MSA 5.3188(45a); MCLA 137.1b; MSA 5.3188(45b), must also be considered.

In 1943 PA 202, c VII, Sec. 1a, supra, the Legislature has imposed a duty upon a school district to levy sufficient taxes to pay principal and interest on bonds, refunding bonds, notes or indebtedness payable from taxes as may become due and the taxes collected shall be divided pro rata among the various debt retirement funds in accordance with the amount levied therefor. Books and records of the municipality must reflect the allocation of the taxes among the various bond and note issues. Upon payment of all the bonds of a particular bond issue, moneys are to remain in the debt retirement fund for a period of two years after retirement, unless previous approval to transfer the funds is authorized by the Municipal Finance Commission.

The Legislature amended 1943 PA 202, c VII, Sec. 1a, supra, by 1975 PA 176 to except the common debt retirement fund maintained by a school district pursuant to 1955 PA 269 from the requirement for the allocation upon the books and records between the various issues based upon the amounts levied therefor.

As added by 1947 PA 202, 1943 PA 202, c VII, Sec. 1b, supra, provided:

'All debt retirement funds shall be kept separate from each other and separate from all other moneys of the municipality and shall be used only to retire the funded indebtedness of the municipality for which such debt retirement fund was created.'

The Legislature amended this section by means of 1975 PA 176 to read:

'Debt retirement funds, except in the case of a common debt retirement fund maintained by a school district pursuant to section 568 of Act No. 269 of the Public Acts of 1955, as amended, being section 340.568 of the Michigan Compiled Laws, shall be kept separate from each other and separate from other moneys of the municipality and shall be used only to retire the funded indebtedness of the municipality for which the debt retirement fund was created. (Emphasis added.)

The italicized portion is the language inserted by amendatory 1975 PA 176.

Since it was the same Legislature that enacted amendatory 1975 PA 127 and amendatory 1975 PA 176, it must be presumed that the Legislature had full knowledge of the provisions of each amendatory act. Reichert v Peoples State Bank for Savings, 265 Mich 668; 252 NW 484 (1934).

The 1975 Legislature, in authorizing a common debt retirement fund for school district debt retirement funds, was doing so for more than investment purposes. Yet it must be noted the 1975 Legislature, in the enactment of 1975 PA 127, retained, unchanged, the last sentence of 1955 PA 269, Sec. 568, which commanded that the earnings on the investments shall become part of the fund for which the investment was made. Moreover, the Legislature had provided in 1955 PA 269, Sec. 566, that no money raised by tax shall be used for any other purpose than for which it was raised without the consent of a majority of the school tax electors of the district voting on the question. Thus, it is to be concluded that the Legislature intended by amendatory 1975 PA 176 to empower school districts to set up a common debt retirement fund for issues of bonds of similar character for purposes in addition to investment so as to permit tax proceeds and the investment income therefrom levied for payment of principal and interest on one bond issue to be used for the payment of principal and interest on another bond issue of similar character. In doing so, the Legislature clearly changed 1955 PA 269, Sec. 566 so as to provide an additional purpose for which money could be raised by tax without a vote of the people, thereby failing to observe the 'reenact and publish' clause of Const 1963, art 4, Sec. 25. Alan v Wayne County, 388 Mich 210, 268-288; 200 NW2d 628 (1972).

Const 1963, art 4, Sec. 25 provides:

'No law shall be revised, altered or amended by reference to its title only. The section or sections of the act altered or amended shall be re-enacted and published at length.'

Appellate court decisions and numerous Attorney General opinions have construed this section to mean that where a statute seeks to 'dispense' with or 'make changes' in another statute, the amended statute must be re-enacted and republished. Alan v Wayne County, supra; OAG, 1981-1982, No 6036, p 548 (January 29, 1982). By its enactment of 1975 PA 176, the Legislature failed to comply with Const 1963, art 4, Sec. 25 when it did not provide for the re-enactment and publication of 1955 PA 269, Sec. 566, supra, as it was purported to be amended.

Based on these authorities, it is my opinion that the exceptions engrafted into 1943 PA 202, c VII, Secs. 1a and 1b, supra, by means of 1975 PA 176 so as to read in each section, 'except in the case of a common debt retirement fund maintained by a school district pursuant to section 568 of Act No. 269 of the Public Acts of 1955, as amended, being section 340.568 of the Michigan Compiled Laws' violate Const 1963, art 4, Sec. 25, and 1975 PA 176, is therefore, unconstitutional.

Amendatory 1975 PA 127 was prospective in its operation since there is no legislative intent manifested therein that it operate retrospectively. McQueen v Great Markwestern Packing Co, 402 Mich 321; 262 NW2d 820 (1978).

Finally, it must be observed that bond resolutions passed by boards of education of school districts prior to enactment of amendatory 1975 PA 127 commonly contained a covenant to establish a separate debt retirement fund into which taxes levied for a specific bond issue were required to be deposited, thereby precluding commingling or use for any other purpose.

In answer to your first question, it is my opinion that separate debt retirement funds established for bonds issued by school districts prior to the effective date of amendatory 1975 PA 127 must be maintained as separate funds and may not be commingled in a common fund for investment purposes contrary to any outstanding bond contract.

You second question is:

What is the meaning of the phrase of the Act 'bonds of like character,' i.e., does this language encompass voted, nonvoted, qualified and nonqualified bonds or any one of these four categories or a combination of these four categories?

This question is asked within the context of 1976 PA 451, Sec. 1223, supra.

Particular words and phrases used in a statute must be given their usual and customary meaning unless the statute otherwise defines them. Sanchick v State Board of Optometry, 342 Mich 555; 70 NW2d 757 (1955).

Webster's Third New International Dictionary defines the term 'like' as 'a . . . thing similar or equal to the one referred to' and the term 'character' is defined as 'a distinctive differentiating mark.'

It is readily apparent that 'bonds of like character' are those bond issues which resemble each other in salient features and are distinguishable by those qualities from other bond issues. Kneeland v Emerton, 280 Mass 371; 183 NE 155, 163 (1932); Bader v Coale, 48 Cal App 2d 276; 119 P2d 763, 765 (1941).

Prior to December 23, 1978, the effective date of the Headlee Amendment, which amended Const 1963, art 9, Sec. 6 so as to prohibit unlimited tax support for bonds or other evidences of indebtedness unless the issuance of such bonds or other evidences of indebtedness was approved by the electors, a school district was empowered pursuant to Const 1963, art 9, Sec. 6 to levy taxes without limitation as to rate or amount in order to meet the debt service on its general obligation bonds within limits authorized by the Legislature, regardless of whether voted by the electors or qualified by the Superintendent of Public Instruction. See, Butcher v Grosse Ile Twp., 387 Mich 42; 194 NW2d 845, cert den, 409 US 814; 93 S Ct 69; 34 L Ed 2d 71 (1972), and Fizer v Onekama Consolidated Schools, 83 Mich App 584; 269 NW2d 234 (1978), lv den, 406 Mich 910 (1979). Subsequent to the effective date of the Headlee Amendment, school districts are prohibited from issuing bonds with an unlimited tax pledge unless approval therefor is voted by the electors. OAG, 1977-1978, No 5417, p 740 (December 20, 1978), and OAG, 1979-1980, No 5652, p 608 (February 13, 1980).

Thus, all general obligation school bonds issued after January 1, 1964 and prior to the Headlee Amendment are payable from the proceeds of the levy of ad valorem taxes without limitation as to rate or amount, and those issued after the Headlee Amendment must be authorized by a vote of the electors and are payable from unlimited taxes. While such bonds appear to be bonds of 'like character,' since they are supported by the unlimited power of the school district to levy taxes for debt service, they may not be 'of like character' if the school district does not qualify all of its general obligation bonds pursuant to Const 1963, art 9, Sec. 16 and its predecessor Const 1908, art 10, Secs. 27 or 28.

If a school district issues bonds which are qualified pursuant to Const 1963, art 9, Sec. 16 or its predecessor Const 1908, art 10, Sec. 27 or 28, as the case may be, the school district is required to levy each year not less than 13 mills or a lesser minimum millage specified by the Legislature, exclusive of the levy for nonqualified bonds for the payment of principal and interest on qualified bonds and the school district may avail itself of loans from the state to pay principal and interest on qualified bonds in accordance with 1961 PA 108; MCLA 388.951 et seq; MSA 3.424(111) et seq.

In order for general obligation bonds proposed to be issued by a school district to be qualified under Const 1963, art 9, Sec. 16, 1961 PA 108, supra, Sec. 3, requires, inter alia, that the last maturity on such bond issue be not less than 25 years from the date of issue appearing thereon and that the proceeds of the bond issue fund a project to provide needed classrooms and furnishings exclusively; that is, the funded project may not include swimming pools, athletic fields or athletic stadiums.

In answer to your second question, it is my opinion that the debt retirement funds for qualified general obligation bonds issued by a school district may be combined in a common debt retirement fund for investment purposes and the debt retirement funds for nonqualified general obligation bonds of a school district may similarly be combined in a separate common debt retirement fund, provided, however, that the issuing school district has not otherwise covenanted with its bondholders to maintain a separate debt retirement fund.

Your third question is:

Must the existing balances in the separate debt retirement funds of a school district be exhausted before a common debt retirement fund can be established?

In response to your third question, existing balances of the separate debt retirement funds may be combined for investment purposes only for bond issues of like character delivered after the effective dates of amendatory 1975 PA 127 and 1975 PA 176 where the school district has not covenanted with its bondholders to maintain a separate debt retirement fund.

Frank J. Kelley

Attorney General


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