STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6123

February 4, 1983

FOREST IMPROVEMENT ACT:

1980 PA 298, MCLA 320.1101 et seq; MSA 13.267(101) et seq

CONSTITUTION OF MICHIGAN:

Const 1963, art 9, Sec. 18

US CONSTITUTION:

US Const, Am XIV

The governing board of the forest improvement district need not be selected in accordance with the constitutional one-person-one-vote principle.

Neither the state nor any agency thereof may become a member of a forest improvement district under 1980 PA 298.

The provisions for funding of a forest improvement district set forth in 1980 PA 298, art 2, Secs. 201 & 202, are violative of Const 1963, art 9, Sec. 18.

1980 PA 298, art 6, may not be construed to permit state or public money to be utilized for cost sharing agreements or loans to members without violating Const 1963, art 9, Sec. 18 unless the money is appropriated for this purpose pursuant to Const 1963, art 4, Secs. 30 & 31.

The bonds of a forest improvement district authorized under 1980 PA 298, supra, must explicitly provide, and bondholders must be advised, that such bonds are not the debt of the state; the bonds must be self-liquidating and may not create any obligation on the state to fund a deficiency; and they must be payable from sources other than state appropriations or properties, in order not to offend Const 1963, art 9, Sec. 18.

1980 PA 298, art 4, Sec. 412(4) & (5), must be construed as permitting the substitution of the Commission only in those contracts or obligations which do not create debt and are not violative of Const 1963.

A forest improvement district is not authorized by 1980 PA 298, supra, to loan bond proceeds to individual members or owners of forest land within the district.

Howard A. Tanner

Director

Department of Natural Resources

Stevens T. Mason Building

Box 30028

Lansing, Michigan

You have requested my opinion on several questions related to the Forest Improvement Act, 1980 PA 298; MCLA 320.1101 et seq; MSA 13.267(101) et seq. You ask:

OVERVIEW OF THE ACT

The Forest Improvement Act, 1980 PA 298, supra, art 1, Sec. 102, states that the act's purpose is to stimulate improved management and utilization of forest land and forest resources within this state, to improve the timber productivity of forest land and to improve all forest resources so that the overall effect is to improve the total forest resource system.

These purposes are to be effectuated through the development of forest improvement districts established upon petition by the statutorily requisite number of landowners who control a minimum total combined acreage within the gross territorial boundary proposed to be organized as a district. The petition is made to the Commission of Natural Resources. If the Commission of Natural Resources finds, after notice and hearing, that a district is feasible, a forest improvement district is established according to the boundaries set by the Commission of Natural Resources. 1980 PA 298, supra, art 4, Secs. 403, 404.

The governing body of a forest improvement district consists of a board of directors of five persons who, except for the members of the first board, ⁽¹⁾ are members of the district and elected by members ⁽²⁾ who own forest land within a forest improvement district. The electing members' votes are weighted by the number of acres owned. Provision is also made for appointment of a forest improvement district board member by the Director of the Department of Natural Resources if state lands encompassed within the gross territorial boundary are greater than 5% of the member forest land which comprises the district, and a timber volume agreement has been made. 1980 PA 298, supra, art 4, Sec. 409. ⁽³⁾

The board has powers related to forest practices and the establishment of standards, including power to condemn property for use as industrial sites and establish minimum standards for the conduct of forest practices on land owned or occupied by a member of the district. The board may issue bonds, make loans to members, and engage in various commercial practices, including the construction and operation of sawmills, acting as marketing agent, and making personnel, machinery, materials, and equipment available to members. 1980 PA 298, supra, art 4, Sec. 413. A district is composed of voluntary members, 1980 PA 298, supra, art 1 Sec. 107(4). Although all lands within the boundary are included within the forest improvement district, the board's powers and authority extend to member lands only.

1980 PA 298, supra, art 6, Sec. 601, authorizes the district to enter into cost-sharing agreements with its members whereby up to 90% of the cost of forest practices may be paid by the district. The district may also make loans to members to cover the cost of forest practices, including the member's cost-share contribution. 1980 PA 298, supra, art 6, Sec. 605. The board may also forgive a loan under the specified circumstances. 1980 PA 298, supra, art 6, Sec. 602(4). Accordingly, by the terms of the act, a district may be extensively engaged in funding the cost of forest practices and making loans to members.

1980 PA 298, supra, art 7, authorizes the board to issue bonds for enterprise activities authorized by 1980 PA 298, art 4, Sec. 413, supra. 1980 PA 298, supra, art 7, Sec. 704, states that these bonds are not to be general obligations of, nor are they to constitute debt of, the state. (See also 1980 PA 298, supra, art 4, Secs. 413(o) and art 7, Sec. 702(2), to the same effect.) 1980 PA 298, supra, art 7, Sec. 710(1), provides that the state pledges and agrees with the holders of these bonds that the state will not limit or alter the rights vested in a district to fulfill its obligations to bondholders, or in any way impair their rights and remedies, until the bonds and obligations related thereto are fully met and discharged. This pledge and agreement of the State are to be included in each agreement with bondholders.

1980 PA 298, supra, art 7, Sec. 702(1), provides that specific revenues may be pledged to secure the bonds issued. In addition, the district is authorized to pledge its full faith and credit. 1980 PA 298, art 7, Sec. 702(2), supra. As security for these bonds, a district, with Commission approval, may create a debt service reserve fund equal to the maximum principal and interest due on the bonds in any year. 1980 PA 298, supra, art 7, Sec. 703. This reserve fund may be funded by appropriation from the general fund of the state, 1980 PA 298, supra, art 7, Sec. 703(1). If this reserve fund is exhausted or is inadequate, 1980 PA 298, supra, art 7 Sec. 703(3), sets forth a mechanism whereby the amount of the deficiency, as certified by the board of the district and the director of the Department of Natural Resources, must be included in the Governor's annual budget. 1980 PA 298, supra, however, contains no express requirement that the Legislature so appropriate. This mechanism is sometimes claimed to be a 'moral obligation' of the state.

1980 PA 298, supra, art 2, Secs. 201 & 202, provide that the Commission of Natural Resources may fund any forest improvement district from a legislative appropriation and from other sources, including the general fund of the state, ⁽⁴⁾ and that a district shall submit its annual expenses to the Department of Natural Resources and the Department shall include those expenses in its annual budget request to the Legislature.

1980 PA 298, art 4, Sec. 406, supra, provides that a forest improvement district is a governmental subdivision of the state and a public body corporate. A public body corporate may be a quasi corporation. Huron-Clinton Metropolitan Authority v Boards of Supervisors of Five Counties, 300 Mich 1, 18; 1 NW2d 430 (1942).

In Advisory Opinion re Constitutionality of PA 1966, No 346, 380 Mich 554; 158 NW2d 416 (1968), the court considered the status of the Michigan State Housing Development Authority and indicated distinction between the legislative creation of a private corporation vis-a-vis a public entity. The court said:

In view of the provisions of 1980 PA 298, supra, hereinabove described, it is appropriate to consider statutes that circumscribe conflict of interest or other activity affecting ethics. Consideration must be given to whether forest district board members are subject to 1968 PA 317; as amended MCLA 4.1700(51) et seq; MSA 4.1700(51) et seq, which relates to the conduct of public servants in certain conflict of interest situations. ⁽⁵⁾

1968 PA 317, supra, Sec. 1, defines 'public servant' as including 'all persons serving any public entity, except members of the legislature and state officers who are within the provisions of section 10 of article 4 of the state constitution as implemented by legislative act', and 'public entity' is defined as 'the state including all agencies thereof, any public body corporate within the state, including all agencies thereof. . . .'

1968 PA 317, supra, Sec. 2(1) prohibits a public servant from soliciting or being a party, directly or indirectly, to any contract between himself and the public entity of which he is an officer except as specifically provided or excepted in the act. 1968 PA 317, supra, Sec. 3(1), and public policy prohibit board members from self-dealing among themselves.

1973 PA 196, as amended; MCLA 15.341 et seq; MSA 4.1700(71) et seq, prohibits a public officer from rendering services for a private interest when such employment or service is incompatible or in conflict with the discharge of official duties or may tend to impair independence of judgment or action in the performance of official duties. 1973 PA 196, supra, also prohibits a public officer from participation in any contract, loan or regulation related to a business entity in which the public officer has a financial or personal interest. OAG, 1981-1982, No 5864, p 64 (March 17, 1981) and OAG, 1981-1982, No 6005, p 439 (November 2, 1981).

I

Your first question asks whether the method of election of the governing board violates the one-person-one-vote constitutional principle.

The one-person-one-vote principle provided for by the Equal Protection Clause of US Const, Am XIV, was held to apply to the election of state legislators in Reynolds v Sims, 377 US 533; 84 S Ct 1362; 12 L Ed 2d 506 (1964). This principle was extended to a county governing body and a junior college district, respectively, in Avery v Midland Co, 390 US 474; 88 S Ct 1114; 20 L Ed 2d 45 (1968), and Hadley v Junior College District, 397 US 50; 90 S Ct 791; 25 L Ed 2d 45 (1970).

However, in application of the one-person-one-vote principle of Avery, supra, the United States Supreme Court expressly reserved the question as to whether that principle would apply where a special-purpose unit of government affected the interests of definable groups of constituents more than others.

Such a special-purpose unit was found to exist in Salyer Land Co v Tulare Lake Basin Water Storage District, 410 US 719; 93 S Ct 1224; 35 L Ed 2d 659 (1973), where the Supreme Court addressed this question directly. Salyer involved a water storage district in California where the Board of Directors were elected by landowners with votes weighed by assessed value.

In striking down an equal protection challenge to the method of election in Salyer, the Supreme Court said:

The Supreme Court reached the same conclusion in Associated Enterprises, Inc v Toltec Watershed Improvement District, 410 US 743; 93 S Ct 1237; 35 L Ed 2d 675 (1973), which involved a watershed improvement district.

In Ball v James, 451 US 355; 101 S Ct 1811; 68 L Ed 2d 150 (1981), the United States Supreme Court considered the constitutionality of a system of electing directors of a large water reclamation district in Arizona which, under state law, limited general voting eligibility to landowners and apportions voting power according to the amount of land a voter owned. A class of registered voters living in the district and owning no land or inconsequential amounts of land claimed the election scheme violated the Equal Protection Clause of US Const, Am XIV, because the district had such governmental powers as authority to condemn land and sold tax-exempt bonds and because the district sold electricity to almost half of the state and exercised substantial environmental control in the state.

An equally divided Court, in Ball, supra, upheld the voting scheme as being constitutional because the scheme bore a reasonable relationship to the district's statutory objectives and its purposes were sufficiently specialized and narrow in its activities to relate to the landowners so as not to apply the one-person-one-vote principle of Reynolds v Sims, supra.

It is my opinion, in response to your first question, based upon Salyer, supra, Associated Enterprises, Inc, supra, and Ball, supra, the governing board of the forest improvement district need not be selected in accordance with the constitutional one-person-one-vote principle. ⁽⁶⁾

II

Your second question asks whether 1980 PA 298, supra, is violative of Const 1963, art 9, Sec. 18, by lending the credit of the state.

Const 1963, art 9, Sec. 18, provides in pertinent part:

A forest improvement district is composed of voluntary members, and the board of the district has powers related to forest practices and the establishment of standards; it may issue bonds, make loans to members and engage in various commercial practices, including the construction and operation of sawmills, acting as marketing agent and making available personnel, machinery, materials and equipment to members. Although there is provision in the act for the state to become a member of the district as owner of forest lands within, I am of the opinion that the state may not subject itself to rule by the board under the Act without abrogating its sovereign power and would, therefore, be prohibited from membership in the district.

A forest improvement district may be funded under 1980 PA 298, art 2, Secs. 201 & 202, supra, from a legislative appropriation and from other sources, including the general fund of the state. These sections provide that a district shall submit its annual expenses to the Department of Natural Resources and the Department shall include those expenses in its annual budget request to the Legislature. If implemented in this manner, these sections would violate Const 1963, art 9, Sec. 18. However, Const 1963, art 4, Sec. 30, provides that appropriations may be made for local or private purposes only by two-thirds vote of all members of both houses of the Legislature. In Advisory Opinion re Constitutionality of PA 1966, No 346, supra, pp 584-585, the Court held that appropriation for local or private purposes under Const 1963, art 4, Sec. 30, was not subject to the constitutional prohibition on lending of credit under Const 1963, art 9, Sec. 18. Therefore, funding for a forest improvement district may only be effectuated by compliance with Const 1963, art 4, Sec. 30, as well as other constitutional provisions on appropriation and legislation in order not to violate Const 1963, art 8, Sec. 18.

The forest improvement district board is also authorized to enter into cost-sharing agreements with its members and make loans to members to cover the cost of forest practices including the member's cost-share contribution. The board may also forgive the loan under specified circumstances. 1980 PA 298, art 6, supra. Accordingly, by the terms of the act, a district may be extensively engaged in funding the cost of forest practices and making loans to members. Therefore, in my opinion, money to be used by a district for these purposes must be derived from other than state appropriations to the district or other public money, or be specifically appropriated pursuant to Const 1963, art 4, Secs. 30 & 31 in order not to come within the lending of credit prohibition of Const 1963, art 9, Sec. 18, as stated in Advisory Opinion re Constitutionality of PA 1966, No 346, supra.

As set forth in detail in the overview above, 1980 PA 298, supra, authorizes the board to issue bonds for enterprise activities. The bonds are not to be general obligations of or constitute debt of the state or political subdivision except for the issuing district. In addition to specific revenues that may be pledged to secure the bonds, the district is authorized to pledge its full faith and credit. ⁽⁷⁾ 1980 PA 298, supra, also authorizes a debt service reserve fund and permit under specified conditions a district to create a 'moral obligation' of the state to fund such revenue. Information supplied with your request indicates that the contemplated bonds will not be self-liquidating. ⁽⁸⁾

The purpose of Const 1963, art 9, Sec. 18, was described in Advisory Opinion re Constitutionality of PA 1966, No 346, supra, as follows:

See also Advisory Opinion re Constitutionality of 1976 PA 295, 1976 PA 297, 401 Mich 686, 701; 259 NW2d 129, 134 (1977).

The Michigan Supreme Court has concluded that a statutory scheme for the issuance of self-liquidating revenue bonds where future appropriations might give rise to the so-called 'moral obligation' by the Legislature to make appropriations was not a legal obligation.

In Advisory Opinion on Constitutionality of 1975 PA 301, 400 Mich 270; 254 NW2d 528 (1977), the Supreme Court considered the statutory scheme of borrowing set forth in the Derezinski-Geerlings Job Development Authority Act, 1975 PA 301; MCLA 125.1701 et seq; MSA 3.540(101) et seq. The Court, finding that the Job Development Authority Act, supra, Sec. 27, provided nonliability of the state on bonds and notes of the Job Development Authority and required the bonds and notes so provide on their face, stated:

However, in Advisory Opinion on Constitutionality of 1975 PA 301, supra, a separate concurring opinion noted that self-liquidating revenue bonds do not violate debt limitations because there is no pledge of general tax revenues, and the bond or noteholder understands that this is so. The assumption is made that obligations of the authority can be underwritten and marketed to the public and that its guarantees will be accepted by the financial community solely on the strength of revenue projections. The separate opinion further stated:

Given the considerations of the court in relation to a 'moral obligation' pledge actually creating legislative constraints to fund deficiencies set forth above and the fact that bonds may not be self-liquidating (see fn 8, supra), a 'moral obligation' of the state to fund any deficiency in debt service may be violative of Const 1963, art 9, Sec. 18 in relation to bonds issued under 1980 PA 298, supra. ⁽⁹⁾

Further, 1980 PA 298, art 7, Sec. 704, supra, states: states:

See also 1980 PA 298, art 4, Sec. 413(o), supra, to similar effect.

It is my opinion, therefore, that neither the state nor any agency thereof may become a member of the district under 1980 PA 298, supra; that the provisions for funding of districts set forth in 1980 PA 298, art 2, Secs. 201 & 202, supra, are violative of Const 1963, art 9, Sec. 18; that 1980 PA 298, supra, art 6, may not be construed to permit state or public money to be utilized for cost sharing agreements or loans to members without violating Const 1963, art 9, Sec. 18 unless the money is appropriated for this purpose pursuant to Const 1963, art 4, Secs. 30 & 31. It is my further opinion that, as long as the bonds of a forest improvement district authorized under 1980 PA 298, supra, explicitly provide, and bondholders are advised, that such bonds are not the debt of the state; that the bonds are self-liquidating; that they do not create any obligation on the state to fund a deficiency; and that they are payable only from sources other than state appropriations or properties, then the bonds would not offend Const 1963, art 9, Sec. 18.

III

Your third question asks whether, upon dissolution of a forest improvement district, the Department of Natural Resources is responsible for the district's outstanding debts, other than bonded debt.

1980 PA 298, supra, art 4, Sec. 412, provides the mechanism for discontinuance of a forest improvement district. Upon petition of members whose lands comprise 25% or more of the private forest land of the district, the Commission of Natural Resources must schedule a referendum on the question of discontinuing the district. If a majority of votes cast are in favor of discontinuing a district, the Commission must determine that the district will be discontinued. Even if a majority does not vote discontinuance of the district, the Commission may order its discontinuance. 1980 PA 298, supra, art 4, Sec. 412(4) and (5), provides:

Thus, while 1980 PA 298, art 4, Sec. 412(5), supra, requires the Commission to assume the benefits and liability of all contracts (which are to remain in force), by provision of 1980 PA 298, art 4, Sec. 412(4), supra, it is made the clear duty of the forest improvement district board to terminate the affairs of the district and to provide for the payment of all outstanding debt and the disposition of all district property to the state.

In construing the statutory language, the primary and fundamental rule of statutory construction is to give effect to the intentions of the legislature. Melia v Employment Security Commission, 346 Mich 544; 78 NW2d 273 (1956). Where legislative enactment is ambiguous or subject to more than one interpretation, rules of construction should be relied upon to give full force and effect to the meaning of the legislature. King v Director of the Midland County Dept of Social Services, 73 Mich App 253; 251 NW2d 270 (1977). Statutes come clothed with a presumption of constitutionality, People v Harrington, 396 Mich 33; 238 NW2d 20 (1976). Moreover, construction to unllify the effectiveness will be avoided if possible. Teddy v Dept of State Police, 102 Mich App 412; 301 NW2d 876 (1980). I am therefore obliged, if possible, to provide a constitutional construction in considering 1980 PA 298, supra. It is noted however, that no facts are presented in conjunction with the question asked.

If it can be concluded that the forest improvement district has the duty to provide for the payment of all outstanding debt, considering the clear language of 1980 PA 298, art 4, Sec. 412(4) & (5) supra, that the Commission be substituted for the district as a party to each contract entered into by the district, except bonded debt, it is possible that the state would become secondarily responsible for a district's outstanding debt after dissolution of a district to the extent that any contract or other obligation created debt. The assumption of such debt would be violative of Const 1963, art 9, Sec. 18.

1980 PA 298, art 4, Sec. 412(4), supra, provides in part that the district board shall provide for the payment of all outstanding debt and for the disposition of the district property to the state. While 1980 PA 298, art 4, Sec. 412(5), supra, provides substitution of the Commission for the district, no provision is made for the district's operation by the state. Accordingly, I conclude that the department is only authorized to wind up the district's activity and, thus, would act as a receiver only.

It is my opinion, in answer to your third question, that the Department of Natural Resources may not assume responsibility for the forest improvement district's outstanding debts without violating Const 1963, art 9, Sec. 18 (on lending of credit) and art 9, Secs. 12 & 15 (on state debt). Therefore, 1980 PA 298, art 4, Sec. 412(4) & (5), supra, must be construed as permitting the substitution of the Commission only in those contracts or obligations which do not create debt and are not violative of Const 1963. ⁽¹⁰) Any bonds issued pursuant to 1980 PA 298, supra, in order to assure full and fair disclosure, must disclose on the face of the bonds and in any sales documents that the state is constitutionally prohibited from assuming any contracts of the district if those contracts create debt.

IV

Your fourth question asks whether a forest improvement district may permissibly loan proceeds from the sale of bonds to members who own forest land in the district and, if so, at what interest rate.

1980 PA 298, supra, art 7, Sec. 701, permits a forest improvement district to adopt a bond authorizing resolution for bonds 'to be issued under the power granted in section 413.' The power to issue bonds is found at 1980 PA 298, art 4, Sec. 413, supra, Sec. 413, which provides in pertinent part:

'Project costs' is defined to mean 'the sum total of all reasonable or necessary costs incurred for carrying out the acquisition, construction or undertaking of a forest improvement project' in 1980 PA 298, supra, art 1, Sec. 107(7). 'Forest improvement project' and 'forest practice' are defined in 1980 PA 298, supra, art 1, Secs. 106(3) and 106(6), respectively, as:

Neither statutory provision permitting the issuance of the bonds for the defined purposes, nor 1980 PA 298, art 6, supra, which permits cost sharing for forest practices and loans for up to forty years for such forest practices and related costs between a district and its members, specifically empowers the district to use bond proceeds for such loan purposes. 1980 PA 298, art 7, Sec. 702, supra, provides that the bonds may be payable from specified sources set forth therein, but no mention is made of payment from loan repayments to the district.

Therefore, it is my opinion in answer to your fourth question, that a forest improvement district is not authorized by 1980 PA 298, supra, to loan bond proceeds to individual members or owners of forest land in the district. Since it is my opinion that such loans from proceeds are not authorized, no opinion as to interest rate is required or stated.

Frank J. Kelley

On the first board, two members are appointed by the Commission of Natural Resources, and three are elected by the district members.