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. 6829

December 29, 1994

MUNICIPALITIES:

Provision of insurance to a municipal corporation by a self-insurance pool organized by intergovernmental contract

The provision of insurance to a municipal corporation by a self-insurance pool organized by intergovernmental contract under MCL 124.5; MSA 5.4085(6.5), constitutes a "transaction between governmental units" which is exempt from the competitive bidding requirements otherwise imposed upon municipal corporations by section 481(8) of the Income Tax Act of 1967 and by section 136(5) of the Single Business Tax Act.

Douglas B. Roberts

State Treasurer

Treasury Building

P.O. Box 15128

Lansing, MI 48901

You have asked a question which may be stated as follows:

Does the provision of insurance to a municipal corporation by a self-insurance pool organized by intergovernmental contract under MCL 124.5; MSA 5.4085(6.5), constitute a "transaction between governmental units" which is exempt from the competitive bidding requirements otherwise imposed upon municipal corporations by section 481(8) of the Income Tax Act of 1967 and by section 136(5) of the Single Business Tax Act?

Section 481 of the Income Tax Act of 1967, MCL 206.481; MSA 7.557 (1481), requires the state to distribute a portion of its income tax revenues to local units of government, a process commonly referred to as "revenue sharing." By means of 1993 PA 167, the Legislature added the following new language as subsection (8) of section 481:

A city, village, township, or county is not eligible for a payment under subsection (1) [of section 481] unless that local unit of government requires sealed competitive bidding for any contract of $20,000.00 or more except a contract for professional services or emergency repairs or services exempted pursuant to a written policy adopted or approved by the governing body of the local unit of government. This section shall not apply to transactions between governmental units. [Emphasis added.]

Section 136(4) of the Single Business Tax Act, MCL 208.136(4); MSA 7.558 (136)(4), provides for additional revenue sharing payments to certain local units of government under that Act. By means of 1993 PA 168, the Legislature added the following new language as subsection (5) of that section:

A city, village, or township is not eligible for a payment under subsection (4) [of section 136] unless that local unit of government requires sealed competitive bidding for any contract of $20,000.00 or more except a contract for professional services or emergency repairs or services exempted pursuant to a written policy adopted or approved by the governing body of the local unit of government. This section shall not apply to transactions between governmental units. [ Emphasis added.]

You ask whether the provision of insurance coverage to a municipal corporation by a self-insurance pool established by intergovernmental contract under MCL 124.5; MSA 5.4085(6.5), constitutes a "transaction between governmental units" within the meaning of these two provisions.

MCL 124.5; MSA 5.4085(6.5), provides, in pertinent part:

(1) Notwithstanding any other provision of law to the contrary, any 2 or more municipal corporations, by intergovernmental contract, may form a group self-insurance pool to provide for joint or cooperative action relative to their financial and administrative resources for the purpose of providing to the participating municipal corporations risk management and coverage for pool members and employees of pool members, for acts or omissions arising out of the scope of their employment....

(5) In addition to any other powers granted by this act, the power to enter into intergovernmental contracts under this section specifically includes the power to establish the pool as a separate legal or administrative entity for purposes of effectuating group self-insurance pool agreements.

(6) The legislature hereby finds and determines that insurance protection is essential to the proper functioning of municipal corporations; ... and that, therefore, all contributions of financial and administrative resources made by a municipal corporation pursuant to an intergovernmental contract as authorized under this act are made for a public and governmental purpose, and that such contributions benefit each contributing municipal corporation.

(7) Two or more municipal corporations shall not form a group self-insurance pool to provide the coverages described in subsection (1) other than pursuant to sections 5 to 12b. [ Emphasis added.]

By its clear and express terms, MCL 124.5; MSA 5.4085(6.5), authorizes municipal corporations to enter into intergovernmental contracts with one another to form group self-insurance pools; permits such pools to be constituted, by means of an intergovernmental agreement, as separate legal or administrative entities; declares that contributions to the pool by municipal corporations are made for a public and governmental purpose; and prohibits municipal corporations from forming group self-insurance pools by means other than pursuant to this section. Thus, if a unit of local government has entered into a valid intergovernmental contract for risk management and coverage as authorized by MCL 124.5; MSA 5.4085(6.5), its participation in that coverage plainly constitutes a "transaction between governmental units" within the meaning of section 481(8) of the Income Tax Act of 1967 and of section 136(5) of the Single Business Tax Act.

It is my opinion, therefore, that the provision of insurance to a municipal corporation by a self-insurance pool organized by intergovernmental contract under MCL 124.5; MSA 5.4085(6.5), constitutes a "transaction between governmental units" which is exempt from the competitive bidding requirements otherwise imposed upon municipal corporations by section 481(8) of the Income Tax Act of 1967 and by section 136(5) of the Single Business Tax Act.

Frank J. Kelley

Attorney General