Opinion #7019

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

JENNIFER M. GRANHOLM, ATTORNEY GENERAL

ATTORNEY GENERAL:

CONSTITUTIONAL LAW:

ECONOMIC DEVELOPMENT CORPORATIONS:

LEGISLATURE:

MICHIGAN STRATEGIC FUND:

Attorney General's approval of interlocal agreements

Use of state funds for economic development

Interlocal agreement establishing
separate public entity

Legislature's approval of interlocal agreements

Michigan Strategic Fund's participation in interlocal agreement

The Michigan Strategic Fund is authorized, subject to the provisions of the Urban Cooperation Act of 1967, to enter into an interlocal agreement with one or more public agencies to create a separate public entity to administer programs and activities.

Const 1963, art 9, � 18, does not prohibit the contribution of state funds to the Michigan Economic Development Corporation, a public body formed under an interlocal agreement entered pursuant to the Urban Cooperation Act of 1967, provided that the funds are used for a valid public purpose.

Interlocal agreements entered into between the Michigan Strategic Fund and local public agencies pursuant to the Urban Cooperation Act of 1967 do not require prior approval by the Legislature or by the Attorney General.

Opinion No. 7019

May 14, 1999

Honorable Joseph L. Rivet
State Representative
The Capitol
Lansing, MI 48909-7514

You have asked three questions concerning the participation of the Michigan Strategic Fund in the formation, by interlocal agreement, of a public economic development corporation.

Your first question asks whether the Michigan Strategic Fund is authorized to enter into an interlocal agreement with one or more public agencies to create a separate public entity to administer programs and activities.

The Michigan Strategic Fund Act, 1984 PA 270, MCL 125.2001 et seq; MSA 3.541(201) et seq (Act), is "AN ACT relating to the economic development of this state; to create the Michigan strategic fund and to prescribe its powers and
duties . . . ." The purpose of the Michigan Strategic Fund is to diversify, develop and expand the state's economy so as to "preserve existing jobs, to create new jobs, [and] to reduce the cost of business and production." Section 2. The Act created the Michigan Strategic Fund as a public body corporate and politic. Section 5. By adopting the Act, the Legislature conferred "broad authority" on the Michigan Strategic Fund. Tiger Stadium Fan Club, Inc. v Governor, 217 Mich App 439, 457; 553 NW2d 7, lv den 453 Mich 866 (1996).

Under Const 1963, art 7, � 28, the Legislature may authorize two or more units of local government to enter into cooperative agreements with each other. The Legislature has implemented Const 1963, art 7, � 28, and authorized public agencies to enter into interlocal agreements by means of the Urban Cooperation Act of 1967; 1967 Ex Sess PA 7, MCL 124.501 et seq; MSA 5.4088(1) et seq (UCA). For the purposes of the UCA, the Legislature has included, within the definition of "public agency," inter alia, the state government and local governmental units. Section 2(e). Two or more units of government may jointly exercise power pursuant to contract (section 5), but each governmental unit entering into the contract must be empowered to exercise the power, privilege or authority in its own right. Section 4. See, OAG, 1977-1978, No 5312, p 476 (June 14, 1978). The UCA expressly empowers the cooperating public agencies to form a "separate legal or administrative entity" to exercise the power jointly conferred. Section 5. The legal or administrative entity created pursuant to the interlocal cooperative agreement "shall be a public body, corporate or politic." Section 7(1).

As noted in your request, Executive Order 1999-1, Part IV, states that the Michigan Strategic Fund may enter into interlocal agreements with local public agencies to "provide for a public body corporate, to be called the Michigan Economic Development Corporation" (MEDC). This provision restates the authority previously conferred by the UCA upon the Michigan Strategic Fund, as a state agency. See, UCA, sections 5 and 7. If the Michigan Strategic Fund, as a state agency, is a party to any interlocal agreement, the Governor shall determine whether the agreement is in "proper form and compatible with the laws of this state." UCA, section 10(1). Since the MSF is a state agency, and state agencies may enter into interlocal agreements, the MSF may enter into an interlocal agreement.

It is my opinion, therefore, in answer to your first question, that the Michigan Strategic Fund is authorized, subject to the provisions of the Urban Cooperation Act of 1967, to enter into an interlocal agreement with one or more public agencies to create a separate public entity to administer programs and activities.

Your second question asks whether Const 1963, art 9, � 18, prohibits the contribution of state funds to the Michigan Economic Development Corporation, a public body formed under an interlocal agreement entered pursuant to the Urban Cooperation Act of 1967.

Const 1963, art 9, � 18, provides:

The 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 essential purpose of this limitation was described in Advisory Opinion re Constitutionality of 1966 PA 346, 380 Mich 554, 564; 158 NW2d 416 (1968): "[T]o make certain that the state, which itself cannot borrow, except as authorized, does not accumulate unauthorized debts by endorsing or guaranteeing the obligations of others." There is, however, no pledge of the credit of the state when public moneys are expended in furtherance of a public purpose. Hayes v Kalamazoo, 316 Mich 443, 458; 25 NW2d 787 (1947). Moreover, when the state transfers something of value in return for value, there is no violation of Const 1963, art 9, � 18. Alan v Wayne County, 388 Mich 210, 325-326; 200 NW2d 628 (1972).

Fostering job creation and job retention through orderly economic development programs is vital to the well-being of the people of this state. In upholding issuance of municipal industrial development revenue bonds as not violative of the predecessor provision to Const 1963, art 9, � 18, the court noted that the "weight of [judicial] authority upholds municipal industrial aid financing as having a public purpose." City of Gaylord v Gaylord City Clerk, 378 Mich 273, 297-298 n 9; 144 NW2d 460 (1966). Alleviating unemployment and revitalizing a community's economic base for private economic development has been recognized as a public purpose where "the public is primarily to be benefited," and any benefit to a private interest is merely incidental. Poletown Neighborhood Council v Detroit, 410 Mich 616, 634; 304 NW2d 455 (1981).

In creating the Michigan Strategic Fund, the Legislature has expressly declared the purpose of the Fund is to seek long-term economic growth and full employment (Act, section 2), and has authorized it to make grants to accomplish these purposes. Act, section 7(c). Under the UCA, the Michigan Strategic Fund, as a state agency, is empowered to enter into intergovernmental contracts with other public agencies to carry out its statutory powers. Contributions made by the Fund to a public entity lawfully created pursuant to an interlocal agreement are subject to precisely the same constitutional standards as if the Fund were itself to make the grants. Such grants must serve a valid public purpose. Alternatively, in making the grants, the Fund, on behalf of the people of the state, must receive value for value, namely the value of the economic development which is fostered thereby. Since the Executive Order contemplates that the Michigan Strategic Fund will contribute funds to the MEDC to be used for valid public purposes such as fostering job creation and overall economic development, these contributions are not an extension of credit and do not offend Const 1963, art 9, � 18.

It is my opinion, therefore, in answer to your second question, that Const 1963, art 9, � 18, does not prohibit the contribution of state funds to the Michigan Economic Development Corporation, a public body formed under an interlocal agreement entered pursuant to the Urban Cooperation Act of 1967, provided that the funds are used for a valid public purpose.

It must be emphasized that your second question raises an abstract inquiry based on Const 1963, art 9, � 18. Your question does not present, and this opinion does not address, the lawfulness of any specific grants or actions involving the MEDC or its nature, status, privileges, and immunities.

Your third question asks whether interlocal agreements entered into between the Michigan Strategic Fund and local public agencies pursuant to the UCA require prior approval by the Legislature or by the Attorney General.

An examination of the UCA reveals no requirement for any prior approval of interlocal agreements by the Legislature¹ or by the Attorney General. This act does, however, require approval by the Governor if state funds are to be allocated to carry out an interlocal agreement or if the state or any of its agencies are parties to the interlocal agreement. Section 10(1).

As to approval by the Attorney General, a review of the legislative history of the UCA is instructive. Introduced as 1967 Ex Sess SB 4, the proposed legislation required approval by the Governor only in the circumstances described above. During consideration of 1967 Ex Sess SB 4, five amendments were offered in the House to require approval of interlocal agreements by the Attorney General instead of the Governor. The amendments, however, were not voted upon and were never approved. 1967 Ex Sess Journal of the House 151, 184-188. It is noted, however, that Michigan's governors have routinely sought the Attorney General's review and recommendation of interlocal agreements proposed under the UCA.

It is my opinion, therefore, in answer to your third question, that interlocal agreements entered into between the Michigan Strategic Fund and local public agencies pursuant to the Urban Cooperation Act of 1967 do not require prior approval by the Legislature or by the Attorney General.

JENNIFER M. GRANHOLM
Attorney General

¹ Although the Legislature has not written the UCA to require that it must approve interlocal agreements, the continued state financial support of such agreements is dependent on legislative appropriations.