Michigan Supreme Court 

# Order

Lansing, Michigan

June 1, 2007 Clifford W. Taylor,
Chief Justice

129041 Michael F. Cavanagh

Elizabeth A. Weaver Marilyn Kelly MUNICIPAL EMPLOYEES RETIREMENT Maura D. Corrigan SYSTEMS OF MICHIGAN, Petitioner-Appellee,

v SC: 129041 Robert P. Young, Jr. Stephen J. Markman,
Justices

COA: 260534 MTT: 00-306773 CHARTER TOWNSHIP OF DELTA, Respondent-Appellant.

________________ _______________ __________/

On order of the Court, leave to appeal having been granted and the briefs and oral arguments of the parties havi ng been considered by the Cour t, we AFFIRM the May 24, 2005 judgment of the Court of Appeals. The Court of A ppeals reasoned that the vacant properties were held by Munici pal Employees Retirement Syst ems of Michigan, “not for ancillary investment purposes, but as part of a diversified investment portfolio pursuant to [its] statutory duty to administer funds” under MCL 38.1139(2) and 38.1536(10). It

further noted:

Under [the Municipal Employee s Retirement Act, MCL 38.1501 et

seq., ] “[a]ll money and other assets of th e retirement system shall be held and invested for the sole purpose of meeting disbursements authorized in

accordance with the provisions of this act and sh all be used for no other purpose . . . .” MCL 38.1539(2). By the plain language of this statute, petitioner is required to hold and invest other assets, such as the land in question, for the purpose of meeti ng its disbursement requirements. Furthermore, the statute sp ecifically states that the assets held or invested

“shall be used for no other purpose.” Id. (emphasis added). The phrase “used for no other purpose” necessarily contemplates that the only proper

“uses” for assets under the act, is to hold or invest them. Consequently, the act of holding real property assets in petitioner’s portfolio, ready for liquidation to meet its statutorily ma ndated disbursement requirements, is a present use rather than “an inde finite prospective use.” [ Traverse City v East Bay Twp, 190 Mich 327, 331; 157 NW 85 (1916).] Therefore, the land held by petitioner was properl y exempt from taxation under MCL

211.7m because it was land us ed for a public purpose.2

We emphasize that the Municipal Empl oyees Retirement Syst ems of Michigan

was statutorily required to hold and invest assets. We further note that if the Municipal Employees Retirement Systems of Michigan is unable to m eet pension disbursements, municipalities themselves must produce these funds. The Mu nicipal Employees Retirement Systems of Michigan ’s acquisition of land in De lta Township carries out the public purpose of the retiremen t system by diversifying the portfolio and investing in a way that is not subject to the vicissitudes of the stock or bond market, but instead

disseminates the risk. For th e reasons stated by the Court of Appeals, and the additional reasons stated here, the property at issue is exempt from ad valo rem taxation under MCL

211.7m of the General Property Tax Act.

M ARKMAN , J., dissents and states as follows:

Petitioner is a public entity that ad ministers a pension system for public employees. It owns vacant property for invest ment purposes and claims that this property is exempt from property taxes under MCL 2 11.7m because such pr operty is being “used to carry out a public purpose.” The Tax Tribunal conclude d that the property was not tax-exempt because the passive ownership of property for investme nt purposes does not constitute a present public use. The Court of Appeals rev ersed, 266 Mich App 510, 514 (2005), and this Court granted respondent’s application for leave to appeal. 474 Mich 1053 (2006). The ma jority now affirms the Court of Ap peals that the property is tax

exempt. I respectfully dissent.

MCL 211.7m provides:

Property owned by, or being acqui red pursuant to, an installment purchase agreement by a coun ty, township, c ity, village, or school district used for public purposes and propert y owned or being acquired by an agency, authority, instrume ntality, nonprofit corporation, commission, or other separate legal entity comprised so lely of, or which is wholly owned by, or whose members consist sole ly of a political subdivision, a combination of political subdivisions , or a combination of political

subdivisions and the state and is used to carry out a public purpose itself or on behalf of a political subdivisi on or a combinatio n is exempt from taxation under this act. . . [Emphasis added.]

The issue here is whether pe titioner’s property is being “u sed to carry out a public purpose.”

In Traverse City v East Bay Twp , 190 Mich 327, 331 (1916), this Court held that “the use which warrants exemption mentioned in the statute is a present use , and not an indefinite prospective use.” (Emphasis added. ) In that case, the city was holding vacant land for the purpose of possible future developmen t of an additional power plant. It was3

undisputed that an additional power plant was not needed at the time and that nothing at all had been done to develop the property. We held that “[t]he la nds not only are not used for any public purpose, but they are not used for any purpos e. They lie in a state of nature and no attempt has, to the present time, been made to utilize them for the development of power, which is the only use of value that can be made of them.” Id. at
330-331.

Much more recently, in City of Mt Pleasant v State Tax Comm, 477 Mich 50, 51 (2007), this Court held that “[b]ecause the city of Mt. Pleasant used th e property at issue for public purposes when it acquired and improved the land for resale for economic development, . . . the property was exempt from taxation under MCL 211.7m.” In that case, the city purchased property with the intention of res elling it to developers. During the time the city owned the property, it prepared the pr operty for development by installing such things as wa ter lines, sewer lines, curbs, gutters, and roads. In determining whether the property was used for a public purpose, the court “consider[ed] what steps the city ha[d] take n to move from merely holding the land to actually using it for a public purpose.” Id. at 56.

In the instant case, petitioner acquired th e property with the hope of selling it at a profit at some future time. Assuming that earning such a pr ofit for its memb ers serves a “public” purpose, the property is still not being “used” for a public purpose at the present time. Indeed, it is not being used for any purp ose at this time. It is simply vacant and unused property. As Justice Cooley noted, “L and not needed for muni cipal uses but held for speculative increase in value is, of course, not used fo r a public purpose.” 2 Cooley, Taxation (4th ed), § 638, p 1338. “[P]roperty of a munici pal corporation which is not devoted to any public or municipal use but is merely held for its value as property or for

the income to be derived therefrom is taxable by an y other body politic having jurisdiction thereof.” 71 Am Ju r 2d, State and Local Taxation, § 281, p 562. It is the

property that must be “used” for a public purpose, not the proceeds from the property.

As with the property in Traverse City, and, unlike the property in Mt Pleasant, nothing at all has been done to develop the property at issue here. That is, the city has not taken any steps “to move from merely holding the land to actually using it for a public purpose.” Mt Pleasant, supra at 56.

The Court of Appeals held:

This case presents circumstances distinct from those involved in the cases relied on by the Tax Tribunal, where a governmental entity holds real property for investment purposes. Here, the vacant pr operties are held by petitioner not for anci llary investment purposes, but as part of a diversified investment portfolio pursuant to pe titioner’s statutory duty to administer funds. . . . [P]e titioner is [statuto rily] required to hold and invest . . . assets,_______________________________________ __ 4

such as the land in question, for the purpose of meeting its disbursement requirements. . . . Consequently, the act of holding real pr operty assets in petitioner’s portfolio, ready for liquidation to meet its statutorily mandated disbursement requirements, is a pres ent use rather than “an indefinite prospective use.” [266 Mich App at 513-514 (emphasis in original).]

The majority adopts this reasoning, a nd I respectfully disa gree. “Had the Legislature intended to provide a blanket exem ption for all land owned by entities such as plaintiff, it clearly would have done so. Howe ver, it chose to exempt only that land ‘used to carry out a public purpose.’” Rochester Hills Pub Libr ary v Rochester Hills

, unpublished opinion per curiam of the Court of Appeals, issu ed October 3, 1997 (Docket No. 196077), slip op at 2. Merely because petitioner is required to hold onto assets for investment purposes does not me an that petitioner is entitled to a tax exemption when it does so. By adopting the Court of Appeal s reasoning, the majority has created a tax exemption for a category of public entities that simply ha s no basis in the text of the statute. The statute exempts property from taxation that is “ used to carry out a public purpose.” MCL 211.7m. It does not exempt all property owned by a public entity that has a statutory duty to hold onto assets for investment purposes. Under the clear language of the statut e, such property would only be exempt from taxation if it were

“ used to carry out a public purpose.” The proper question under MCL 211.7m is not whether the property is owned by a public entity, or whet her a public entity has the authority to hold such property for investment purposes, or even wh ether the ownership of the property is “ useful ” to, or serves, some public purpos e. Rather, the proper question is simply whether the pr operty is currently being “ used ” to carry out a public purpose. Because the property here is not currently being used at all, it is not being used to carry out a public purpose, and, thus, is not ta x-exempt under MCL 211.7m.

Under the majority’s anal ysis, it is difficult to comp rehend what property owned by a public entity would ever be subject to taxation by virtue of not being “used” to carry out a public purpose. Even accepting the novel categorization of public entities formulated by the majority, ho w could it not be said that any public entity investing in

land — whether or not that was its exclusive mission — was “using” the land by virtue of its investment value. By nu llifying the concept of non-“use,” the majority consumes the rule — that public lands are eq ually taxable as private lands — with the exce ption — that public lands are tax-exempt onl y when being “used to carry out a public purpose.” As a result of this order, there is no rule left, only the exception.

t0523 I, Corbin R. Davis, Clerk of the Mi chigan Supreme Cour t, certify that the foregoing is a true and complete copy of the order entered at the direction of the Court.

June 1, 2007

Clerk