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

MIKE COX, ATTORNEY GENERAL

TAXATION:

DEPARTMENT OF NATURAL RESOURCES:

NATURAL RESOURCES AND ENVIRONMENTAL PROTECTION ACT:

APPROPRIATIONS:

State payments in lieu of property taxes and appropriations regarding tax reverted lands

Property owned by the State of Michigan is not subject to forfeiture, foreclosure, and sale under the General Property Tax Act if the state fails to make the payments in lieu of property taxes required under Part 21, subpart 14 of the Natural Resources and Environmental Protection Act.

Section 404 of 2002 PA 525, section 1002 of 2001 PA 44, and section 1002 of 2000 PA 267, sections of three appropriations acts for the Department of Natural Resources, violate Const 1963, art 4 § 25, in that they alter or amend section 131 of the General Property Tax Act but do not re-enact and publish that section at length.

Notwithstanding the unconstitutionality of certain provisions of the appropriations acts as determined in this opinion, the Department of Natural Resources is not required under section 131 of the General Property Tax Act to distribute to local tax collecting units the proceeds that were deposited in the land sale fund in fiscal years 2000 through 2003. Consistent with established principles advancing the interest of budgetary stability provided for under Michigan's Constitution, this opinion applies prospectively only.

Opinion No. 7132

May 1, 2003

Honorable Patricia Birkholz
State Senator
The Capitol
Lansing, MI 48909

You have asked three questions relating to payments in lieu of taxes made by the Department of Natural Resources (DNR) with respect to state-owned lands administered by the department and the disposition of proceeds realized as the result of the sale by the DNR of state-owned tax reverted lands.

You first ask whether property owned by the State of Michigan is subject to forfeiture, foreclosure, and sale under the General Property Tax Act if the state fails to make the payments in lieu of property taxes required under Part 21, subpart 14 of the Natural Resources and Environmental Protection Act.

The General Property Tax Act (GPTA), 1893 PA 206, MCL 211.1 et seq, is an act whose purposes, as expressed in its title, include:

[T]he levy and collection of taxes on property, and for the collection of taxes levied; making those taxes a lien on the property taxed, establishing and continuing the lien, providing for the sale or forfeiture and conveyance of property delinquent for taxes, and for the inspection and disposition of lands bid off to the state and not redeemed or purchased; to provide for the establishment of a delinquent tax revolving fund . . . .

State-owned lands are not subject to taxation or to liens arising from real property taxes unless expressly subjected to those taxes by statute. State Highway Comm’r v Simmons, 353 Mich 432; 91 NW2d 819 (1958); Porter v Auditor General, 255 Mich 526; 238 NW 185 (1931); People v Ingalls, 238 Mich 423; 213 NW 713 (1927); Hammond v Auditor General, 70 Mich App 149; 245 NW2d 544 (1976). As stated in People v Ingalls, at 425-426:

The doctrine has been pretty well settled in this State and elsewhere that property owned by the State or by the United States is not subject to taxation unless so provided by positive legislation. And municipalities and State agencies are included in this class when their property is used for public purposes. The reason which supports this doctrine is that, if taxes were permitted to be levied against the sovereign, it would be necessary to tax itself in order to raise money to pay over to itself. This would be an idle thing to do. . . .

It is of no consequence what use the State makes of its property. The same reason exists for not taxing State property not in governmental use as exists for taxing State property in governmental use.

The GPTA does not subject lands or interests in lands held by the state to taxation or liens arising from the non-payment of taxes. The GPTA, section 7l, in fact, expressly exempts most state-owned lands and interests from taxation and liens arising from non-payment:

Public property belonging to the state, except licensed homestead lands, part-paid lands held under certificates, and lands purchased at tax sales, and still held by the state is exempt from taxation under this act. This exemption shall not apply to lands acquired after July 19, 1966, unless a deed or other memorandum of conveyance is recorded in the county where the lands are located before December 31 of the year of acquisition, or the local assessing officer is notified by registered mail of the acquisition before December 31 of the year of acquisition. [MCL 211.7l.]

Courts have long held that state or publicly held lands or interests in lands are not subject to sale or loss through tax foreclosure proceedings prosecuted under the GPTA to enforce the collection of delinquent taxes, King v School Dist No 5, 261 Mich 605; 247 NW 66 (1933); Porter, supra, and Hammond, supra, even taxes lawfully assessed against the lands prior to their acquisition by the public, State Highway Comm'r v Simmons, supra.

These cases are consistent with the general rule stated in 30 Am Jur 2d, Executions and Enforcement of Judgments, § 197:

As a general proposition, an execution may not be levied against the property of a state . . . in the absence of a statute expressly granting such right. . . . Reasons given for the rule are that title to such property is held in trust for the public, and that in any event, such a seizure and sale of public property would be against public policy, since the effect of such a sale would be the destruction of the means provided by law for carrying on the government. [Footnotes omitted.]

While state-owned lands have always been exempt from real property taxation, the Legislature has chosen to require that certain payments in lieu of taxes be made on state-owned lands administered by the DNR (and its predecessors, including the Department of Conservation and the Public Domain Commission). Under section 2150 of the Natural Resources and Environmental Protection Act (NREPA), MCL 324.2150,1 the DNR makes payments in lieu of taxes to counties and local units of government from moneys appropriated by the Legislature for such purposes on tax reverted, recreation, or forest lands and any other lands held by the department (except lands purchased after January 1, 1933, for natural resource purposes). These payments have been made since 1994 at the rate of $2.00 per acre, with 50% prorated to the county general fund and 50% to the township general fund.

Under sections 2152 through 2154 of the NREPA, MCL 324.2152 – 324.2154,2 the DNR makes payments in lieu of taxes to local units of government from funds appropriated for such purposes by the Legislature on the Mason Game Farm and all lands acquired by purchase on or after January 1, 1933. The process for making these payments was summarized in OAG, 1987-1988, No 6500, p 282, 283 (February 25, 1988):

The valuation of such lands is annually fixed by the State Tax Commission. The State Tax Commission furnishes its determination of value to the local assessing officer. That value shall be fixed at the same percentage of true cash value as other property is assessed in the assessment district. In establishing that value, the State Tax Commission shall not include the value associated with improvements made to or placed upon the lands. MCL 211.492; MSA 7.712. The local assessing officer enters the lands subject to assessment upon the assessment rolls at the value established by the State Tax Commission and, after applying the relevant equalization factor, assesses such lands at the same rate as other real property in the district is assessed. MCL 211.492; MSA 7.712. The local treasurer or other local person charged with collection of taxes then forwards the statement of the assessment to the Department of Natural Resources. MCL 211.493; MSA 7.713.

The Department of Natural Resources reviews that statement and if it concludes that the assessment has been properly determined, authorizes the State Treasurer to pay the amount of assessment.˛ In the 1984-85 fiscal year, the Department of Natural Resources paid to local units of government $9,441,271.03 under 1925 PA 91, and in fiscal year 1985-86 paid $8,589,108.21.

˛These payments are made from monies appropriated by the Legislature for such purposes from the general fund, the game and fish protection fund, and the Michigan land trust fund.

The payments determined consistent with the cited provisions can only be paid if sufficient monies are appropriated by the Legislature for those purposes. This is the clear mandate of Const 1963, art 9, § 17, which provides:

No money shall be paid out of the state treasury except in pursuance of appropriations made by law.

Accordingly, if sufficient funds are not appropriated by the Legislature or appropriations made by the Legislature are reduced by executive action authorized by the Constitution,3 the DNR cannot lawfully make "full" payment. Should the state, for whatever reason, fail to pay in full the "payments in lieu of taxes," there is no provision of the GPTA that would subject the state to a lien for non-payment and there is no provision of the GPTA that would subject the lands to forfeiture or foreclosure proceedings for failure to make the "payments in lieu of taxes."

It is my opinion, therefore, in answer to your first question, that property owned by the State of Michigan is not subject to forfeiture, foreclosure, and sale under the General Property Tax Act if the state fails to make the payments in lieu of property taxes required under Part 21, subpart 14 of the Natural Resources and Environmental Protection Act.

Your second question is whether section 404 of 2002 PA 525, section 1002 of 2001 PA 44, and section 1002 of 2000 PA 267, sections of three appropriations acts for the Department of Natural Resources, violate Const 1963, art 4, § 25, which prohibits the Legislature from altering or amending a law unless the law is re-enacted and published at length.

Lands to which the state acquired title as the result of tax foreclosure proceedings initiated by the State Treasurer (or the predecessor Auditor General) to enforce delinquent taxes, which become a lien on the property before January 1, 1999 (i.e., 1998 and earlier tax years), are subject to sale by the DNR under section 131 of the GPTA, MCL 211.131.4 Under the pertinent part of subsection 1 of this section, MCL 211.131(1), proceeds from the sale are to be distributed as follows:

The proceeds of the sale, after deducting costs paid for maintaining the property in condition to protect the public health and safety shall be accounted for to the state, county, local tax collecting unit, and school district in which the property is situated, pro rata according to their interests in the property arising from the nonpayment of taxes and special assessments on the property as that interest appears in the offices of the state, county, city, and local tax collecting unit treasurers.

The three annual appropriations acts identified in your question, 2000 PA 267, section 1002, 2001 PA 44, section 1002, and 2002 PA 525, section 404, however, provide that additional deductions shall be made by the DNR from the proceeds of the sale:5

The land sale fund is created. An amount equal to the cost of personal services, printing, postage, advertising, contractual services, and facility rental associated with tax reverted lands shall be deducted from the sales and credited to the land sale fund.

Const 1963, art 4, § 25, prohibits the Legislature from altering or amending a law unless the law is republished at length:

No law shall be revised, altered or amended by reference to its title only. The section or sections of the act altered or amended shall be re-enacted and published at length.

In OAG, 1997-1998, No 6980, p 137, 138 (April 20, 1998), the Attorney General explained the impact of this provision on the DNR's 1997-1998 fiscal year appropriations act:

This constitutional provision has been interpreted on several occasions by the Michigan Supreme Court. In Alan v Wayne County, 388 Mich 210, 281; 200 NW2d 628 (1972), the court reaffirmed its prior holding in Mok v Detroit Building & Savings Assoc No 4, 30 Mich 511 (1875), which interpreted Const 1850, art 4, § 25, the identical constitutional antecedent of Const 1963, art 4, § 25, stating:

Mok stands for the rule that you cannot amend statute C even by putting in statute B specific words to amend statute C, unless you republish statute C as well as statute B under Const 1963, art 4, § 25.

* * *

We adopt the rule of Mok. . . .

(emphasis in original).

In Alan, the court held that any legislation that revises, alters or amends, either directly or indirectly, a previously enacted law, necessarily invokes the constitutional requirement that the affected law be reenacted.

There is nothing complicated, burdensome, unreasonable or obscure about what we say here today. If a bill under consideration is intended whether directly or indirectly to revise, alter, or amend the operation of previous statutes, then the constitution, unless and until appropriately amended, requires that the Legislature do in fact what it intends to do by operation.

388 Mich at 285 (emphasis in original).

See also, Midland Twp v State Boundary Comm. 401 Mich 641, 658-660; 259 NW2d 326 (1977), app dis 435 US 1004 (1978) (reaffirming rule of Mok and Alan).

Legislative passage of state department appropriation acts which purport to revise, alter or amend prior substantive laws, without reenacting such laws, have been consistently determined to violate Const 1963, art 4, § 25. See, OAG, 1997-1998, No 6968, p [101] (January 27, 1998); OAG, 1995-1996, No 6871, pp 96-99 (September 18, 1995); OAG, 1985-1986, No 6325, pp 177-179 (December 11, 1995); OAG, 1981-1982, No 5951, p 304 (August 10, 1981); and OAG, 1975-1976, No 4896, p 132 (September 9, 1975) [appropriation bill attempting to amend statutory filing fee]. Accordingly, in applying Const 1963, art 4, § 25, to section 606 of 1997 PA 112, it must be concluded that section 606 revises, alters or amends section 74117(2) of the NREPA, by enlarging the class of persons entitled to a reduced state park vehicular admission fee. The Legislature is, of course, free to amend Part 741 of the NREPA to provide reduced park entry fees for veterans, provided that such amendment complies with Const 1963, art 4, § 25.

Section 131 of the GPTA authorizes and directs the DNR to deduct from the proceeds of sales of the affected tax reverted lands "costs paid for maintaining the property in condition to protect the public health and safety." The sums remaining after these deductions "shall be accounted for to the state, county, local tax collecting unit, and school district in which the property is situated" according to their interests in the property as those interests appear in their respective treasurers' offices. MCL 211.131(1).

Thus, the provisions of these appropriations acts clearly attempt to alter or amend provisions of section 131 of the GPTA, spelling out how proceeds for sales of tax reverted lands shall be distributed. The appropriations language specifies that additional deductions shall be made by the DNR from the proceeds of sales before accounting to the units of government that held those tax liens upon the subject property that resulted in foreclosure and acquisition of title by the state. These appropriations acts do not, however, re-enact and publish the affected section of the GPTA. Therefore, these provisions violate Const 1963, art 4, § 25.

It is my opinion, therefore, in answer to your second question, that section 404 of 2002 PA 525, section 1002 of 2001 PA 44, and section 1002 of 2000 PA 267, sections of three appropriations acts for the Department of Natural Resources, violate Const 1963, art 4, § 25, in that they alter or amend section 131 of the General Property Tax Act but do not re-enact and publish that section at length.

Your third question asks whether, assuming the unconstitutionality of certain provisions of the appropriations acts at issue in this opinion, the Department of Natural Resources is required under section 131 of the General Property Tax Act to distribute to local tax collecting units the proceeds that were deposited in the land sale fund in fiscal years 2000 through 2003. My office has been advised that the amounts deposited in the land sale fund for fiscal years 1999-2000, 2000-2001, and 2001-2002, the most recent years for which information is available, total approximately $4.6 million.6

Legislative enactments are presumed constitutional. Gauthier v Campbell, Wyant & Cannon Foundry Co., 360 Mich 510, 514-515; 104 NW2d 182 (1960). Review of funding legislation is no different from other legislative enactments. Grand Traverse County v State, 450 Mich 457, 463-464; 538 NW2d 1 (1995). Moreover, public officials charged with carrying out legislative mandates, particularly involving fiscal responsibilities, are not generally at liberty to challenge the constitutionality of those mandates. The courts have recognized that public officials are neither authorized nor required to adjudicate legal questions and generally have no right to refuse to perform ministerial duties prescribed by law. See Romulus City Treasurer v Wayne County Drain Comm'r, 413 Mich 728, 743; 322 NW2d 152 (1982); Laubach v O'Meara, 107 Mich 29, 30-31; 64 NW 865 (1895) (observing that the performance of statutory duties cannot depend on the opinion of those public officials as to the law's regularity).

Your question involves several prior legislative acts, each of which was in force only with respect to a past fiscal year. Public officials and employees have complied with these legislative directives. The Legislature itself, commanded by Michigan's Constitution to adopt a balanced budget, relied on these provisions to accomplish the constitutional mandate. See Const 1963, art 5, §§ 18, 20 and art 4, § 31.

The proper respect for the co-equal branches of government here counsels against suggesting remedies for these prior acts and expired fiscal years. As the Supreme Court noted in Washtenaw County v State Tax Comm, 422 Mich 346, 379, n 7; 373 NW2d 697 (1985), concerning how best to address the consequences of its ruling that the statute before it was unconstitutional:

"The present system being unconstitutional, we come to the subject of remedies. We agree with the trial court that relief must be prospective. The judiciary cannot unravel the fiscal skein."

The Court went on to explain:

The benefit of flexibility in opinion application is evident. If a court were absolutely bound by the traditional rule of retroactive application, it would be severely hampered in its ability to make needed changes in the law because of the chaos that could result in regard to prior enforcement under the law. [Tebo v Havlik, 418 Mich 350, 360; 343 NW2d 181 (1984), quoting Placek v Sterling Heights, 405 Mich 638, 665; 275 NW2d 511 (1979).]

In this case, the local governments have already collected and spent the 1982 tax levies in question; state aid, such as the school fund and revenue sharing, has already been allocated on the basis of those figures. It would represent a considerable administrative burden to require recalculation of the 1982 equalized valuations, especially in light of the fact that no method currently exists for taking the creative financing effect into account. [Id., at 378-379.]

In Penn Mutual Life Ins Co v Dep't of Licensing and Regulation, 162 Mich App 123, 133-134; 412 NW2d 668 (1987), the Court of Appeals, following Washtenaw, similarly determined that its ruling finding unconstitutional the tax scheme at issue there would have prospective application only. The Court explained:

The importance of flexibility was also pointed out in People v Smith, 405 Mich 418, 432; 275 NW2d 466 (1979): "Like all rules of law its wooden application, resulting in fundamental injustice, is intolerable." The Smith Court held that extraordinary cases are excepted from the traditional rule of retroactivity; we find that this is an extraordinary case. The receipts from the gross premium tax over the years have long since been used by the state and are no longer available for disbursement. Refunds of the magnitude involved here would place undue hardship on the people of this state. Furthermore, the state has justifiably relied on the constitutionality of this tax and balanced the state budget accordingly. [Id., at 134.]

With respect to the current fiscal year, resolution is best left to the legislative process. See Kosa v Treasurer of Michigan, 408 Mich 356, 383; 292 NW2d 452 (1980). Among the options the Legislature may wish to consider are amending the GPTA to require that a "tax sale fund" be created and that specified deductions be made from the receipts from the sale of tax reverted property before accounting to the taxing authorities, or enacting other funding measures for the programs essential to the administration of tax reverted lands, including the sale or other disposition of these lands.

It is my opinion, therefore, in answer to your third question, that notwithstanding the unconstitutionality of certain provisions of the appropriations acts as determined in this opinion, the Department of Natural Resources is not required under section 131 of the General Property Tax Act to distribute to local tax collecting units the proceeds that were deposited in the land sale fund in fiscal years 2000 through 2003. Consistent with established principles advancing the interest of budgetary stability provided for under Michigan's Constitution, this opinion applies prospectively only.

MIKE COX
Attorney General

1This section was formerly in force as 1917 PA 166, MCL 211.581.

2This section was formerly in force as 1925 PA 91, MCL 211.491.

3Const 1963, art 5, § 20, provides:

No appropriation shall be a mandate to spend. The governor, with the approval of the appropriating committees of the house and senate, shall reduce expenditures authorized by appropriations whenever it appears that actual revenues for a fiscal period will fall below the revenue estimates on which appropriations for that period were based. Reductions in expenditures shall be made in accordance with procedures prescribed by law. The governor may not reduce expenditures of the legislative and judicial branches or from funds constitutionally dedicated for specific purposes.

In 2002 PA 525, sections 1051 and 1451, the Legislature appropriated funds in the amount of $1,897,600 from Environmental Protection Fund resources for fiscal year 2003 and $598,700 from the same source to meet obligations remaining from fiscal year 2002 for payments in lieu of taxes. The Governor vetoed each of these sections. In the Governor's words: "I do not believe this is an appropriate use of these environmental protection funds. I urge the Legislature to enact a permanent solution to the funding shortfall for payments in-lieu-of taxes." 2002 Journal of the Senate, 2163-2164 (No. 66, November 12, 2002).

4Delinquent taxes levied after December 31, 1998, are governed by sections 78a through 78p of the GPTA, MCL 211.78a-211.78p, including provision for sale of lands title to which vests in a foreclosing unit of government.

5This legislative practice dates back to as early as 1981. In its annual appropriation for the DNR in that year, 1981 PA 37, the Legislature similarly specified:

                        Sec. 35. The land and lease sale service charges fund is created. An amount equal to the cost of
                        printing, postage, advertising and facility rental associated with the sale of oil, gas and
                        mineral leases and tax reverted lands shall be deducted from the sales and leases and credited to the
                        land and lease sale service charges fund.

6See the DNR report entitled "Distributions Made to Counties from the Sale of Tax Reverted Land for the Three Year Period of 1999-2002 (excluding 1999 sales of tax reverted land in the City of Detroit)."