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 - http://www.ag.state.mi.us)



STATE OF MICHIGAN

BILL SCHUETTE, ATTORNEY GENERAL

MICHIGAN NATURAL RESOURCES TRUST FUND:

DEPARTMENT OF NATURAL RESOURCES:

CONST 1963, ART 9, § 35:

CONST 1963, ART 9, § 35A:

Appropriations and expenditures from Michigan Natural Resources Trust Fund.

Article 9, § 35 of the Michigan Constitution vests exclusive authority in the Natural Resources Trust Fund Board to recommend projects to be funded through an appropriation from the Michigan Natural Resources Trust Fund. While the Legislature may approve or disapprove a recommended appropriation, the Legislature may not appropriate funds from the Natural Resources Trust Fund for a project that was not recommended by the Natural Resources Trust Fund Board.

The value of the Michigan Natural Resources Trust Fund may exceed $500 million if the excess is due to interest, earnings, or other amounts authorized for expenditure under article 9, § 35 of the Michigan Constitution.

The Natural Resources Trust Fund Board is not obligated to recommend expenditure of all interest and earnings that accumulate in the Michigan Natural Resources Trust Fund in a given year. The Board has a fiduciary responsibility under article 9, § 35 of the Michigan Constitution to make funding recommendations in a way that preserves and protects the entire $500 million Trust Fund principal so that the interest and earnings of the Trust Fund remain a perpetual source of money for its intended purposes. But the Board is not authorized to cause interest and earnings of the Trust Fund to accumulate indefinitely for the purpose of increasing the principal balance of the Fund beyond the $500 million cap established by the people in article 9, § 35 of the Michigan Constitution.

In the event the Natural Resources Trust Fund’s accumulated principal falls below $500 million, the revenue currently directed to the State Parks Endowment Fund under article 9, § 35a of the Michigan Constitution would not revert to the Michigan Natural Resources Trust Fund in order to restore that fund’s principal to the $500 million cap set forth in article 9, § 35 of the Michigan Constitution.

The Legislature lacks authority to require the Natural Resources Trust Fund Board to make funding recommendations that would award an amount equal to 25 percent of funds available for development projects in the Michigan Natural Resources Trust Fund under article 9, § 35 of the Michigan Constitution.

Because article 9, § 35 of the Michigan Constitution vests the Michigan Natural Resources Trust Fund Board with exclusive authority to determine which projects are eligible to receive funding, and due to the necessary interplay between that responsibility and the Board’s fiduciary duty to permanently protect the Michigan Natural Resources Trust Fund for the purposes mandated by the people, the Board determines the total amounts made available for expenditure from the fund in a given year through its annual funding recommendations.

The Legislature lacks authority to require the Natural Resources Trust Fund Board to spend a mandated amount of development funds from the Michigan Natural Resources Trust Fund on a specific type of development. The Board has discretion to recommend the projects to be funded, subject to the limitations stated in article 9, § 35 of the Michigan Constitution, although the actual expenditure of the recommended funds requires an appropriation by the Legislature.

Opinion No. 7299

November 3, 2017

Mr. Keith Creagh, Director                                   The Honorable Darwin L. Booher

Department of Natural Resources &                      State Senator

Agricultural Development                                     The Capitol

Lansing, MI  48909                                               Lansing, MI  48909

You have each asked a number of questions concerning the administration of the Michigan Natural Resources Trust Fund (MNRTF, Trust Fund, or Fund) established by article 9, § 35 of the Michigan Constitution.  Before addressing your questions, some of which overlap, it is helpful to consider the constitutional and statutory history of the Trust Fund.

History of the Michigan Natural Resources Trust Fund

 

Prior to the establishment of the MNRTF, there existed a similar statutory fund—the Kammer Recreational Land Trust Fund Act of 1976.  The Legislature enacted the fund to create a state recreational land acquisition trust (Kammer Trust) that would provide a trust fund and trust accounts for the purpose of acquiring land, or rights in land, for public recreational purposes in order to benefit the people of Michigan.  1976 PA 204, MCL 318.401 et seq.  The Kammer Trust was administered by a board of trustees that made decisions regarding which lands and rights in land should be acquired with money from the trust account.  MCL 318.403, MCL 318.409.  Each year the board provided the Legislature with a list of properties to be acquired with the Legislature’s approval.  MCL 318.409.

At various times, however, the Legislature diverted or sought to divert money from the Kammer Trust for use outside the purposes described in the act.  See, e.g., 1980 PA 420 (transferring $26 million from the Kammer Trust to the state general fund to help balance general fund budget); 1981 PA 217 (transferring over $46 million from the Kammer Trust to the state general fund to help balance general fund budget); 1983 PA 72 (authorizing transfer of $16 million to Michigan Youth Corps Program).  These diversions, and others, kept the fund balance below that needed to fund projects and for the Kammer Trust to become self-perpetuating.[1]  It was against this backdrop that the Legislature proposed creation of the MNRTF.  

Section 35 began as a senate joint resolution introduced by the Legislature in October 1983 to amend the constitution as provided in Const 1963, art 12, § 1.  See OAG, 2011–2012, No. 7268, pp 79, 80 (August 9, 2012).  After adoption by a 2/3 vote in the House and Senate, the joint resolution was placed on the ballot as Proposal B in the November 1984 general election.  The people approved Proposal B, thereby creating the Trust Fund in place of the Kammer Trust.  Michigan United Conservation Club v Dep’t of Treasury, 239 Mich App 70, 73-74 (2001). 

Section 35 prescribes the sources of funding for the Trust Fund as well as the purposes for which interest and earnings of the Trust Fund shall be expended:

There is hereby established the Michigan natural resources trust fund. The trust fund shall consist of all bonuses, rentals, delayed rentals, and royalties collected or reserved by the state under provisions of leases for the extraction of nonrenewable resources from state owned lands. . . .

* * *

The interest and earnings of the trust fund shall be expended for the acquisition of land or rights in land for recreational uses or protection of the land because of its environmental importance or its scenic beauty, for the development of public recreation facilities, and for the administration of the trust fund, which may include payments in lieu of taxes on state owned land purchased through the trust fund.

***

The legislature shall provide by law for the implementation of this section.  [Const 1963, art 9, § 35, ¶¶ 1, 4, and 8.]

As noted in OAG No. 7268, “[t]he establishment of the MNRTF dedicated these revenues from the extraction of state owned nonrenewable resources [to] the acquisition of recreational land, environmentally sensitive or scenic land, and for the development of public recreation facilities.”  Id. at p 80. 

In the following year, the Legislature implemented section 35 in the Michigan Natural Resources Trust Fund Act, 1985 PA 101, formerly MCL 318.501 et seq.  This act stipulated that in a given fiscal year, up to 1/3 of all mineral lease revenues plus the interest and earnings of the Trust Fund could be used to purchase land to protect resources, provide public recreation, and develop public recreation facilities.[2]  That statute was later repealed and recodified in 1994 as Part 19, Natural Resources Trust Fund, of the Natural Resources and Environmental Protection Act, 1994 PA 451, MCL 324.1901 through 324.1911. 

In the same year, the Legislature, again by a 2/3 vote in each house, proposed an amendment to section 35.  In November 1994, Michigan voters approved Proposal P, which amended section 35.[3]  Proposal P revised previous language that had allowed the diversion of revenues to the Michigan Strategic Fund, and added what is now article 9, § 35a, which established the State Parks Endowment Fund to provide for the funding and improvement of Michigan’s state parks and provided for the distribution of up to $10 million annually in MNRTF mineral lease revenues to the State Parks Endowment Fund.[4]  The 1994 amendment also raised the maximum principal amount that could accumulate in the Fund from the original $200 million to $400 million.[5]

In 2002, the Legislature again proposed an amendment to section 35, Proposal 2, which the people approved in August of 2002.[6]  This last amendment to section 35 raised the maximum principal amount that could accumulate in the Trust Fund from $400 million to $500 million and allowed up to one third of the Trust Fund revenue from the extraction of nonrenewable resources to be spent annually until the principal reached $500 million.[7]  Once the principal reached the $500 million threshold, all mineral lease revenues that would have gone to the MNRTF were to be directed to the State Parks Endowment Fund.[8] 

Article 9, § 35 provides for a trust fund board (Trust Fund Board or Board): 

 

The legislature shall provide by law for the establishment of a trust fund board within the department of natural resources.  The trust fund board shall recommend the projects to be funded. The board shall submit its recommendations to the governor who shall submit the board’s recommendations to the legislature in an appropriations bill. [Const 1963, art 9, § 35, ¶ 7.][9]

The Legislature provided by law for the establishment of the Board in MCL 324.1905(1):  “The Michigan natural resources trust fund board is established within the department [of natural resources].”  In MCL 324.1907(1), the Legislature implemented the Board’s constitutional duties and powers:

 

The board shall determine which lands and rights in land within the state should be acquired and which public recreation facilities should be developed with money from the trust fund and shall submit to the legislature in January of each year a list of those lands and rights in land and those public recreation facilities that the board has determined should be acquired or developed with trust fund money, compiled in order of priority.  

Since its establishment, the Board has performed its constitutional and statutory responsibility of recommending the land acquisition and recreational development projects to be funded with money from the Trust Fund.  The Board submits an annual report to the Legislature detailing its activities and the status of recommended projects.[10]

  

Appropriations from the Michigan Natural Resources Trust Fund

You each ask questions related to whether the Legislature can appropriate funds from the Trust Fund for projects that have not been recommended by the Trust Fund Board. 

The “primary goal in construing a constitutional provision is to give effect to the intent of the people of the state of Michigan who ratified the Constitution, by applying the rule of ‘common understanding.’ ” Coalition of State Employee Unions v State, 498 Mich 312, 323 (2015).  The “common understanding” of constitutional text is arrived at “by determining the plain meaning of the text as it was understood at the time of ratification.”  Id. (citations omitted).  Interpretation of a provision also takes into account “the circumstances leading to the adoption of the provision and the purpose sought to be accomplished.”  Id. (citations omitted).

With regard to these questions, the relevant language of section 35, ¶ 7, states that after the Legislature establishes the Board:

 

[t]he trust fund board shall recommend the projects to be funded.  The board shall submit its recommendations to the governor who shall submit the board’s recommendations to the legislature in an appropriations bill.  [Emphasis added.]

Under this language the Board has a duty to “recommend the projects to be funded” to the Governor, who then submits the Board’s list of recommended projects to the Legislature in an appropriations bill.[11]  Once submitted in bill form, the list of recommended projects proceeds through the legislative process.[12]  The question is whether the Legislature may use its appropriative power to amend this appropriation bill, or perhaps introduce a separate appropriation bill, to appropriate MNRTF money for a “project” that was not recommended by the Trust Fund Board.

Michigan’s Constitution provides that “[t]he powers of government are divided into three branches: legislative, executive and judicial,” and “[n]o person exercising powers of one branch shall exercise powers properly belonging to another branch except as expressly provided in [the] constitution.”  Const 1963, art 3, § 2.  “[T]he appropriative power [ ] resides in the Legislature.”  Coalition of State Employee Unions, 498 Mich at 330, citing 46th Circuit Trial Court v Crawford Co, 476 Mich 131, 141 (2006) (“the most fundamental aspect of the ‘legislative power,’ . . . is the power . . . to appropriate for specified purposes”).  And this appropriative power is plenary.  Id. at 331-32 (“[O]ur Constitution is ‘not a grant of power to the Legislature, but is a limitation upon its powers.’  Therefore, the legislative authority of the state ‘can do anything which it is not prohibited from doing by the people through the Constitution of the State or the United States.’ ”) (citations omitted).  Under these principles, the Legislature’s right to control the public treasury, to determine the sources from which public revenues shall be derived and the objects upon which they shall be expended, and “ ‘to dictate the time, the manner, and the means both of their collection and disbursement, is firmly and inexpugnably established in our political system.” ’ Civil Service Comm v Auditor General, 302 Mich 673, 682 (1942) (citation omitted). 

“That said, it is true that the separation of powers doctrine does not rigidly confine all powers of a certain character to one branch or another.  One branch of government may have authority of a character typically associated with another branch, as long as the Constitution ‘explicitly’ grants that authority.”  Coalition of State Employee Unions, 498 Mich at 330 (citations omitted).  See also Civil Service Comm, 302 Mich at 682 (control of the purse “is the supreme legislative prerogative, indispensable to the independence and integrity of the Legislature, and not to be surrendered or abridged, save by ‘the Constitution itself [.]’ ”) (emphasis added). 

At this point, two observations may be made.  First, section 35 retains the Legislature’s power to ultimately approve or disapprove the appropriation requested by the Trust Fund Board for a recommended project.  Given the Legislature’s plenary power over appropriations, this is a reasonable interpretation of ¶ 7’s use of the words “recommend” and “recommendations,” (“The trust fund board shall recommend the projects to be funded.  The board shall submit its recommendations to the governor[.]”).  In this way, the Legislature keeps “the power of the purse” through its ability to approve or disapprove the Board’s requested appropriation.  Regents of Univ of Michigan v State, 395 Mich 52, 70 (1975).[13]  Second, through section 35 the people chose the object or purpose for which Trust Fund money can be appropriated. Under section 35, Trust Fund money can only be “expended for the acquisition of land or rights in land for recreational uses,” “for the development of public recreation facilities,” and “for the administration of the trust fund.”  Const 1963, art 9, § 35, ¶ 4.  This is a significant limitation.

Within that limitation, the issue is whether section 35 grants the power to choose the projects for which Trust Fund money should be expended exclusively to the Trust Fund Board or whether the Legislature shares in that power.  Given the text, its structure, and the contemporaneous legislative understanding of the section that was drafted by the Legislature, the Trust Fund Board has exclusive authority to recommend projects for funding.

As an initial matter, the language of ¶ 7 of section 35 supports this interpretation.  It provides that “[t]he trust fund board shall recommend the projects to be funded,” through an appropriation from the Trust Fund.  Const 1963, art 9, § 35, ¶ 7 (emphasis added).  As used here, the word “shall” should be given its “popular and common” meaning—that of “denot[ing] mandatoriness.”  State Highway Comm v Vanderkloot, 392 Mich 159, 180 (1974) (construing the word “shall” as used in Const 1963, art 4, § 52).  The word “recommend” must also be given its ordinary meaning, which is “to suggest favorably as suited for some use, function, position, etc.” Webster’s New World Dictionary, (3rd ed, 1988).  See also National Pride at Work, Inc. v Governor, 481 Mich 56, 67–77 (2008) (undefined constitutional terms must be given their common or ordinary meaning).  The word “projects” relates to the activities to be funded through the Trust Fund.  Applying these definitions here, ¶ 7 of section 35 could be understood to mean that only those projects the Board recommends may be proposed for funding through the MNRTF. 

The language and structure of section 35 as a whole support this interpretation.  See Lapeer County Clerk v Lapeer Circuit Court, 469 Mich 146, 156 (2003) (“every provision must be interpreted in the light of the document as a whole”).  Under section 35, no other person or entity, including the Legislature, is authorized to “recommend” the projects to be funded.  Notably, ¶¶ 4, 5, 7, and 8 of section 35, expressly accord the Legislature specific but limited powers to “provide” for certain things (for example, establishment of a trust fund board and implementation of the section),  but none relate to recommending the projects to be funded by the Trust Fund.  And no other process is provided for in section 35 other than that the Board “shall submit its recommendations to the governor who shall submit the board’s recommendations to the legislature.” (¶ 7).  The Legislature receives “the board’s recommendations,” which, as discussed above, the Legislature may thereafter approve or disapprove through the appropriations process.         

Most importantly, the circumstances surrounding the adoption of section 35 strongly support this interpretation. See Michigan United Conservation Club, 239 Mich App at 84-85 (interpreting art 9, § 35) (citations omitted) (“To clarify meaning [of a constitutional provision], the circumstances surrounding the adoption of a constitutional provision and the purpose sought to be accomplished may be considered.”); Id. at 85 (citations omitted) (“[T]he court should place itself in the position of the ratifiers and ascertain what was meant at the time the provision was adopted.  In doing so, the court may consider the general spirit of the times and the sentiments prevailing among the people.”); Plymouth Twp v Wayne County Bd of Comm’rs, 137 Mich App 738, 750 (1984) (citation omitted) (“The drafters of a constitutional amendment are presumed to know about existing laws and constitutional provisions and thus to have drafted their provision accordingly.”)

The circumstances surrounding the adoption of section 35 and its subsequent amendments are significant in that it was the Legislature itself that drafted the original language and later proposed the amendments to the constitution.  And the Legislature’s contemporaneous implementing legislation speaks clearly to its understanding of the Board’s role:  it expressly provided that the Trust Fund Board “shall determine which lands and rights in land within the state should be acquired and which public recreation facilities should be developed with money from the trust fund[.]”  1985 PA 101, MCL 318.509(1) (emphasis added).  See, e.g., People v Perks, 259 Mich App 100 (2003) (discussing implementing legislation enacted immediately after amendment to Const 1963, art 1, § 20).  In this particular circumstance, the Legislature’s view is a powerful indication of the “common understanding” of the people at the time the constitutional provision was enacted.  Under this view, the word “recommend” is specific to the Trust Fund Board, making it the only entity that may propose projects and constraining the universe of projects for which the Legislature may make an appropriation.   

The Legislature’s understanding that “recommend” is the equivalent of empowering the Board to “determine” the projects also comports with the purpose for which section 35 was passed.  The principal and publicly articulated reason for creating the Trust Fund within the constitution was to establish a permanent fund and protect it from future raids by the Legislature.  Michigan United Conservation Club, 239 Mich App at 85. 

With this purpose in mind, it is reasonable to conclude that as part of protecting against raiding, the people understood that the Trust Fund Board – not the Legislature – would have exclusive authority to determine which projects should be funded. 

This statutory language has existed for decades without change.  It was recodified in 1994 by Public Act 451 in MCL 324.1907(1), the same year the Legislature proposed its first amendment to section 35. And the statutory language was again left unchanged when section 35 was amended in 2002.  Moreover, the Trust Fund Board, the Governor, and the Legislature have followed the process set forth in section 35 and the implementing legislation since the adoption of both in 1984 and 1985, respectively.

These cumulative circumstances demonstrate that section 35 is understood to vest the Trust Fund Board with exclusive authority to determine which projects should be recommended for funding. To be sure, this a departure from the Legislature’s ordinary role, but not without precedent in the constitution.  As noted above, “the separation of powers doctrine does not rigidly confine all powers of a certain character to one branch.” Coalition of State Employee Unions, 498 Mich at 330 (citations omitted).  One branch of government may exercise that of another branch so long as the constitution grants that authority.  Id.  For example, the Michigan Supreme Court has held that article 11, § 5 of the Constitution authorizes the Civil Service Commission, a body created in the constitution and a part of the executive branch of government, to set wage increases for classified civil service employees.  Coalition of State Employee Unions, 498 Mich at 330.  The Court described this as a “compelling example” of the constitution conferring authority on one branch of government to exercise authority “of a character typically associated with another branch[.]”  Id.  Specifically, the constitution conferred “a singular, if limited, nonlegislative power to allocate taxpayer funds” to the Commission, a member of the executive branch.  Id.  Here, section 35 confers on the Trust Fund Board a similar power to allocate funds.

It is my opinion, therefore, that article 9, § 35 of the Michigan Constitution vests exclusive authority in the Trust Fund Board to recommend projects to be funded through an appropriation from the Trust Fund.  While the Legislature may approve or disapprove a recommended appropriation, the Legislature may not appropriate funds from the Trust Fund for a project that was not recommended by the Trust Fund Board. 

Balance of the Michigan Natural Resources Trust Fund

You ask related questions about the total balance of the Trust Fund and the disposition of interest and earnings from it.

You first ask whether the value of the MNRTF can exceed $500 million through accumulation of interest and earnings.  Again, in interpreting the constitution the intent of those who ratified the specific language must be discerned by looking to the plain meaning of the text.  Coalition of State Employee Unions, 498 Mich at 323.  For this question, the relevant language is in ¶ 3 of section 35:

The amount accumulated in the trust fund in any state fiscal year shall not exceed $500,000,000.00, exclusive of interest and earnings and amounts authorized for expenditure pursuant to this section.  [Const 1963, art 9, § 35, ¶ 3.]

This language provides for a $500 million cap on the principal amount of money that is accumulated in the Trust Fund.  Because the MNRTF is funded by “all bonuses, rentals, delayed rentals, and royalties collected . . . by the state . . . for the extraction of nonrenewable resources from state owned lands,” once the sum of those monies accumulated in the Trust Fund reaches $500 million, no more monies from those sources may be added to the Fund.  Id. at § 35, ¶ 1.  In 2011, the principal accumulated in the MNRTF reached the $500 million cap, cutting off the deposit of further lease revenues into the Fund.  Since then, all such revenues that would have gone to the MNRTF have instead been deposited into the State Parks Endowment Fund as provided in article 9, §§ 35 and 35a.

There are, however, exceptions to the $500 million cap.  The constitutional provision notes the $500 million cap, but goes on to state that that number is “exclusive of interest and earnings and amounts authorized for expenditure pursuant to this section.”  Id., § 35, ¶ 3 (emphasis added).  This express exception allows for the amount of money accumulated in the Fund to exceed $500 million, if the excess is due to interest, earnings, or other amounts authorized for expenditure under section 35.        

It is my opinion, therefore, that the value of the MNRTF can exceed $500 million if the excess is due to interest, earnings, or other amounts authorized for expenditure under article 9, § 35.

You also ask whether, given that on three occasions the people of Michigan set specific dollar amounts for the principal of the Trust Fund and that the constitution explicitly uses the word “expended,” the Board has the power not to expend the funds from interest and earnings, and instead to maintain those funds in a “stabilization fund.”  This question is raised in the context of ¶ 4 of section 35, which states in part:

[t]he interest and earnings of the trust fund shall be expended for the acquisition of land or rights in land for recreational uses or protection of the land because of its environmental importance or its scenic beauty, for the development of public recreation facilities, and for the administration of the trust fund, which may include payments in lieu of taxes on state owned land purchased through the trust fund.  [Emphasis added.]

The plain meaning of this language is that it identifies and restricts the purposes for which interest and earnings of the Trust Fund may be expended.  It is not – on its face or in context – a mandate to expend all of the interest and earnings in the Trust Fund each year.  While this paragraph states that “the interest and earnings of the trust fund shall be expended” for the listed purposes, it does not provide that all interest and earnings received or accumulated during a fiscal year or any other specified time period shall be expended annually, or within any other particular time frame.

 In that regard, the language of ¶ 4 contrasts with other provisions of section 35 that contain explicit temporal limitations.  For example, ¶ 3 refers to “[t]he amount accumulated . . . in any state fiscal year.” (Emphasis added).  And ¶ 5 specifically references “revenues . . . received by the trust fund during each state fiscal year [that] may be expended during subsequent state fiscal years[.]” (Emphasis added).  Finally, ¶ 6 refers to “amounts made available for expenditure . . . from any state fiscal year.”  (Emphasis added).  Given this context, and the absence of any similar time-based limitation in ¶ 4, the people – who ratified section 35 – would not have understood this language as a mandate to expend all interest and earnings received each year. Instead, reading section 35 as a whole, the language of ¶ 4 simply defines the allowable uses of the interest and earnings from the Trust Fund.

The fact that the people, in Proposal B in 1984, and in the subsequent 1994 and 2002 amendments to section 35, established limits on the Fund principal ($200 million, $400 million, and $500 million, respectively) does not mean that the people intended to require the expenditure of all of the interest and earnings above those amounts that accumulated in the Fund each year.  As stated above, the value of the Fund may exceed the $500 million cap, if the excess is due to interest, earnings, or other amounts authorized for expenditure.

Again, in adopting section 35 the evident goal of the people was to create and maintain a permanent, stable fund, the interest and earnings of which would be dedicated to the specified land acquisition, recreational development, and administrative purposes, in perpetuity.  As discussed in OAG, 2005-2006, No. 7195, pp 115, 120 (July 19, 2016), the Trust Fund is a “permanent fund” within the meaning of article 9, § 19 of the Michigan Constitution,[14] and such “permanent funds” share certain characteristic attributes:

These include prescribing the fund’s purposes, authorizing the investment and reinvestment of the fund’s money only to fulfill those purposes, restricting the amount of money that may be allocated to or accumulate in the fund, preserving the fund’s mission by providing that the money in the fund does not lapse back to the State’s General Fund at the end of each fiscal year, and mandating a regular accounting of the fund’s revenues and expenditures for the Legislature. [Emphasis added.]

Section 35 explicitly created the Michigan Natural Resources Trust Fund, and provided for a Trust Fund Board to administer the Fund.  A “trust” is “a fiduciary relationship regarding property and charging the person with title to the property with equitable duties to deal with it for another’s benefit.” Black’s Law Dictionary, (8th ed).  A trustee of a trust must be prudent, acting with care, diligence, integrity, fidelity and sound business judgment.  In re Buhl’s Estate, 211 Mich 124, 132 (1920).  Within the scope of its constitutional and statutory authority to identify the projects to be funded, the Board has the fiduciary responsibility to ensure that the Trust Fund principal is preserved to serve its intended purposes for future generations of Michiganders.

To meet this responsibility, the Board must prudently balance its recommendations of projects to be funded each year from interest and earnings of the Fund against other relevant considerations.  For example, the Board must consider the amounts needed for administrative expenses of the Fund, including payments in lieu of taxes on state-owned land purchased through the Fund, as required by MCL 324.1903(1)(c).  At the same time, the amount of interest and earnings yielded each year on Fund investments is inherently uncertain and subject to change based on market conditions.  In addition, the Board is charged in MCL 324.1907 with considering the cost, quality, and relative priority of the various land acquisition and development projects that have come before it or are likely to do so.   The Board is expected to balance all relevant considerations and then make prudent decisions each year about recommended project expenditures in a way that promotes the purpose of section 35—preserving the entire $500 million Fund principal mandated by the people so that interest and earnings of the Fund are available for the designated land acquisition, recreational development, and administrative uses.  As a result, to provide a margin of safety and ensure that the Fund principal remains intact, the Board may recommend project expenditures in amounts less than the full amount of interest and earnings accumulated in the Fund in a given year.

That said, the Board does not have the constitutional authority to cause interest and earnings of the Fund to indefinitely accumulate for the purpose of increasing its principal balance beyond the cap established in section 35.  Although references have been made to a “stabilization fund” or “reserve” of money within the MNRTF,[15] there is no language in either section 35 or the implementing legislation that establishes or authorizes the Board to create such a fund or reserve.  And according to the most recent State of Michigan Comprehensive Annual Financial Report there is only a single Natural Resources Trust Fund, without any separate “stabilization fund.”[16]

It has been suggested that a “spending policy” that allows the Trust Fund interest and earnings to accumulate in a “growth fund” in order to increase the Fund principal to an amount greater than $500 million would be desirable, as it would compensate for the effects of inflation over time and preserve the “buying power” of the $500 million corpus established in 2002.[17]  However desirable that outcome may be as a policy matter, the Trust Fund Board cannot effectively re-write section 35.  As noted above, the people capped the principal amount of the Fund in 2002 at $500 million and instead directed further revenues into the Michigan State Parks Endowment Fund created by article 9, § 35a.  Notably, the same 2002 constitutional amendment established an $800 million cap on the principal balance of the State Parks Endowment Fund and expressly provided that the $800 million limit “shall be annually adjusted pursuant to the rate of inflation[.]”  Const 1963, art 9, § 35a.  No such language appears in section 35.  The Board cannot disregard the limitations the people have placed on the accumulated principal of the MNRTF in section 35.

It is my opinion, therefore, that the Trust Fund Board is not obligated to recommend expenditure of all interest and earnings that accumulate in the Trust Fund in a given year. The Board has a fiduciary responsibility under article 9, § 35 to make funding recommendations in a way that preserves and protects the entire $500 million Trust Fund principal so that the interest and earnings of the Fund remain a perpetual source of money for its intended purposes.  But the Board is not authorized to cause interest and earnings of the Trust Fund to accumulate indefinitely for the purpose of increasing the principal balance of the fund beyond the $500 million cap established by the people in article 9, § 35 of the Michigan Constitution.    

You further ask whether revenue currently directed to the State Parks Endowment Fund would revert to the MNRTF if the Fund’s accumulated principal fell below $500 million due to investment losses, until the Fund’s accumulated principal again reaches the $500 million cap established in section 35.

Section 35, ¶ 3 states in relevant part:

When the accumulated principal of the trust fund reaches $500,000,000.00, all revenue from bonuses, rentals, delayed rentals, and royalties described in this section that would be received by the trust fund but for this limitation shall be deposited into the Michigan state parks endowment fund until the Michigan state parks endowment fund reaches an accumulated principal of $800,000,000.00. When the Michigan state parks endowment fund reaches an accumulated principal of $800,000,000.00, all revenues from bonuses, rentals, delayed rentals, and royalties described in this section shall be distributed as provided by law. 

In turn, article 9, § 35a, concerning the State Parks Endowment Fund, states: 

 

The accumulated principal of the endowment fund shall not exceed $800,000,000.00, which amount shall be annually adjusted pursuant to the rate of inflation beginning when the endowment fund reaches $800,000,000.00. This annually adjusted figure is the accumulated principal limit of the endowment fund.

This constitutional language prescribes a sequence of triggering events, each of which occurs only once, that determines how the revenue described in section 35 is distributed over time.  First, when the accumulated principal of the MNRTF reaches the $500 million threshold it is then deposited into the State Parks Endowment Fund until that fund reaches the specified $800 million accumulated principal limit, adjusted for inflation.  Second, when the latter limit is reached, no further revenue is constitutionally directed into either of the funds.  Instead, at that point, the Legislature determines the distribution of the revenue by law.

A plain reading of section 35 along with section 35a provides no support for the proposition that if the MNRTF’s accumulated principal dips below $500 million, monies paid to the state for the extraction of natural resources would be diverted back from the State Parks Endowment Fund to the MNRTF.  “[T]he primary objective of constitutional interpretation . . . is to faithfully give meaning to the intent of those who enacted the law.”  National Pride, 481 Mich at 67.  Logic and common sense hold that “when people say one thing they do not mean something else.”  Feld v Robert & Charles Beauty Salon, 435 Mich 352, 362 (1990), quoting 2A Sands, Sutherland Statutory Construction (4th ed), § 47.24, p 203.  Nothing in the constitutional language adopted by the people suggests that once the MNRTF cap of $500 million has been achieved, the funds that begin flowing to the State Parks Endowment Fund can later be diverted back to the MNRTF if the Fund dips below $500 million.  Such an interpretation would read into the constitution language that was not adopted by the people.  Once the MNRTF achieves a principal balance of $500 million,[18] the MNRTF consists only of the principal previously deposited and “interest and earnings and amounts authorized for expenditure pursuant to [section 35].”  Const 1963, art 9, § 35 ¶ 3.[19]        

It is my opinion, therefore, that in the event the Trust Fund’s accumulated principal falls below $500 million, the revenue currently directed to the State Parks Endowment Fund under article 9, § 35a would not revert to the Trust Fund in order to restore that Fund’s principal to the $500 million cap set forth in article 9, § 35.

Expenditures from the Michigan Natural Resources Trust Fund

You ask several questions regarding expenditures from the Trust Fund.  First, you ask whether the Legislature can require the Trust Fund Board to award an amount equal to 25 percent of funds available for development projects even though the constitution provides that the MNRTF shall award no more than 25 percent of funds available for development projects.  As discussed above, the people have in section 35 vested the Board with the exclusive authority to determine the projects to be funded from the MNRTF.  Under section 35, ¶ 6:

 

Not less than 25 percent of the total amounts made available for expenditure from the trust fund from any state fiscal year shall be expended for acquisition of land and rights in land and not more than 25 percent of the total amounts made available for expenditure from the trust fund from any state fiscal year shall be expended for development of public recreation facilities. [Emphasis added.]

“[I]nterpretation [of the constitution] should be the ‘sense most obvious to the common understanding; the one which reasonable minds, the great mass of people themselves, would give it.’ ” Makowski v Governor, 495 Mich 465, 472 (2014) (citations omitted).  The plain meaning of this language is that, of the total of any funds from the Trust Fund made available for expenditure in any given year, at least 25 percent must be spent to acquire land or rights in land, and up to 25 percent may be spent for the development of recreation facilities.  Notably, the language adopted by the people did not mandate that an amount equal to 25 percent of the total amounts available for expenditure be expended for the development of recreation facilities.  In other words, the plain language of the constitution establishes a ceiling, not a floor, for that category of expenditure each year. 

It is my opinion, therefore, that the Legislature lacks authority to require the Trust Fund Board to make funding recommendations that would award an amount equal to 25 percent of funds available for development projects in the Trust Fund.

Next, given the use in section 35 of the phrase “total amounts made available for expenditure from the trust fund from any state fiscal year,” you ask whether that phrase means “the total amount of all interest and earnings accumulated during the fiscal year and any interest and earnings that have accumulated from previous years” and if not, how “total amounts made available for expenditure” is determined and who makes that determination.

As discussed above, the starting point in construing a constitutional provision is the plain language of the text as it would have been commonly understood by the people who ratified it. Coalition of State Employee Unions, 498 Mich at 323.  Here, the relevant language, which appears in ¶ 6 of section 35, is not, as suggested in your question, the “total amount of all interest and earnings accumulated . . . [in the Fund].”  Instead, the text refers to “the total amounts made available for expenditure” (Emphasis added). This language presupposes an active decision each fiscal year to make a certain amount of funds available for expenditure, rather than an assumption or mandate that all accumulated interest and earnings will be spent.

With respect to the second part of your question, the short answer is that the Board, as the constitutionally designated steward of the Trust Fund, determines the amounts that are made available for expenditure from the Fund each year through its funding recommendations.

As previously noted, this is consistent with the contemporaneous public understanding of section 35 as evidenced in the 1985 implementing legislation, under which “[t]he board shall determine which lands and rights in land . . . should be acquired and which public recreation facilities should be developed with money from the trust fund.”  MCL 324.1907(1) (emphasis added).  While the Legislature has the final authority over whether or not the recommended funds are appropriated, the Board has exclusive authority under section 35 to determine the projects eligible to be funded.  This means that the Board must make the specific calculations with regard to amounts available from the Trust Fund, to ensure that all of the Fund’s administrative obligations are met and that funds are allocated between land acquisition and recreational development projects within the limitations specified in section 35.[20]

Accordingly, the determination of “total amounts made available for expenditure” from the Trust Fund in a given year must necessarily consider all categories of expenditures authorized by section 35:  “the acquisition of land or rights in land . . . the development of public recreation facilities, and the administration of the trust fund, which may include payments in lieu of taxes on state owned land purchased through the trust fund.”  As noted above, MCL 324.1903(1)(c) requires full payments in lieu of taxes on such lands.  Other administrative costs include payments to the Department of Natural Resources for staff who administer the Trust Fund and provide support to the Board, and to the Department of Treasury for expenses related to investment of the Fund.[21]

Each December, based on its constitutional duty to “recommend the projects to be funded” and its parallel statutory responsibility to “determine which lands and rights in land within the state should be acquired and which public recreation facilities should be developed,” MCL 324.1907(1), the Board identifies those projects eligible for funding, and in so doing, “the total amounts available for expenditure.”  As noted above, to prudently make those recommendations, the Board must balance several factors.  Those factors include: (a) the amount of interest and earnings accumulated in the Fund above the $500 million principal and any other income received by the Fund, (b) the present and projected future costs of administering the fund, including payments in lieu of taxes, (c) the net amount of outstanding expenditures authorized in previous years but not yet paid,[22] (d) the costs, quality, relative priority of projects proposed or likely to come before it for funding, (e) uncertainties associated with future performance of Fund investments, and (f) the Board’s fiduciary responsibility to maintain the Fund principal. 

It is my opinion, therefore, that because article 9, § 35 vests the Trust Fund Board with authority to determine which projects are eligible to receive funding, and due to the necessary interplay between that responsibility and the Board’s fiduciary duty to permanently protect the Fund principal for the uses mandated by the people, the Board determines the total amounts made available for expenditure from the Fund in a given year through its annual funding recommendations.

Finally, you ask whether the Legislature can require the Board to spend a mandated amount of development funds from the MNRTF on a specific type of development, or whether the constitution grants the Board the exclusive discretion to make such decisions.  This is a two-part question, and the answer is not necessarily one or the other of the two choices the question presents. 

The first half of the question asks whether the Legislature can require the Board to spend a mandated amount of development funds from the MNRTF on a specific type of development.  This question relates to the first and fifth questions addressed above involving the authority to select projects eligible for funding and the constitutional limit on the funding of recreational development projects, respectively.  As previously noted, one of the uses for which funds from the MNRTF may be spent is the development of public recreation facilities.  Of the total amount of funds made available by the Board for expenditure in a given year, “not more than 25 percent” may be expended for such development.  Given that the Legislature cannot choose the projects that are eligible to be funded, it cannot require the Board to spend a mandated amount (or any amount) of development funds from the MNRTF on a specific type of development. 

The second half of your question asks whether the constitution grants the Board the exclusive discretion to make such decisions (about the amount of development funds that are spent on what type of development), implying that if the answer to the first half of the question is no, the answer to the second half will be yes.  However, the answer to the second half of the question is not a simple “yes.” 

While section 35 does vest the Board with the exclusive responsibility for recommending the projects to be funded out of the MNRTF each year, in making those recommendations the Board is constrained by the limitations stated elsewhere in the section: (1) not less than 25 percent of the total amounts made available for expenditure shall be expended for acquisition of land or rights in land, and (2) not more than 25 percent of the total amounts made available for expenditure shall be expended for the development of public recreation facilities.  Within these limitations, and those set forth in the implementing legislation, the Board is free to determine and recommend whichever development projects it deems suitable to receive funding. 

In addition, the Board does not have the authority to require the expenditure of any funds.  Although the constitution gives the Board the power to recommend which development projects are to be funded, the Legislature must appropriate the funds before they may be spent and therefore is the final arbiter on whether those recommended projects will be funded.  Thus, the Board does not have exclusive discretion to make decisions as to whether specific amounts of development funds will be spent on specific development projects.

It is my opinion, therefore, that the Legislature lacks authority to require the Board to spend a mandated amount of development funds from the MNRTF on a specific type of development.  The Board has discretion to recommend the projects to be funded, subject to the limitations stated in article 9, § 35, but the actual expenditure of the recommended funds requires an appropriation by the Legislature. 

 

 

BILL SCHUETTE

Attorney General

 

 



[1]  See Michigan Department of Natural Resources, History of the Michigan Natural Resources Trust Fund, http://www.michigan.gov/dnr/0,4570,7-153-65134_65142-39513--,00.html, (last accessed July 31, 2017).  See also, Council Comments, No. 950, Citizens Research Council, October 1984, p 5, available under the publications archives tab by decade, at http://crcmich.org.    

[2] See Michigan Department of Natural Resources, History of the Michigan Natural Resources Trust Fund, http://www.michigan.gov/dnr/0,4570,7-153-65134_65142-39513--,00.html, (last accessed July 31, 2017).

[3] See Initiatives and Referendums under the Constitution of the State of Michigan of 1963, available on the Secretary of State’s website at http://www.michigan.gov/documents/sos/Initia_Ref_Under_Consti_12-08_339399_7.pdf, (last accessed July 31, 2017). 

[4] See Michigan Department of Natural Resources, History of the Michigan Natural Resources Trust Fund, http://www.michigan.gov/dnr/0,4570,7-153-65134_65142-39513--,00.html, (last accessed July 31, 2017).

[5] Id.

[6] See Initiatives and Referendums under the Constitution of the State of Michigan of 1963, available on the Secretary of State’s website at http://www.michigan.gov/documents/sos/Initia_Ref_Under_Consti_12-08_339399_7.pdf

(last accessed July 31, 2017). 

[7] See Michigan Department of Natural Resources, History of the Michigan Natural Resources Trust Fund, http://www.michigan.gov/dnr/0,4570,7-153-65134_65142-39513--,00.html, (last accessed July 31, 2017).

[8] Id.

[9] As adopted, section 35 does not include paragraph (¶) references, however, for ease of reference in this opinion, the paragraphs are referred to sequentially.

[10] The 2016 annual report of the MNRTF, as well as past reports and information, are available on the Department of Natural Resources’ website at http://www.michigan.gov/documents/dnr/8-page_web_551064_7.pdf, (last accessed July 31, 2017).

[11] A different constitutional provision authorizes the Governor to submit appropriation bills to the Legislature.  See Const 1963, art 5, § 18.

[12] For example, House Bill 5377 of 2016, enacted as Public Act 61 of 2016, set forth the list of projects recommended by the Fund’s Board for that fiscal year.  The bill, legislative analyses, and public act are available on the Michigan Legislature’s website at http://www.legislature.mi.gov/(S(2gitq2kwwv0rgsgk3p5lmoxw))/mileg.aspx?page=getObject&objectName=2016-HB-5377, (last accessed July 31, 2017).

[13] On at least one occasion, the Legislature decided not to appropriate money for a project that was recommended by the Board.  In 1988, a floor amendment in the Senate removed one project, funding for a public access site at Douglas Lake in Cheboygan County, from House Bill 5425. 1988 Journal of the Senate, p 2204 (June 29, 1988).  This decision was approved by the House, and House Bill 5425 was enacted as Public Act 304 of 1988.

[14] Section19 generally prohibits the investment by the state in stock, subject to certain exceptions, including “funds held as permanent funds[.]” Const 1963, art 9, § 19.

[15] The term “stabilization fund” has been used by the Trust Fund Board in public meetings.  For example, see the minutes from the December 7, 2016 meeting of the Board, at pp 4-6, available at,   http://www.michigan.gov/documents/dnr/TF_Minutes_-_December_7_2016_552010_7.pdf, (last accessed July 31, 2017 ).

[16] Comprehensive Annual Financial Report for Fiscal Year ending September 30, 2016, pp 213-214, available at https://www.michigan.gov/documents/budget/CAFR_FY_2016_550912_7.pdf, (last accessed July 31, 2017).

[17]  See, e.g., minutes from the February 8, 2017 meeting of the Board, p 8, available at http://www.michigan.gov/documents/dnr/2_8_17_558236_7.pdf, (last accessed July 31, 2017), and the minutes from the December 7, 2016 meeting of the Board, pp 5-6, available at  http://www.michigan.gov/documents/dnr/TF_Minutes_-_December_7_2016_552010_7.pdf, (last accessed July 31, 2017).

[18] As mentioned above, this $500 million principal balance was reached in 2011.

[19] In addition, section 35 provides that “[t]he trust fund may receive appropriations, money, or other things of value.”  Const 1963, art 9, § 35, ¶ 1.

[20] This office interpreted the phrase “total amounts made available for expenditure” in OAG, 1995-1996, No. 6843, p 30 (April 5, 1995). There Attorney General Frank Kelley addressed whether the costs of administering the Fund must be deducted before calculating the percent total of amounts made available for expenditure from the Fund that may be used to acquire lands or develop recreational facilities in any fiscal year.  Attorney General Kelley concluded that the costs of administering the Fund are not deducted before making such a calculation.  The opinion found that “total amounts made available for expenditure” includes fund administration expenditures, because such costs are an explicitly authorized expenditures from the trust fund.  Id. at p 31. 

 

[21] See, e.g., minutes from the December 7, 2016 meeting of the Board, p 5, available at,   http://www.michigan.gov/documents/dnr/TF_Minutes_-_December_7_2016_552010_7.pdf, (last accessed July 31, 2017).

[22] There is commonly a time lag between the appropriation of money from the Trust Fund to support a project and actual payment to the grant recipient. In addition, previously approved grants sometimes lapse or are withdrawn.