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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. 6411

December 19, 1986

COUNTIES:

Board of county commissioners--power to form private, nonprofit corporation to operate hospitals

Placement on ballot of proposal to transfer county hospitals to a private, nonprofit corporation

ELECTIONS:

Ballot proposal to transfer county hospitals to a private, nonprofit corporation

HOSPITALS:

Dissolution of county hospitals

A county has only such power as has been granted to it by the Michigan Constitution or by the Legislature.

No constitutional or statutory provision grants to counties the power to form a private, nonprofit corporation to operate hospitals.

A county hospital established pursuant to MCL 331.151 et seq; MSA 14.1131 et seq, is a type of municipal corporation. A municipal corporation may cease to exist only by legislative consent or pursuant to legislative provision.

A county board of commissioners is not authorized to place a proposition on the ballot for vote by county electors to transfer the county hospitals to a private, nonprofit corporation.

A county board of commissioners may not, without constitutional or statutory authority, schedule an election for the consideration of an advisory question by the electorate.

Michael J. Kusz

Prosecuting Attorney

County of Dickinson

Post Office Box 725

Iron Mountain, Michigan 49801

You advise that the Dickinson County Hospitals' Board of Trustees has submitted a proposal to the Dickinson County Board of Commissioners for the formation of a private, nonprofit hospital corporation, the transfer of the assets of the two Dickinson County hospitals to the nonprofit corporation, and the assumption of certain liabilities of the county hospitals by the new entity. You advise further that the proposed corporate structure would include a tax-exempt, private, nonprofit parent corporation as a holding company, with four nonprofit and one for-profit subsidiary corporations.

Under the Proposal for Reorganization of Dickinson County Hospitals, dated March 17, 1986, which accompanied your letter, the nonprofit corporation to be established would be governed by a nine-person board, four of whom would be appointed by the Dickinson County Board of Commissioners.

The Proposal for Reorganization of Dickinson County Hospitals states, in part, at p 7:

"The hospital would propose that the County of Dickinson maintain the ownership and deeds to all of the buildings and real estate which the hospital and County presently own, and that the buildings and physical property be leased to the new community non-profit corporation for a long-term period, i.e., ninety-nine (99) years, at an agreed upon low lease rate, i.e., One ($1.00) Dollar, which would control the cost and impact of the reorganization to the patient.

"The only liability the County would retain after the reorganization would be that of the remainder of the debt on the buildings as presently on the tax rolls, which is $2,730,600, and represents .62 mills in 1986, and taxes the average property owner $12.40 per year."

It is proposed that all of the other contracts, lease agreements and obligations of the county would be assumed by the nonprofit, parent corporation, and the lease agreement would also contain any restrictions which the county would want to place on the lessee, nonprofit corporation.

Your letter states: "Since P.A. 350, (MCL 331.151 et seq.) required public approval in order to create the hospital, the Commissioners feel that public approval should be sought to dissolve it."

You have requested my opinion concerning the legality of placing the proposal on the ballot for the purpose of securing a binding decision of the electorate. You advise that the proposed ballot question would read as follows:

"Should the operations of the Dickinson County Memorial Hospital (a public hospital organized under PA 350) be transferred to a nonprofit corporation pursuant to a lease agreement which specifies the following...."

The proposal presents the issue of whether the Dickinson County hospitals can be transferred in the manner described. I am informed that the Dickinson County hospitals were established pursuant to MCL 331.151 et seq; MSA 14.1131 et seq, which provides, in relevant parts:

"Any county board of supervisors [now commissioners] may establish a public hospital when approved by the electors of the county." MCL 331.151; MSA 14.1131.

"It [the board of hospital trustees] shall have the exclusive control of the expenditure of all moneys collected to the credit of the hospital fund, and of the purchase of sites, the purchase or construction of any hospital building, and of the supervision, care and custody of the grounds, rooms or buildings purchased, constructed, leased or set apart for that purpose.... The board shall in general carry out the spirit and intent of this act in establishing and maintaining a public county hospital with equal rights to all and privileges to none." MCL 331.154; MSA 14.1134. (Emphasis added.)

Additionally, in MCL 331.154; MSA 14.1134, the Legislature has provided that "[e]ach board shall constitute a body corporate and may sue and be sued."

A county has only such power as has been granted to it by the Michigan Constitution or the Legislature. Const. 1963, art 7, Sec. 1; art 7, Sec. 8; Alan v. Wayne County, 388 Mich. 210, 245; 200 N.W.2d 628, reh den, 388 Mich. 626; 202 N.W.2d 277 (1972). No constitutional or statutory provision grants to counties the power to form private, nonprofit corporations to operate hospitals, and a county may not form a private, nonprofit corporation for such purpose without authority. OAG, 1979-1980, No. 5448, p. 46 (February 13, 1979). In addition, counties are not authorized by law to appoint members of the governing board of a nonprofit corporation.

A county hospital or hospitals established pursuant to MCL 331.151 et seq; MSA 14.1131 et seq, is a type of municipal corporation. OAG, 1981-1982, No. 5979, p. 369, 370 (September 16, 1981). Municipal corporations may cease to exist only by legislative consent or pursuant to legislative provision. Cain v. Brown, 111 Mich. 657, 661; 70 N.W. 337 (1897); OAG, 1985-1986, No. 6342, p. 226 (February 6, 1986). MCL 331.151 et seq; MSA 14.1131 et seq, does not provide for the dissolution of the county hospital organization. Research discloses no specific constitutional or statutory authority to do so.

Although MCL 46.11; MSA 5.331, empowers county boards of commissioners to authorize the leasing of real estate belonging to the county, the lease of all of the hospital facilities for ninety-nine years, as proposed, would be contrary to the mandate of MCL 331.154; MSA 14.1134, that the board of trustees of the county hospital have the supervision, care and custody of the hospital facilities and that the board maintain a public county hospital.

The proposal also presents the issue of whether the proposed transaction would constitute an illegal granting of the credit of the state. Const. 1963, art. 9, Sec. 18, provides that "[t]he credit of the state shall not be granted to, nor in aid of any person, association or corporation, public or private, except as authorized in this constitution." The constitutional prohibition against the state's granting of its credit in aid of any person, association or corporation, public or private, applies also to a county as a political subdivision and instrumentality of the state. Oakland County Drain Commissioner v. City of Royal Oak, 306 Mich. 124, 142; 10 N.W.2d 435 (1943). The constitutional proscription against a county grant of credit, however, is not offended by fair exchange of value for value. Alan v. Wayne County, supra, 388 Mich. at 330.

Based upon the information you have provided, fair value for value is not being given to the county in the proposed transfer of the county hospitals to a private, nonprofit corporation for the sum of $1.00 which would leave the county with the obligation to repay $2,730,600 of debt related to the hospital. In the absence of an exchange of value for value, the transfer is in the nature of a gift or grant to the private, nonprofit corporation. A county grant to a private, nonprofit hospital is prohibited by Const. 1963, art. 9, Sec. 18. OAG, 1973-1974, No. 4851, p. 196 (November 4, 1974). Therefore, the proposal as described would violate the prohibition against granting credit found in Const. 1963, art. 9, Sec. 18.

WA Foote Memorial Hospital, Inc. v. City of Jackson Hospital Authority, 390 Mich. 193; 211 N.W.2d 649 (1973), and University Medical Affiliates, PC v. Wayne County Executive, 142 Mich.App. 135; 369 N.W.2d 277 (1985), each concerned the lease of a public hospital to a nonprofit corporation. WA Foote involved, inter alia, the question whether the Hospital Finance Authority Act, MCL 331.31 et seq; MSA 14.1220(1) et seq, permits a home rule city to transfer a hospital to a local hospital finance authority which concurrently leases the hospital to a private, nonprofit corporation, and University Medical Affiliates concerned the construction of the Wayne County Charter. Neither of these cases, however, involved, as here, a county hospital organized pursuant to MCL 331.151 et seq; MSA 14.1131 et seq. Also in contrast to the Dickinson County proposal, in WA Foote the court found adequate consideration for the transferred hospital, and in University Medical Affiliates the issue was neither raised nor considered. Therefore, neither of these cases is applicable to the instant situation.

A county board of commissioners may not, without constitutional or statutory authority, schedule an election for the consideration of an advisory question by the electorate. Letter opinions to Honorable Michael J. Griffin, dated April 12, 1985; Honorable John M. Engler, dated June 30, 1983; Honorable Donald W. Riegle, Jr., dated December 4, 1979; and Mr. Ken Dorman, dated October 13, 1975. A county board of commissioners has not been authorized by either Const. 1963 or by state statute to dissolve the county hospitals and to transfer the hospital facilities and other assets of the county hospitals to a private, nonprofit corporation as proposed. Similarly, research reveals no constitutional or statutory authority for the submission to the electorate of the question of the transfer of the county hospitals to a private, nonprofit corporation.

It is my opinion, therefore, that the Dickinson County Board of Commissioners has no legal authority to place on the ballot for approval of the county electors a proposition to transfer the Dickinson County hospitals to a private, nonprofit corporation.

Frank J. Kelley

Attorney General


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