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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. 6256

November 19, 1984

BONDS:

Special assessment--use of proceeds to pay interest on private obligation

CITIES:

Home rule cities--use of special assessment bond proceeds to pay interest on private obligation.

A home rule city may not expend special assessment bond proceeds for the payment of interest expense incurred by certain private participants in a special assessment district to finance the commencement of improvements in anticipation of the sale of the bonds.

Honorable Ralph Ostling

State Representative

The Capitol

Lansing, Michigan

You have requested my opinion whether it is permissible for a city to expend bond proceeds from a special assessment bond issue to pay interest incurred by private developers on a bank loan to said developers to finance the commencement of improvements within the special assessment district prior to the sale of the bonds. Your question is based upon the following facts: Certain land owners or developers of land within a home rule city desired to improve a tract of land for use as an industrial park by installing water, sewers and access roads; the city agreed to establish a special assessment district, assess for the improvements, issue bonds to finance the improvements and retire the bonds with the special assessment collections, and while this process was underway, the owners/developers borrowed money from a bank to finance the commencement of the improvements prior to the sale of the bonds; they now seek to have the interest on that indebtedness paid by the city out of the bond proceeds.

A city incorporated under the home rule cities act, 1909 PA 279, as amended; MCLA 117.1 et seq; MSA 5.2071 et seq, may issue bonds or other evidences of indebtedness only as authorized by charter or statute and for the purposes cited therein. Bonding statutes are strictly construed. Alan v Wayne County, 388 Mich 210, 306; 200 NW2d 628 (1972).

The home rule cities act, supra, Sec. 4a(7) provides that a city charter may authorize the borrowing of money and issuance of bonds in anticipation of the payment of special assessments. It is noted that the home rule cities act, supra, Sec. 4b(2) provides that a city charter may authorize special assessments for sewer and water improvements and the city may borrow in anticipation of such assessments.

Such borrowing is subject to and governed by the Municipal Finance Act, 1943 PA 202, as amended; MCLA 131.1 et seq; MSA 5.3188(1) et seq, under which the subject bonds were in fact issued. A city is not authorized to borrow money directly from a bank for interim construction financing in anticipation of the levy of special assessment and the issuance of bonds to pay for such improvements. Since the city would be precluded from direct borrowing under the circumstances outlined above, it may not indirectly borrow through private persons or pay any interest expense upon such private borrowing.

It is my opinion, therefore, that a home rule city may not expend special assessment bond proceeds for interest expense incurred by certain private participants in a special assessment district to finance the commencement of improvements in anticipation of the sale of the bonds.

Frank J. Kelley

Attorney General


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