Source: https://www.ag.state.mi.us/opinion/datafiles/1980s/op06587.htm
Timestamp: 2020-04-01 02:48:52
Document Index: 318349870

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

Opinion #6587
Opinion No. 6587
Const 1963, art 9, Sec. 16--qualification of limited tax school bonds
SCHOOL BOND LOAN FUND:
Qualification of limited tax school bonds
"General obligation bonds"
The Superintendent of Public Instruction may not issue a certificate of qualification for school bond loan fund purposes under Const 1963, art 9, Sec. 16, for limited tax bonds proposed to be issued by a school district.
My opinion has been requested on two questions relating to the school bond loan fund established in Const 1963, art 9, Sec. 16, and MCL 388.951 et seq; MSA 3.424(111) et seq. Your first question may be stated as follows:
Can the Superintendent of Public Instruction issue his certificate of qualification for non-voted limited tax bonds proposed to be issued by a school district to be paid from operating funds consisting of tuition, fees, and parking and bookstore revenues, as well as general tax revenues?
In the letter of request, advice was provided that a school district has stated its intention to issue general obligation limited tax bonds, pursuant to 1976 PA 451, Sec. 1351(4), MCL 380.1351(4); MSA 15.41351(4), which states:
"Bonds or notes issued by a school district or intermediate school district pursuant to sections 144, 251, 335, 442, or 629 for the purposes authorized by this section and section 1274a shall be full faith and credit tax limited obligations of the district pledging the general funds, voted and allocated tax levies, or any other moneys available for such purpose and shall not allow or provide for the levy of additional millage for payment of the bond or note without a vote of the qualified electorate of the district." (Emphasis added.)
While the school district in question intends to pledge its general operating funds, including community college department tuition, fees, and parking and bookstore revenues, to provide sufficient revenues for the repayment of the bonds, it is also planning to rely on tax revenues from ad valorem property taxes levied on all of the taxable property in the school district for operating purposes in the form of a first budget obligation of the school district to repay the principal and interest on the bonds. In addition, the school district proposes to issue these bonds without a vote of the electors of the school district.
The school district is interested in obtaining a certificate of qualification from the Superintendent of Public Instruction, pursuant to 1961 PA 108, MCL 388.951 et seq; MSA 3.424(111) et seq, which implements Const 1963, art 9, Sec. 16. By issuing a certificate of qualification on an issue of bonds of the school district, the state would be bound to loan money to the school district in a sufficient amount to pay the principal and interest due on the qualified bonds in the event that the school district, after levying a minimum of 7 mills for qualified school bonds in any year, is unable to pay the debt service.
Const 1963, art 9, Sec. 16, provides:
"The state, in addition to any other borrowing power, may borrow from time to time such amounts as shall be required, pledge its faith and credit and issue its notes or bonds therefore, for the purpose of making loans to school districts as provided in this section.
"If the minimum amount which would otherwise be necessary for a school district to levy in any year to pay principal and interest on its qualified bonds, including any necessary allowances for estimated tax delinquencies, exceeds 13 mills on each dollar of its assessed valuation as finally equalized, or such lower millage as the legislature may prescribe, then the school district may elect to borrow all or any part of the excess from the state. In that event the state shall lend the excess amount to the school district for the payment of principal and interest. If for any reason any school district will be or is unable to pay the principal and interest on its qualified bonds when due, then the school district shall borrow and the state shall lend to it an amount sufficient to enable the school district to make the payment.
"The term 'qualified bonds' means general obligation bonds of school districts issued for capital expenditures, including refunding bonds, issued prior to May 4, 1955, or issued thereafter and qualified as provided by law pursuant to Section 27 or Section 28 of Article X of the Constitution of 1908 or pursuant to this section.
"After a school district has received loans from the state, each year thereafter it shall levy for debt service, exclusive of levies for nonqualified bonds, not less than 13 mills or such lower millage as the legislature may prescribe, until the amount loaned has been repaid, and any tax collections therefrom in any year over and above the minimum requirements for principal and interest on qualified bonds shall be used toward the repayment of state loans. In any year when such levy would produce an amount in excess of the requirements and the amount due to the state, the levy may be reduced by the amount of the excess.
"Subject to the foregoing provisions, the legislature shall have the power to prescribe and to limit the procedure, terms and conditions for the qualification of bonds, for obtaining and making state loans, and for the repayment of loans.
"The power to tax for the payment of principal and interest on bonds hereafter issued which are the general obligations of any school district, including refunding bonds, and for repayment of any state loans made to school districts, shall be without limitations as to rate or amount.
"All rights acquired under Sections 27 and 28 of Article X of the Constitution of 1908, by holders of bonds heretofore issued, and all obligations assumed by the state or any school district under these sections, shall remain unimpaired." (Emphasis added.)
Both Const 1963, art 9, Sec. 16, and 1961 PA 108, Sec. 3, MCL 388.953; MSA 3.424(113), define "qualified bonds" as general obligation bonds of school districts issued for capital expenditures. General obligation bonds are, as their name implies, just that: full faith and credit obligations supported by "the power to tax for the repayment of principal and interest on such bonds ... without limitation as to rate or amount." Advisory Opinion re Constitutionality of 1973 PA 1 and 2, 390 Mich 166, 174; 211 NW2d 28 (1973). They are payable from "an unlimited general ad valorem tax on all taxable property." Ramsey v Cameron, 245 SC 189; 139 SE2d 765, 769 (1965).
This definition of general obligation bonds is consistent with Const 1963, art 9, Sec. 16, p 6, which provides that "[t]he power to tax for the payment of principal and interest on bonds hereafter issued which are the general obligations of any school district ... shall be without limitations as to rate or amount." OAG, 1981-1982, No 6094, p 717, 721 (August 26, 1982), considered Const 1963, art 9, Sec. 16, and concluded:
"Thus, all general obligation school bonds issued after January 1, 1964 and prior to the Headlee Amendment are payable from the proceeds of the levy of ad valorem taxes without limitation as to rate or amount, and those issued after the Headlee Amendment must be authorized by a vote of the electors and are payable from unlimited taxes."
It was the overriding theme of the delegates to the Constitutional Convention in 1961, in reference to obligations issued by the state and its political subdivisions, including school districts, to preserve the right of the electors to approve long-term bonds issued by the state and its political subdivisions. With regard to state-issued bonds, the delegates to the Constitutional Convention, after a protracted debate, rejected an amendment to Committee Proposal 23 which would have allowed the Legislature alone to authorize the issuance of long-term general obligation indebtedness without a vote of the electors on the grounds that the state electors should be the final arbiters of whether they should be encumbered by long-term general obligation indebtedness. (1) See 1 Official Record, Constitutional Convention 1961, pp 603-632. In support of Committee Proposal 23(d), which was eventually enacted as Const 1963, art 9, Sec. 16, the Committee on Finance and Taxation stated that "[s]chool district bonds are removed from the 15 mill limitation [contained in the predecessor Const 1908, art X, Secs. 27 and 28] but, of course, still have to be voted by the electors as provided by law." 1 Official Record, Constitutional Convention 1961, p 604.
What, then, are the bonds which the school district seeks to qualify here? The Legislature specifically declared, in MCL 380.1351(4); MSA 15.41351(4), that bonds issued pursuant to this section were to be "tax limited obligations" payable from specified sources. (Emphasis added.) Tax limited bonds are limited obligations of a political subdivision in that the political subdivision must pay principal and interest on the bonds out of general funds, its allocated and voted tax rates, or other available monies, but the political subdivision may not levy taxes without limitation as to rate or amount to pay such indebtedness.
As the bonds to be issued by the school district are not general obligations of the school district, these bonds do not meet the requirements of Const 1963, art 9, Sec. 16, and MCL 388.953; MSA 3.424(113), and may not be qualified by the Superintendent of Public Instruction.
It is my opinion, in answer to your first question, that the Superintendent of Public Instruction may not issue his certificate of qualification for limited tax bonds proposed to be issued by a school district.
Your second question is stated as follows:
How can MCL 388.952-388.960; MSA 3.424(112)-3.424(120), regarding the borrowing by school districts from the state and repayment of loans, be applied to general and auxiliary funds as is proposed in this instance by the school district?
In light of my answer to your first question, no answer to your second question is required.
(1 "It is a maxim that the object of construction, as applied to a written Constitution, is to ultimately ascertain and give effect to the intent of the people in adopting it) ... Resort may therefore be had not only to the indicated object sought to be accomplished and the mischief to be guarded against, which has been too often and abundantly reviewed by courts of last resort to need discussion here, but it is also permissible to examine the proceedings of the convention which framed the Constitution." Kearney v Bd of State Auditors, 189 Mich 666, 671; 155 NW 510 (1915).