Source: https://www.ag.state.mi.us/opinion/datafiles/1980s/op06163.htm
Timestamp: 2020-04-09 17:18:54
Document Index: 617066275

Matched Legal Cases: ['art 9', 'art 9', 'art 9', 'art 9', 'art 9', 'art 9', 'art 9', 'art 10', 'art 9', 'art 9', 'art 9', 'art 9', 'art 9', 'art 9', 'art 9', 'art 9', 'art 9']

Opinion #6163
Opinion No. 6163
Deposit of state moneys
Obligation of national bank to list state funds on deposit
Deposit of funds as state moneys
Const 1963, art 9, Sec. 20--deposit of moneys of state university and Michigan Employment Security Commission in banks
Moneys of Michigan Employment Security Commission as state funds under Const 1963, art 9, Sec. 20
Moneys of Wayne State University deposited in a national bank are state moneys for the purpose of Const 1963, art 9, Sec. 20.
Moneys of the Michigan Employment Security Commission designated to the unemployment compensation fund deposited in a national bank are not state moneys for the purpose of Const 1963, art 9, Sec. 20.
A national bank must comply with the disclosure requirements of Const 1963, art 9, Sec. 20 in order to be eligible for the deposit of state moneys.
380 Mackenzie Hall
1. Is the Constitutional requirement that 'any bank . . . receiving deposits of state money shall show the amount of state money so deposited as a separate item in all published statements,' to be read other than literally? If so, what statement regarding state funds on deposit is (the) . . . bank required to provide to Wayne State University in order for deposits of Wayne State University funds in (the) . . . bank to be lawful?
2. Are Michigan Employment Security Commission deposits 'state money' for purposes of Article 9, Sec. 20?
You advise that Wayne State University is interested in depositing university funds in a national bank which does not disclose the amount of state monies one deposit in the bank. Based on information provided, the bank in question claims that the deposits of the university will be less than 50% of the bank's net worth if the funds of the Michigan Employment Security Commission (MESC) are not considered to be state monies.
Const 1963, art 9, Sec. 20 provides as follows:
'No state money shall be deposited in banks, savings and loan associations, or credit unions, other than those organized under the law of this state or federal law. No state money shall be deposited in any bank, savings and loan association, or credit union, in excess of 50 percent of the net worth of the bank, savings and loan association, or credit union. Any bank, savings and loan association, or credit union, receiving deposits of state money shall show the amount of state money so deposited as a separate item in all published statements.'
Two principles which are often employed in interpreting the State Constitution are that the words used in the Constitution should be accorded their plain and natural meaning, Traverse City School District, v Attorney General, 384 Mich 390; 185 NW2d 9 (1971), and that the intent of the people who drafted and adopted the document should be ascertained and given effect. Holland v Clerk of Garden City, 299 Mich 465; 300 NW 777 (1941).
The substance of Const 1963, art 9, Sec. 20 did not appear in the Constitutions of 1835 or 1850. Const 1908, art 10, Sec. 15 first introduced the section, which was explained in the Address to the People as follows:
'This is a new section designed to render the moneys belonging to the state absolutely secure. The provision requiring any bank having deposits of state money to show the amount thereof, as a separate item, in all published statement of such bank secures a wholesome publicity. Under this provision all interested officials and the people themselves will know in what amounts the moneys of the state are deposited in the several depositories.' 2 Official Record, Constitutional Convention, 1907-1908, p 1435.
The 1963 Constitution adopted the section essentially without change, although it was amended at the general election of November 7, 1978 to permit deposits in savings and loan associations and credit unions. Both the plain meaning and history of the section demonstrate that the drafters intended that financial institutions which receive state money disclose the amount in a conspicuous fashion in order to secure the funds against the improvident selection of depositories, to prohibit the deposit of state money in excess of the financial resources of the financial institution receiving the funds, and to inform the public as to where the funds of the state are on deposit. These objectives would be frustrated if financial institutions receiving state monies refused to disclose the amount on deposit, particularly since such deposits are often credited to different state accounts. (1)
Accordingly, in answer to your first question, it is my opinion that the provision of Const 1963, art 9, Sec. 20 must be read literally, and that a financial institution which intends to remain eligible for the deposit of any state monies must disclose in all published statements the amount of state monies on deposit as an item separate from all other deposits in the institution. It is noted that pursuant to federal law, national banks are required to file and publish in a newspaper of general circulation four reports of condition annually. 74 Stat 547 (1960), 12 USC Sec. 1817(a)(3), as amended; 74 Stat 551 (1960), 12 USC Sec. 161, as amended. Such published statements would be the appropriate location for the disclosure of state monies.
Your second question involves the interpretation of the term 'state money' as used in Const 1963, art 9, Sec. 20, in the context of MESC funds. Initially, it is noted that with respect to the funds of Wayne State University, OAG, 1951-1952, No 1375, p 217 (April 9, 1951), held that tuition collected by state colleges and universities is state money. OAG, 1973-1974, No 4786, p 91 (October 15, 1973), similarly held that college and university appropriations and funds of the state's school districts are 'state monies.'
OAG, 1973-1974, No 4841, p 187 (October 24, 1974) considered whether the funds appropriated to the state Housing Development Authority are state monies. The analysis employed in that opinion is particularly pertinent in considering the question raised herein. The opinion initially observed that the state Housing Development Authority was a unique state agency. Citing Advisory Opinion Re Constitutionality of PA 1966, No 346, 380 Mich 554; 158 NW2d 416 (1968), the opinion noted that the obligations of the Authority were not the general obligations of the state since:
"Monies of the state Housing Development Authority are not monies of the state. The funds to be established under the act are trust funds to be administered by the state House Development Authority. The state has no beneficial interest in such funds, . . ." OAG, 1973-1974, No 4841, p 188, supra, citing 380 Mich 583.
Consequently, the opinion concluded that legislative appropriations made to the agency 'lose their state character and become funds of the state Housing Development Authority', OAG 1973-1974, No 4891, p 189, supra.
The MESC similarly enjoys a unique status among state agencies. As noted in its 1982 appropriations bill, '(t)he commission is a statutorily and financially autonomous policy body of 4 members who are appointed by the governor, with the advice and consent of the senate.' 1982 PA 275. The monies of the MESC are basically divided into three funds: the administration fund, the contingent fund, and the unemployment compensation fund. The question of whether MESC funds are state monies requires an analysis of each of these funds.
The administration fund was established in 1936 Ex Sess PA 1, Sec. 10; MCLA 421.10; MSA 17.510, for the purpose of paying the operating expenses of the MESC. 1936 Ex Sess PA 1, Sec. 10 provides:
'There is hereby created in the state treasury a special fund to be known and designated as the administration fund. . . .' (Emphasis added.)
The administration fund is drawn upon by warrants issued by the State Treasurer and the monies in the fund are deposited in banks and other depositories selected by the State Treasurer along with other operating funds used to support all other agencies and functions of the state. Evidence concerning the nature of the administration fund is also disclosed in 1941 PA 258, Sec. 1; MCLA 21.101; MSA 3.606(1), which, in providing certain accounting procedures of the state accounts, states:
'The state funds through 1 of which each accounting transaction pertaining to revenue, appropriations, allotments, expenditures, encumbrances, non-revenue receipts, nonoperating expenditures, assets, liabilities, reserves, surplus, deficit, and all other accounting transactions provided by law are to be recorded are declared to be as follows:
'Operating funds
Michigan employment security act--administration fund
wever, no mention is made in 1941 PA 258, supra, of any other MESC account. Another indication of the character of the MESC administration fund is found in RS 1846, c 12, Sec. 14; MCLA 12.14; MSA 3.88, and RS 1846, c 12, Sec. 22; MCLA 13.22; MSA 3.126, which require the State Treasurer and Auditor General to make annual reports to the Legislature on the state's financial condition. An examination of both reports indicates that each officer treats the MESC administration fund as state moneys for the purposes of their reports, but makes no reference to any other MESC account.
On the basis of the historical legislative treatment of the MESC administration fund, as well as the precedent mentioned, including the control of the MESC administration fund by the State Treasurer, it is my opinion that funds in the MESC administration fund are state monies for the purpose of Const 1963, art 9, Sec. 20.
1936 Ex Sess PA 1, Sec. 10, supra, also creates a contingent fund 'in the state treasury' in which all interest, penalties, and damages collected under the act are deposited. Such funds may be used for administrative purposes and are deposited along with the monies in the administration fund in financial institutions selected by the State Treasurer and are drawn upon by warrants issued by the State Treasurer. A discussion of the MESC contingent fund in OAG, 1961-1962, No 3600, p 119, 124 (June 19, 1961), notes that these monies are 'state funds' in determining the purposes for which they may be spent. It is, therefore, also my opinion that the monies in the MESC contingent fund are state monies for the purposes of Const 1963, art 9, Sec. 20.
The third fund in the MESC is known as the unemployment compensation fund, which comprises all monies used to pay unemployment benefits to recipients eligible under 1936 Ex Sess PA 1, supra. I am advised that the funds on deposit in the national bank in question are in accounts of the MESC which are considered to be part of the unemployment compensation fund. The unemployment compensation fund was established by 1936 Ex Sess PA 1, Sec. 26; MCLA 421.26; MSA 17.528, which provides that:
'There is established as a special fund, separate and apart from all public moneys or funds of this state, an unemployment compensation fund, herein referred to as the fund, which shall be administered by the commission exclusively for the purposes of this act. Such fund shall consist of (1) all contributions and payments in lieu of contributions collected under the provisions of this act as well as reimbursement payments by the federal government for its portion of sharable extended benefits; (2) interest earned upon any moneys in the fund; (3) any property or securities acquired through the use of moneys belonging to the fund; (4) all earnings of such property or securities; and (5) any other moneys received by the commission for unemployment compensation, except interest, penalties and damages collected under the provisions of this act. All moneys in the fund shall be mingled and undivided.' (Emphasis added.)
It is significant that MESC is authorized to designate its own treasurer as custodian of this fund and may issue its own vouchers to draw upon it pursuant to MESC regulations. Moreover, despite any of the constitutional limitations on the deposit of state funds, 1936 Ex Sess PA 1, Sec. 26(b), supra, provides that:
'Except as herein otherwise provided, moneys in the clearing and benefit accounts may be deposited by the treasurer, under the direction of the commission, in any depository designated by the commission.'
The state unemployment compensation law was enacted in response to federal depression legislation designed to protect the nation's workers against the hardships of unemployment. (See Title 9 of the Social Security Act of 1935, 49 Stat 639 (1935), 42 USC Sec. 1101 et seq.) The federal law imposes a tax on employers, which, in turn, is made available to the states which have enacted unemployment compensation laws approved by the federal government. 68A Stat 443 (1954); 26 USC Sec. 3304(a)(3), conditions federal approval on all monies collected through state unemployment taxes and reimbursement payments being immediately paid over to the United States Secretary of the Treasury for credit to this state's unemployment trust fund. Similarly, 49 Stat 626 (1935), 42 USC Sec. 503(a)(4), requires that 'all money' received in the state unemployment fund be paid over to the Secretary of Treasury to be credited to the unemployment trust fund established by 42 USC Sec. 1104(a), 49 Stat 640 (1935), which also creates an unemployment trust fund in the United States Treasury, consisting of 'all moneys deposited therein by a State agency from a State unemployment fund. . . .' Consequently, monies collected by the MESC are deposited in the Federal Reserve Bank, which are then requisitioned and deposited in local banks by the commission as needed to pay benefit checks issued to qualified persons.
A further indication of the special nature of these moneys is that several courts of the United States have concluded that monies in the state unemployment compensation fund are not state monies for purposes of immunity from suit under the 11th Amendment to the United States Constitution. See Bowen v Hackett, 387 F Supp 1212 (DC RI 1975); Kostelic v Bernardi, et al, 538 F Supp 620 (ND Ill, 1982); and Brown, et al Porcher, et al, 660 F2d 1001 (CA 4, 1981), cert den ---- US ----; 51 LW 3529 (1983).
Accordingly, on the basis of the unique nature of the MESC and the fact that the funds in the unemployment compensation fund are administered solely by the MESC, under the auspices of the federal government, and that such funds are restricted in purpose with the state having no beneficial interest in the monies, it is my opinion that the monies of the Michigan Employment Security Commission which are credited to the unemployment compensation fund are not state monies for the purposes of Const 1963, art 9, Sec. 20.
(1) A national bank must comply with the disclosure requirements of Const 1963, art 9, Sec. 20 in order to be eligible for the deposit of state moneys;
(2) Moneys of the Michigan Employment Security Commission designated to the administration fund and to the contingent fund are state moneys for the purposes of Const 1963, art 9, Sec. 20;
(3) Moneys of the Michigan Employment Security Commission designated to the unemployment compensation fund are not state moneys for the purpose of Const 1963, art 9, Sec. 20.
(1) As noted, the intent of Const 1963, art 9, Sec. 20 is to protect the integrity of state money not to regulate the financial reports of financial institutions. Since the state, as a depositor, may attach such conditions on its deposit as it may deem necessary, the remedy in the event the financial institution refuses to comply with a condition is the withdrawal of state funds.