STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6557

January 12, 1989

APPROPRIATIONS:

Validity of discretionary reduction items in appropriations acts

CONSTITUTIONAL LAW:

Const 1963, art 3, Sec. 2--delegation of authority to executive department director to reduce appropriations

Const 1963, art 5, Sec. 19--expansion of veto power of Governor

Const 1963, art 4, Sec. 25--discretionary reduction item as a revision, amendment or alteration of law

GOVERNOR:

Veto power over discretionary reduction item in appropriation bill

A discretionary reduction item in an appropriations bill does not contain a distinct item of appropriation of money for a stated purpose subject to the veto authority of the Governor pursuant to Const 1963, art 5, Sec. 19, and its presence in an appropriations bill does not unconstitutionally expand the veto authority of the Governor.

A director's discretionary reduction item in an appropriations act violates Const 1963, art 3, Sec. 2, if it permits the director of a principal department of the executive branch of government to exercise the legislative power to reduce appropriations absent sufficient standards in the act for the director to make the reduction or reductions to conform to the intent of the Legislature.

A director's discretionary reduction item in an appropriations act does not constitute a revision, amendment or alteration of any existing public act requiring re-enacting or publishing the affected public act as provided in Const 1963, art 4, Sec. 25.

Honorable Harry Gast

State Senator

The Capitol

Lansing, Michigan 48909

You have requested my opinion on several questions relating to "discretionary reduction" items in enrolled appropriations bills and appropriations acts.

Your first question asks if the Legislature's inclusion of a discretionary reduction as a line item in an appropriation bill is an unconstitutional expansion of the Governor's veto power as specifically provided for in Const 1963, art 5, Sec. 19. Your letter of request states that this budgetary practice is becoming more widespread in recent years and that the "discretionary reductions" appear as specific line items in appropriations acts.

By way of example, line item discretionary reductions placed in appropriations acts by the Legislature for fiscal year 1987-1988 included:

While the Legislature reduced the respective departments' appropriations by the amounts stated in the line items, the decision concerning exactly where the reductions were to occur was left to the discretion of the respective department director.

Const 1963, art 5, Sec. 19, provides:

In the leading Michigan case of Wood v State Administrative Bd, 255 Mich 220; 238 NW 16 (1931), the court held that the veto power does not include the authority to reduce the amount of an appropriation item and the Governor had only the power to approve or disapprove the item. In Wood, the Governor had, in effect, qualifiedly approved an appropriations act by reducing specific appropriations in amount as opposed to disapproving the whole item. The court, in holding that this exceeded the Governor's veto power, stated:

The court found that limits are placed on the Governor's discretion to use the veto power as a creative means of reducing the amount of an appropriation:

Stadle v Twp of Battle Creek, 346 Mich 64, 69; 77 NW2d 329, 331 (1956); Oakland County Comm'r v Oakland County Executive, 98 Mich App 639, 651; 296 NW2d 621, 628 (1980).

The item in the appropriations bill subject to disapproval by the Governor must be a "distinct item or items appropriating moneys." Const 1963, art 5, Sec. 19. The veto of a specific item or items in an appropriation bill was discussed in OAG, 1985-1986, No 6399, p 402 (November 13, 1986). The question there was whether the Governor could veto specific provisions of appropriations bills without also vetoing the expenditure line to which the vetoed language referred. The opinion defined an "item" in an appropriation bill as an item which is a specific appropriation of money, and not merely a general condition or proviso, citing the decision of the United States Supreme Court in Bengzon v Secretary of Justice of the Philippine Islands, 299 US 410, 414-415; 57 S Ct 252, 254; 81 L Ed 312, 315 (1937). Further, the opinion stated:

The opinion concluded that items or provisions of the bill which set aside a definite sum of money and, therefore, imposed an obligation on the state treasury, were subject to the Governor's veto authority. Conversely, provisions of appropriations bills that did not set aside public money, but rather stated "conditions for the expenditure of public money," were not subject to the Governor's veto. OAG, 1985-1986, No 6399, supra, at 410.

In a recent opinion discussing the application of Const 1963, art 5, Sec. 19, to the Governor's veto of certain provisions of an appropriations bill, the veto of appropriations of line items of an amount to be fixed prior to the time of payment was found to be constitutional. OAG, 1987-1988, No 6544, p ____ (October 27, 1988). The appropriations bill in question contained two sections, each purporting to make an additional appropriation from the general fund which was to be determined by designated state officers according to estimates of the fiscal year-end balance. Because the two sections set apart a specific portion of money to be ascertained on a date prior to payment as provided by law, a veto by the Governor was valid:

The "discretionary reduction" items in 1987 PA 126, 1987 PA 131, and 1987 PA 133 do not contain distinct items appropriating money for specific stated purposes. In fact, they are not appropriations at all. Rather, they manifest a legislative determination to reduce the appropriations made elsewhere in the respective acts. Thus, there is no express or implied obligation in the discretionary reduction items for the State Treasurer to disburse a specific sum of money.

Other jurisdictions have arrived at similar conclusions when construing the meaning of specific items of an appropriation. The term "item," when used in reference to an appropriations bill, was held to signify a sum of money set aside for a specific purpose. Henry v Edwards, 346 So 2d 153, 157 (La 1977). A distinct "item of appropriation" was held to be an indivisible sum of money which is set apart for a stated purpose. University of Connecticut Chapter AAUP v Governor, 200 Conn 386; 512 A2d 152, 156 (1986), construing a provision similar to Const 1963, art 5, Sec. 19.

The Attorney General of the State of Kansas brought an action against the Governor in State ex rel Stephan v Carlin, 230 Kan 252, 256; 631 P2d 668, 672 (1981), challenging his veto of part of an omnibus appropriations bill which purported to limit school district budgets and expenditures. The Kansas Supreme Court held that the Governor could not veto that section of the appropriations bill since it was not an item of appropriation designating money for a specific purpose. The court listed examples of "items" of appropriation of money:

See also Cenarrusa v Andrus, 99 Idaho 404, 412; 582 P2d 1082, 1090 (1978), Jessen Associates, Inc v Bullock, 531 SW2d 593, 599 (Tex, 1975), Opinion of the Justices, 306 A2d 720, 723 (Del, 1973), Karcher v Kean, 190 NJS 197, 206; 462 A2d 1273, 1277 (1983).

As a "discretionary reduction" item does not entail a legislative authorization to expend a specified sum for a particular purpose, it is not an appropriation subject to an item veto. Thus, there is no basis to contend that such a discretionary reduction item is an appropriation subject to the Governor's veto power.

It is my opinion, in answer to your first question, that a discretionary reduction item in an appropriations bill is not an unconstitutional expansion of the Governor's veto power pursuant to Const 1963, art 5, Sec. 19, because it is not a distinct item of appropriation of money for a stated purpose subject to veto by the Governor.

Your second and third questions are related and will be addressed together. Each pertain to whether or not the department director's discretionary reduction is violative of Const 1963, art 3, Sec. 2. They are:

Const 1963, art 3, Sec. 2, states:

The validity of a delegation of legislative power is determined by whether or not there are sufficient legislatively prescribed standards within the statute to guide the administrative agency. The "standards test" rests firmly upon Const 1963, art 3, Sec. 2, for its foundation support. Westervelt v Natural Resources Comm, 402 Mich 412, 434; 263 NW2d 564, 573 (1978). In Westervelt, the court stated:

See also City of Detroit v Detroit Police Officers Ass'n, 408 Mich 410, 458-466; 294 NW2d 68, 83-88, app dis 450 US 903; 101 S Ct 1337; 67 L Ed 2d 326 (1980), and Dukesherer Farms, Inc v Director of the Dep't of Agriculture (After Remand), 405 Mich 1, 31; 273 NW2d 877, 890 (1979).

Const 1963, art 9, Sec. 17, proscribes the payment of money out of the state treasury "except in pursuance of appropriations made by law." The power to make appropriations rests in the Legislature subject to review by the Governor pursuant to Const 1963, art 5, Sec. 19, and to appropriations made by Const 1963. See Civil Service Comm v Auditor General, 302 Mich 673, 679; 5 NW2d 536 (1942).

The appropriations acts, 1987 PA 126, 1987 PA 131, and 1987 PA 133, cited by way of example, supra, contain no language specifying how the respective director is to determine where or in what amount or amounts the reduction or reductions are to occur. Although the Legislature's intent is manifest that the discretionary reduction items in the said appropriations acts occur, the acts totally lack any standards to guide the respective department directors to effectuate the reductions ordered. As stated by the court in State Highway Comm v Vanderkloot, 43 Mich App 56, 62; 204 NW2d 22, 24 (1972), aff'd 392 Mich 159; 220 NW2d 416 (1974), "a statute which in effect reposes an absolute, unregulated, and undefined discretion in an administrative agency ... [is] passing beyond the legitimate bounds of delegation of legislative power."

The decision in Blue Cross & Blue Shield of Michigan v Governor, 422 Mich 1; 367 NW2d 1 (1985), is also instructive. BCBSM considered the issue of whether the Nonprofit Health Care Corporation Reform Act, which required health care corporations to assign risk factors for each line of its business, the Commissioner of Insurance to approve or disapprove the proposed risk factors, and the establishment of a panel of three actuaries to determine the risk factors if the Commissioner disapproved them, was an unconstitutional attempt by the Legislature to delegate legislative power. BCBSM, 422 Mich at 49-59; 367 NW2d at 26-30. The court concluded:

Although there are no Michigan cases which deal directly with the constitutionality of a legislative delegation of discretionary authority to department directors to reduce items of appropriations, there are decisions of other state courts that have decided cases in which the "standards" test has been made applicable to appropriations.

A state statute which empowered the Governor of Alaska to withhold or reduce appropriations for state agencies in view of anticipated revenue shortfalls was challenged as a delegation of legislative authority over appropriations with no guidance or limitation in State v Fairbanks North Star Borough, 736 P2d 1140 (Alaska, 1987). The Alaska Supreme Court adopted the opinion of the trial court and affirmed the decision holding the statute to be unconstitutional because it conferred legislative authority without guidance or limitation.

In State v State Bd of Finance, 69 NM 430; 367 P2d 925 (1961), a state statute authorizing a state finance agency to reduce operating budgets for state agencies by not more than 10%, but providing no standards by which this discretional authority was to be exercised, was held to be an unconstitutional grant of legislative authority contrary to the separation of powers clause of the N Mex Const, art III, Sec. 1.

The three appropriations acts cited as examples contain no standards whatsoever to guide the department director in his or her discretionary decision to reduce items of appropriations. The cited appropriations acts contain many items of appropriation of specific sums of money, and with no precise factors or criteria established by the Legislature to guide the department directors in implementing the reductions, the delegation of legislative authority is constitutionally defective.

There is nothing within the respective appropriations acts cited as examples to indicate that the discretionary reduction items are to be implemented as a result of an unforeseen shortfall in state revenues requiring action to counter expected deficits. Therefore, Const 1963, art 5, Sec. 20, and implementing MCL 18.1391; MSA 3.516(391), which empower the Governor with the approval of the appropriating committees of the House and Senate to reduce expenditures during the fiscal year "whenever it appears that actual revenues for a fiscal period will fall below the revenue estimates on which appropriations for that period were based," Const 1963, art 5, Sec. 20, are inapplicable.

Nor do the three appropriations acts cited as examples contain any direction by the Legislature that the discretionary reduction items be accomplished by the respective department director through administrative efficiencies in service programs of the department implicating the procedures set forth in MCL 18.1371-18.1372; MSA 3.516(371)-3.516(372).

It is my opinion, in answer to your second and third questions, that a director's discretionary reduction item in an appropriations act violates Const 1963, art 3, Sec. 2, if it permits the director of a principal department of the executive branch of state government to exercise the legislative power to reduce appropriations absent sufficient standards in the act for the director to make the reduction or reductions to conform to the intent of the Legislature.

Your final question to be addressed is:

Const 1963, art 4, Sec. 25, states:

OAG, 1985-1986, No 6310, p 126, 128 (July 29, 1985), considered the meaning of the term "amend" in the context of the Legislature's power to amend statutes consonant with Const 1963, art 4, Sec. 25. The opinion stated:

A "revision" of law has been defined as a restatement of the law and a substitute for the law as previously stated, displacing and repealing the former statute. People v Gould, 345 Ill 288; 178 NE 133, 144 (1931); State v Pitet, 69 Wyo 478; 243 P2d 177, 184 (1952). An alteration of a statute has been defined as to "make different without destroying identity, to vary without entire change." Butler v City of Lewiston, 11 Idaho 393; 83 P 234, 236 (1905).

The director's discretionary reduction items appear as specific items in the appropriations acts cited supra, and purport to modify other appropriation items in the respective act and no other. There is nothing within the respective act to indicate an attempt to revise, alter, or amend any other existing statute. These appropriations acts are self-contained and there is no evidence of a legislative intent to revise, alter or amend any other act.

It is my opinion, in answer to your final question, that a department director's discretionary reduction item in an appropriations act does not violate Const 1963, art 4, Sec. 25, as it is not a revision, alteration, or amendment of any existing public act.

Frank J. Kelley

Attorney General