Source: https://www.ag.state.mi.us/opinion/datafiles/1980s/op06123.htm
Timestamp: 2020-03-29 12:57:00
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Opinion #6123
Opinion No. 6123
FOREST IMPROVEMENT ACT:
1980 PA 298, MCLA 320.1101 et seq; MSA 13.267(101) et seq
Const 1963, art 9, Sec. 18
The governing board of the forest improvement district need not be selected in accordance with the constitutional one-person-one-vote principle.
Neither the state nor any agency thereof may become a member of a forest improvement district under 1980 PA 298.
The provisions for funding of a forest improvement district set forth in 1980 PA 298, art 2, Secs. 201 & 202, are violative of Const 1963, art 9, Sec. 18.
1980 PA 298, art 6, may not be construed to permit state or public money to be utilized for cost sharing agreements or loans to members without violating Const 1963, art 9, Sec. 18 unless the money is appropriated for this purpose pursuant to Const 1963, art 4, Secs. 30 & 31.
The bonds of a forest improvement district authorized under 1980 PA 298, supra, must explicitly provide, and bondholders must be advised, that such bonds are not the debt of the state; the bonds must be self-liquidating and may not create any obligation on the state to fund a deficiency; and they must be payable from sources other than state appropriations or properties, in order not to offend Const 1963, art 9, Sec. 18.
1980 PA 298, art 4, Sec. 412(4) & (5), must be construed as permitting the substitution of the Commission only in those contracts or obligations which do not create debt and are not violative of Const 1963.
A forest improvement district is not authorized by 1980 PA 298, supra, to loan bond proceeds to individual members or owners of forest land within the district.
You have requested my opinion on several questions related to the Forest Improvement Act, 1980 PA 298; MCLA 320.1101 et seq; MSA 13.267(101) et seq. You ask:
1. 'Is the governing board of the Forest Improvement District which is created by Section 401 et seq, a legislative body the members of which must be selected in accordance with the constitutional one person, one vote principle?
2. 'Does this legislation in any way authorize the lending of the State's credit in violation of Article IX, Section 18, of the Constitution of 1963?
3. 'In cases where a Forest Improvement District is dissolved is the Department of Natural Resources responsible for the district's outstanding debts, other than those incurred through the sale of bonds?
4. 'Is it permissible for a Forest Improvement District to loan proceeds from the sale of bonds to individual members (forest landowners of the district) and if so at what interest should these loans be made?'
The Forest Improvement Act, 1980 PA 298, supra, art 1, Sec. 102, states that the act's purpose is to stimulate improved management and utilization of forest land and forest resources within this state, to improve the timber productivity of forest land and to improve all forest resources so that the overall effect is to improve the total forest resource system.
These purposes are to be effectuated through the development of forest improvement districts established upon petition by the statutorily requisite number of landowners who control a minimum total combined acreage within the gross territorial boundary proposed to be organized as a district. The petition is made to the Commission of Natural Resources. If the Commission of Natural Resources finds, after notice and hearing, that a district is feasible, a forest improvement district is established according to the boundaries set by the Commission of Natural Resources. 1980 PA 298, supra, art 4, Secs. 403, 404.
The governing body of a forest improvement district consists of a board of directors of five persons who, except for the members of the first board, (1) are members of the district and elected by members (2) who own forest land within a forest improvement district. The electing members' votes are weighted by the number of acres owned. Provision is also made for appointment of a forest improvement district board member by the Director of the Department of Natural Resources if state lands encompassed within the gross territorial boundary are greater than 5% of the member forest land which comprises the district, and a timber volume agreement has been made. 1980 PA 298, supra, art 4, Sec. 409. (3)
The board has powers related to forest practices and the establishment of standards, including power to condemn property for use as industrial sites and establish minimum standards for the conduct of forest practices on land owned or occupied by a member of the district. The board may issue bonds, make loans to members, and engage in various commercial practices, including the construction and operation of sawmills, acting as marketing agent, and making personnel, machinery, materials, and equipment available to members. 1980 PA 298, supra, art 4, Sec. 413. A district is composed of voluntary members, 1980 PA 298, supra, art 1 Sec. 107(4). Although all lands within the boundary are included within the forest improvement district, the board's powers and authority extend to member lands only.
1980 PA 298, supra, art 6, Sec. 601, authorizes the district to enter into cost-sharing agreements with its members whereby up to 90% of the cost of forest practices may be paid by the district. The district may also make loans to members to cover the cost of forest practices, including the member's cost-share contribution. 1980 PA 298, supra, art 6, Sec. 605. The board may also forgive a loan under the specified circumstances. 1980 PA 298, supra, art 6, Sec. 602(4). Accordingly, by the terms of the act, a district may be extensively engaged in funding the cost of forest practices and making loans to members.
1980 PA 298, supra, art 7, authorizes the board to issue bonds for enterprise activities authorized by 1980 PA 298, art 4, Sec. 413, supra. 1980 PA 298, supra, art 7, Sec. 704, states that these bonds are not to be general obligations of, nor are they to constitute debt of, the state. (See also 1980 PA 298, supra, art 4, Secs. 413(o) and art 7, Sec. 702(2), to the same effect.) 1980 PA 298, supra, art 7, Sec. 710(1), provides that the state pledges and agrees with the holders of these bonds that the state will not limit or alter the rights vested in a district to fulfill its obligations to bondholders, or in any way impair their rights and remedies, until the bonds and obligations related thereto are fully met and discharged. This pledge and agreement of the State are to be included in each agreement with bondholders.
1980 PA 298, supra, art 7, Sec. 702(1), provides that specific revenues may be pledged to secure the bonds issued. In addition, the district is authorized to pledge its full faith and credit. 1980 PA 298, art 7, Sec. 702(2), supra. As security for these bonds, a district, with Commission approval, may create a debt service reserve fund equal to the maximum principal and interest due on the bonds in any year. 1980 PA 298, supra, art 7, Sec. 703. This reserve fund may be funded by appropriation from the general fund of the state, 1980 PA 298, supra, art 7, Sec. 703(1). If this reserve fund is exhausted or is inadequate, 1980 PA 298, supra, art 7 Sec. 703(3), sets forth a mechanism whereby the amount of the deficiency, as certified by the board of the district and the director of the Department of Natural Resources, must be included in the Governor's annual budget. 1980 PA 298, supra, however, contains no express requirement that the Legislature so appropriate. This mechanism is sometimes claimed to be a 'moral obligation' of the state.
1980 PA 298, supra, art 2, Secs. 201 & 202, provide that the Commission of Natural Resources may fund any forest improvement district from a legislative appropriation and from other sources, including the general fund of the state, (4) and that a district shall submit its annual expenses to the Department of Natural Resources and the Department shall include those expenses in its annual budget request to the Legislature.
1980 PA 298, art 4, Sec. 406, supra, provides that a forest improvement district is a governmental subdivision of the state and a public body corporate. A public body corporate may be a quasi corporation. Huron-Clinton Metropolitan Authority v Boards of Supervisors of Five Counties, 300 Mich 1, 18; 1 NW2d 430 (1942).
In Advisory Opinion re Constitutionality of PA 1966, No 346, 380 Mich 554; 158 NW2d 416 (1968), the court considered the status of the Michigan State Housing Development Authority and indicated distinction between the legislative creation of a private corporation vis-a-vis a public entity. The court said:
'The Constitution of 1963 does not address itself to the establishment of quasi corporations, but it has long been accepted that legislatures have the authority to give corporate capacity to certain agencies in the administration of civil government. And in so doing, they create neither private corporations nor municipal corporations, but instead a class of artificial entities which have been designated quasi corporations. . . .
'Such quasi corporations are described as bodies of citizens who have no personal nor private interests to be subserved, but are simply required by the State to do some public work. It is said that the reason for the constitutional restriction [Const 1963, art 4, Sec. 29] does not exist, where the State merely clothes one of its own agencies or instrumentalities with such corporate power. It is said that the conferring of corporate powers by the legislature upon agencies of the State, appointed to perform some public work, in the course of the administration of civil government, the more efficiently to perform the duties imposed, is not such an act as is prohibited by the Constitution.' pp 568-570. [Bracketed material added.]
In view of the provisions of 1980 PA 298, supra, hereinabove described, it is appropriate to consider statutes that circumscribe conflict of interest or other activity affecting ethics. Consideration must be given to whether forest district board members are subject to 1968 PA 317; as amended MCLA 4.1700(51) et seq; MSA 4.1700(51) et seq, which relates to the conduct of public servants in certain conflict of interest situations. (5)
1968 PA 317, supra, Sec. 1, defines 'public servant' as including 'all persons serving any public entity, except members of the legislature and state officers who are within the provisions of section 10 of article 4 of the state constitution as implemented by legislative act', and 'public entity' is defined as 'the state including all agencies thereof, any public body corporate within the state, including all agencies thereof. . . .'
1968 PA 317, supra, Sec. 2(1) prohibits a public servant from soliciting or being a party, directly or indirectly, to any contract between himself and the public entity of which he is an officer except as specifically provided or excepted in the act. 1968 PA 317, supra, Sec. 3(1), and public policy prohibit board members from self-dealing among themselves.
1973 PA 196, as amended; MCLA 15.341 et seq; MSA 4.1700(71) et seq, prohibits a public officer from rendering services for a private interest when such employment or service is incompatible or in conflict with the discharge of official duties or may tend to impair independence of judgment or action in the performance of official duties. 1973 PA 196, supra, also prohibits a public officer from participation in any contract, loan or regulation related to a business entity in which the public officer has a financial or personal interest. OAG, 1981-1982, No 5864, p 64 (March 17, 1981) and OAG, 1981-1982, No 6005, p 439 (November 2, 1981).
Your first question asks whether the method of election of the governing board violates the one-person-one-vote constitutional principle.
The one-person-one-vote principle provided for by the Equal Protection Clause of US Const, Am XIV, was held to apply to the election of state legislators in Reynolds v Sims, 377 US 533; 84 S Ct 1362; 12 L Ed 2d 506 (1964). This principle was extended to a county governing body and a junior college district, respectively, in Avery v Midland Co, 390 US 474; 88 S Ct 1114; 20 L Ed 2d 45 (1968), and Hadley v Junior College District, 397 US 50; 90 S Ct 791; 25 L Ed 2d 45 (1970).
However, in application of the one-person-one-vote principle of Avery, supra, the United States Supreme Court expressly reserved the question as to whether that principle would apply where a special-purpose unit of government affected the interests of definable groups of constituents more than others.
Such a special-purpose unit was found to exist in Salyer Land Co v Tulare Lake Basin Water Storage District, 410 US 719; 93 S Ct 1224; 35 L Ed 2d 659 (1973), where the Supreme Court addressed this question directly. Salyer involved a water storage district in California where the Board of Directors were elected by landowners with votes weighed by assessed value.
In striking down an equal protection challenge to the method of election in Salyer, the Supreme Court said:
'Not only does the district not exercise what might be thought of as 'normal governmental' authority, but its actions disproportionately affect landowners. All of the costs of district projects are assessed against land by assessors in protection to the benefits received. Likewise, charges for services rendered are collectible from persons receiving their benefit in proportion to the services. When such persons are delinquent in payment, just as in the case of delinquency in payments of assessments, such charges become a lien on the land. Calif. Water Code Secs. 47183, 46280. In short, there is no way that the economic burdens of district operations can fall on residents qua residents, and the operations of the districts primarily affect the land within their boundaries.
'Under these circumstances, it is quite understandable that the statutory framework for election of directors of the appellee focuses on the land benefited, rather than on people as such.
'We hold, therefore, that the popular election requirements enunciated by Reynolds, supra, and succeeding cases are inapplicable to elections such as the general election of appellee Water Storage District.' Salyer supra, pp 729, 730. [Footnote omitted.]
The Supreme Court reached the same conclusion in Associated Enterprises, Inc v Toltec Watershed Improvement District, 410 US 743; 93 S Ct 1237; 35 L Ed 2d 675 (1973), which involved a watershed improvement district.
In Ball v James, 451 US 355; 101 S Ct 1811; 68 L Ed 2d 150 (1981), the United States Supreme Court considered the constitutionality of a system of electing directors of a large water reclamation district in Arizona which, under state law, limited general voting eligibility to landowners and apportions voting power according to the amount of land a voter owned. A class of registered voters living in the district and owning no land or inconsequential amounts of land claimed the election scheme violated the Equal Protection Clause of US Const, Am XIV, because the district had such governmental powers as authority to condemn land and sold tax-exempt bonds and because the district sold electricity to almost half of the state and exercised substantial environmental control in the state.
An equally divided Court, in Ball, supra, upheld the voting scheme as being constitutional because the scheme bore a reasonable relationship to the district's statutory objectives and its purposes were sufficiently specialized and narrow in its activities to relate to the landowners so as not to apply the one-person-one-vote principle of Reynolds v Sims, supra.
It is my opinion, in response to your first question, based upon Salyer, supra, Associated Enterprises, Inc, supra, and Ball, supra, the governing board of the forest improvement district need not be selected in accordance with the constitutional one-person-one-vote principle. (6)
Your second question asks whether 1980 PA 298, supra, is violative of Const 1963, art 9, Sec. 18, by lending the credit of the state.
Const 1963, art 9, Sec. 18, provides in pertinent part:
A forest improvement district is composed of voluntary members, and the board of the district has powers related to forest practices and the establishment of standards; it may issue bonds, make loans to members and engage in various commercial practices, including the construction and operation of sawmills, acting as marketing agent and making available personnel, machinery, materials and equipment to members. Although there is provision in the act for the state to become a member of the district as owner of forest lands within, I am of the opinion that the state may not subject itself to rule by the board under the Act without abrogating its sovereign power and would, therefore, be prohibited from membership in the district.
A forest improvement district may be funded under 1980 PA 298, art 2, Secs. 201 & 202, supra, from a legislative appropriation and from other sources, including the general fund of the state. These sections provide that a district shall submit its annual expenses to the Department of Natural Resources and the Department shall include those expenses in its annual budget request to the Legislature. If implemented in this manner, these sections would violate Const 1963, art 9, Sec. 18. However, Const 1963, art 4, Sec. 30, provides that appropriations may be made for local or private purposes only by two-thirds vote of all members of both houses of the Legislature. In Advisory Opinion re Constitutionality of PA 1966, No 346, supra, pp 584-585, the Court held that appropriation for local or private purposes under Const 1963, art 4, Sec. 30, was not subject to the constitutional prohibition on lending of credit under Const 1963, art 9, Sec. 18. Therefore, funding for a forest improvement district may only be effectuated by compliance with Const 1963, art 4, Sec. 30, as well as other constitutional provisions on appropriation and legislation in order not to violate Const 1963, art 8, Sec. 18.
The forest improvement district board is also authorized to enter into cost-sharing agreements with its members and make loans to members to cover the cost of forest practices including the member's cost-share contribution. The board may also forgive the loan under specified circumstances. 1980 PA 298, art 6, supra. Accordingly, by the terms of the act, a district may be extensively engaged in funding the cost of forest practices and making loans to members. Therefore, in my opinion, money to be used by a district for these purposes must be derived from other than state appropriations to the district or other public money, or be specifically appropriated pursuant to Const 1963, art 4, Secs. 30 & 31 in order not to come within the lending of credit prohibition of Const 1963, art 9, Sec. 18, as stated in Advisory Opinion re Constitutionality of PA 1966, No 346, supra.
As set forth in detail in the overview above, 1980 PA 298, supra, authorizes the board to issue bonds for enterprise activities. The bonds are not to be general obligations of or constitute debt of the state or political subdivision except for the issuing district. In addition to specific revenues that may be pledged to secure the bonds, the district is authorized to pledge its full faith and credit. (7) 1980 PA 298, supra, also authorizes a debt service reserve fund and permit under specified conditions a district to create a 'moral obligation' of the state to fund such revenue. Information supplied with your request indicates that the contemplated bonds will not be self-liquidating. (8)
The purpose of Const 1963, art 9, Sec. 18, was described in Advisory Opinion re Constitutionality of PA 1966, No 346, supra, as follows:
'The framers of the 1963 Constitution created a pay-as-you-go government for the State of Michigan. In furtherance of that scheme, the State of Michigan is specifically prohibited from becoming a guarantor or surety for anyone. It would be an obviously useless thing for the Constitution to prohibit the State to incur liabilities by becoming party to the borrowing of others. Thus, article 9, Sec. 18, of the Constitution provides:
"The credit of the state shall not be granted to, nor in aid of any person, association or corporation, public or private, except as authorized in this constitution.'
'The purpose of this provision is to make certain that the State, which itself cannot borrow, except as authorized, does not accumulate unauthorized debts by indorsing or guaranteeing the obligations of others.' 380 Mich 554, pp 563-564.
See also Advisory Opinion re Constitutionality of 1976 PA 295, 1976 PA 297, 401 Mich 686, 701; 259 NW2d 129, 134 (1977).
The Michigan Supreme Court has concluded that a statutory scheme for the issuance of self-liquidating revenue bonds where future appropriations might give rise to the so-called 'moral obligation' by the Legislature to make appropriations was not a legal obligation.
In Advisory Opinion on Constitutionality of 1975 PA 301, 400 Mich 270; 254 NW2d 528 (1977), the Supreme Court considered the statutory scheme of borrowing set forth in the Derezinski-Geerlings Job Development Authority Act, 1975 PA 301; MCLA 125.1701 et seq; MSA 3.540(101) et seq. The Court, finding that the Job Development Authority Act, supra, Sec. 27, provided nonliability of the state on bonds and notes of the Job Development Authority and required the bonds and notes so provide on their face, stated:
'Thus these notes or bonds will not purport to be evidence of a state debt. They will not purport to pledge the state's credit. They will, in fact, purport to be the debt and pledge of credit of the Job Development Authority.
'Unless we are prepared to say that the authority is a sham or subterfuge employed by the state to avoid this constitutional ban and is therefore in legal effect the state itself, we have no reason to blink at the clear terms of the instruments.
'The suggestion is made that provision for the possibility of such future appropriation gives rise to a 'moral obligation' in the Legislature to make the appropriations, and that 'as a matter of policy' the state could not refuse to do so, or indeed to pay the bonds or notes if the authority default.
'We are keenly aware of that possibility. But we deal with legal obligations. The Constitution confides such 'policy' and 'moral' determinations to the Legislature.
'We see no legal obligation on the part of the state on account of these bonds or notes. We regard them as true revenue bonds or notes.' 400 Mich 270, 289-291.
However, in Advisory Opinion on Constitutionality of 1975 PA 301, supra, a separate concurring opinion noted that self-liquidating revenue bonds do not violate debt limitations because there is no pledge of general tax revenues, and the bond or noteholder understands that this is so. The assumption is made that obligations of the authority can be underwritten and marketed to the public and that its guarantees will be accepted by the financial community solely on the strength of revenue projections. The separate opinion further stated:
'While a testimonial hearing may establish that the market would accept authority obligations without a make-up provision and the accompanying statements of 'further assurance' and 'policy of this state' that deficiencies in the capital reserve and loan guarantee funds 'may' be funded by legislative appropriations, on a full factual record it may appear that the authority's obligations would not be accepted and, therefore, could not be underwritten or marketed except on the strength of such expressions of further assurance and state policy.
'On a full factual record it may also appear that although in form the Legislature has discretion, in actuality it does not. At present there are approximately 1 1/2 billion dollars of outstanding state obligations, and an additional 7 1/2 billions in obligations of school districts and municipalities and other local units of government. If it were to appear that a failure of the Legislature to make up deficiencies with appropriations to the capital reserve or loan guarantee funds would expose the holders of such securities to financial loss, would have an adverse effect on the market for Michigan securities, and would make it more difficult and expensive to refinance outstanding obligations and market securities in the future, what is in form discretionary could in substance be an effective commitment. By establishing the authority and authorizing bonds, notes and loan guarantees, the Legislature would then have set in motion forces which oblige future Legislatures to provide funds to make up deficiencies under the constraint of adverse implications for the holders of state obligations and consequent impairment of the borrowing capacity of the state and its subdivisions.
'Such constraints on future Legislatures and the people would not create a moral obligation only. If a tacit understanding has evolved which, because of market forces, the Legislature cannot fail to honor, the act, despite disclaimers, would be an effective commitment tantamount to an express commitment within the spirit and purpose of the constitutional limitations.' 400 Mich 270, 307-309.
Given the considerations of the court in relation to a 'moral obligation' pledge actually creating legislative constraints to fund deficiencies set forth above and the fact that bonds may not be self-liquidating (see fn 8, supra), a 'moral obligation' of the state to fund any deficiency in debt service may be violative of Const 1963, art 9, Sec. 18 in relation to bonds issued under 1980 PA 298, supra. (9)
Further, 1980 PA 298, art 7, Sec. 704, supra, states: states:
'The state shall not be liable on bonds of a district and the bonds shall not be a debt of the state. The bonds shall contain on their face a statement to that effect.'
See also 1980 PA 298, art 4, Sec. 413(o), supra, to similar effect.
It is my opinion, therefore, that neither the state nor any agency thereof may become a member of the district under 1980 PA 298, supra; that the provisions for funding of districts set forth in 1980 PA 298, art 2, Secs. 201 & 202, supra, are violative of Const 1963, art 9, Sec. 18; that 1980 PA 298, supra, art 6, may not be construed to permit state or public money to be utilized for cost sharing agreements or loans to members without violating Const 1963, art 9, Sec. 18 unless the money is appropriated for this purpose pursuant to Const 1963, art 4, Secs. 30 & 31. It is my further opinion that, as long as the bonds of a forest improvement district authorized under 1980 PA 298, supra, explicitly provide, and bondholders are advised, that such bonds are not the debt of the state; that the bonds are self-liquidating; that they do not create any obligation on the state to fund a deficiency; and that they are payable only from sources other than state appropriations or properties, then the bonds would not offend Const 1963, art 9, Sec. 18.
Your third question asks whether, upon dissolution of a forest improvement district, the Department of Natural Resources is responsible for the district's outstanding debts, other than bonded debt.
1980 PA 298, supra, art 4, Sec. 412, provides the mechanism for discontinuance of a forest improvement district. Upon petition of members whose lands comprise 25% or more of the private forest land of the district, the Commission of Natural Resources must schedule a referendum on the question of discontinuing the district. If a majority of votes cast are in favor of discontinuing a district, the Commission must determine that the district will be discontinued. Even if a majority does not vote discontinuance of the district, the Commission may order its discontinuance. 1980 PA 298, supra, art 4, Sec. 412(4) and (5), provides:
'(4) Upon receipt from the commission of a certification of a determination that a district shall be discontinued, the board shall proceed to terminate the affairs of the district. The board shall provide for the payment of all outstanding debt and for the disposition of district property to the state. The board shall thereafter file an application with the secretary of state for the discontinuance of the district. The application shall identify the action taken to provide for the payment of all outstanding debt and for the disposition of district property. The secretary of state shall issue a certificate of dissolution to the board of the district which specifies the effective date of discontinuance and shall record the certificate in the appropriate book of record.
'(5) Each contract, bond, or other obligation to which a district is a party shall remain in force and effect for the period provided in the contract, bond, or other indebtedness. If a district is discontinued, the commission shall be substituted for the district as a party to each contract entered into by the district, except the commission shall not be responsible for any coupon or bond issued by a district under this act. The commission shall be entitled to all benefits and subject to all responsibilities under each contract for which it is substituted as a party and shall have the same right to perform, to require performance, to sue and be sued, and to modify or terminate the contract by mutual consent or otherwise, as the board of a district would have had.'
Thus, while 1980 PA 298, art 4, Sec. 412(5), supra, requires the Commission to assume the benefits and liability of all contracts (which are to remain in force), by provision of 1980 PA 298, art 4, Sec. 412(4), supra, it is made the clear duty of the forest improvement district board to terminate the affairs of the district and to provide for the payment of all outstanding debt and the disposition of all district property to the state.
In construing the statutory language, the primary and fundamental rule of statutory construction is to give effect to the intentions of the legislature. Melia v Employment Security Commission, 346 Mich 544; 78 NW2d 273 (1956). Where legislative enactment is ambiguous or subject to more than one interpretation, rules of construction should be relied upon to give full force and effect to the meaning of the legislature. King v Director of the Midland County Dept of Social Services, 73 Mich App 253; 251 NW2d 270 (1977). Statutes come clothed with a presumption of constitutionality, People v Harrington, 396 Mich 33; 238 NW2d 20 (1976). Moreover, construction to unllify the effectiveness will be avoided if possible. Teddy v Dept of State Police, 102 Mich App 412; 301 NW2d 876 (1980). I am therefore obliged, if possible, to provide a constitutional construction in considering 1980 PA 298, supra. It is noted however, that no facts are presented in conjunction with the question asked.
If it can be concluded that the forest improvement district has the duty to provide for the payment of all outstanding debt, considering the clear language of 1980 PA 298, art 4, Sec. 412(4) & (5) supra, that the Commission be substituted for the district as a party to each contract entered into by the district, except bonded debt, it is possible that the state would become secondarily responsible for a district's outstanding debt after dissolution of a district to the extent that any contract or other obligation created debt. The assumption of such debt would be violative of Const 1963, art 9, Sec. 18.
1980 PA 298, art 4, Sec. 412(4), supra, provides in part that the district board shall provide for the payment of all outstanding debt and for the disposition of the district property to the state. While 1980 PA 298, art 4, Sec. 412(5), supra, provides substitution of the Commission for the district, no provision is made for the district's operation by the state. Accordingly, I conclude that the department is only authorized to wind up the district's activity and, thus, would act as a receiver only.
It is my opinion, in answer to your third question, that the Department of Natural Resources may not assume responsibility for the forest improvement district's outstanding debts without violating Const 1963, art 9, Sec. 18 (on lending of credit) and art 9, Secs. 12 & 15 (on state debt). Therefore, 1980 PA 298, art 4, Sec. 412(4) & (5), supra, must be construed as permitting the substitution of the Commission only in those contracts or obligations which do not create debt and are not violative of Const 1963. (10) Any bonds issued pursuant to 1980 PA 298, supra, in order to assure full and fair disclosure, must disclose on the face of the bonds and in any sales documents that the state is constitutionally prohibited from assuming any contracts of the district if those contracts create debt.
Your fourth question asks whether a forest improvement district may permissibly loan proceeds from the sale of bonds to members who own forest land in the district and, if so, at what interest rate.
1980 PA 298, supra, art 7, Sec. 701, permits a forest improvement district to adopt a bond authorizing resolution for bonds 'to be issued under the power granted in section 413.' The power to issue bonds is found at 1980 PA 298, art 4, Sec. 413, supra, Sec. 413, which provides in pertinent part:
'. . . [A] district shall have the following powers, . . ..
'(o) To defray all or part of the project costs of a forest improvement project, borrow money, and issue bonds as provided in this act. . . .'
'Project costs' is defined to mean 'the sum total of all reasonable or necessary costs incurred for carrying out the acquisition, construction or undertaking of a forest improvement project' in 1980 PA 298, supra, art 1, Sec. 107(7). 'Forest improvement project' and 'forest practice' are defined in 1980 PA 298, supra, art 1, Secs. 106(3) and 106(6), respectively, as:
'(3) 'Forest improvement project' or 'project' means each of the following:
(a) Production, processing, handling, storage, marketing, or transportation of forest resources, or in carrying out the purposes of this act, including sawmills, hardboard mills, power stations, warehouses, air and water pollution control equipment, and solid waste disposal facilities.
(b) Forest practice or follow-up work.
(c) Study, planning, or other work intended to improve forest lands or forest resources or to demonstrate means of improving forest lands or forest resources.
'(6) 'Forest practice' includes, but is not limited to, the following:
(a) The preparation of management plans for forest land.
(b) The improvement of forest tree species.
(c) Reforestation.
(d) The harvesting of forest tree species.
(e) Road construction associated with the improvement or harvesting of forest tree species or reforestation.
(f) Use of chemicals or fertilizers for the purpose of growing or managing forest tree species.
(g) The management of slashings resulting from other forest practices.
(h) Any other actions intended to improve forest land or forest resources.'
Neither statutory provision permitting the issuance of the bonds for the defined purposes, nor 1980 PA 298, art 6, supra, which permits cost sharing for forest practices and loans for up to forty years for such forest practices and related costs between a district and its members, specifically empowers the district to use bond proceeds for such loan purposes. 1980 PA 298, art 7, Sec. 702, supra, provides that the bonds may be payable from specified sources set forth therein, but no mention is made of payment from loan repayments to the district.
Therefore, it is my opinion in answer to your fourth question, that a forest improvement district is not authorized by 1980 PA 298, supra, to loan bond proceeds to individual members or owners of forest land in the district. Since it is my opinion that such loans from proceeds are not authorized, no opinion as to interest rate is required or stated.
On the first board, two members are appointed by the Commission of Natural Resources, and three are elected by the district members.
(2) 'Member' is defined by 1980 PA 298, supra, art 1, Sec. 107(4), as 'a person who is a voluntary participant in a district and who owns or occupies forest forest land within the gross territorial boundaries of a district.'
(3) Although provision is made in the act for a political subdivision to become a 'member' of a district, no opinion is expressed herein as to whether such municipally-owned lands may be subjected to regulation by the district board.
(4) Const 1963, art 9, Sec. 17, provides that 'no money shall be paid out of the state treasury except pursuant to appropriations made by law.' Therefore, a legislative appropriation must be made before any money is transferred from the general fund.
(5) This act was repealed by 1975 PA 227, Sec. 191. However, the repealing act was declared unconstitutional in Advisory Opinion on Constitutionality of 1975 PA 227, 396 Mich 123; 240 NW2d 193 (1976), and therefore 1968 PA 317, supra, continues in effect without interruption.
(6) Although no facts are presented with your question, it appears on the face of 1980 PA 298, supra, that the activities of the forest improvement district may affect the interests of other landowners who are not members of the district. 1980 PA 298, supra, art 4, Sec. 403(5), provides for notice of hearing to non-participating landowners where the Commission determines that forest improvement projects will impact on their property values. 1980 PA 298, supra, art 4, Sec. 409(2), provides that the Director of the Department of Natural Resources shall appoint one director to the board where state lands in the gross territorial district comprise more than 5% of member forest lands and a timber value agreement has been made. To the extent that the interests of persons are affected who are not entitled to vote on the board, a court may find violation of US Const, art 14, in fact.
(7) Since members may withdraw at will and the district may dissolve, this pledge appears to be illusory.
(8) Legislative Proposal for the Organization and Financing of Forest Development Districts in Michigan, Kutak, Rock & Huie, was developed prefatory to 1980 PA 298, supra. This report states in Part III, Economic and Legal Feasibility of Financing, pp 2-3 & 24:
'A. Financing from Project income
Bonds may, of course, be repaid from any available source of funds, but, ideally, practices and facilities to improve forest resources should be financed from the revenues generated by the practices of facilities themselves, without subsidy from public revenues. Thus, the bonds would be repaid entirely out of income from the sale of timber grown on lands subject to forest practices or from income generated by the facilities. Such bonds would be marketable, however, only if the improvements are demonstrably self-supporting or can clearly become so within a time which can be encompassed by normal private-sector funding means. Unfortunately, this appears not to be the case in Michigan's Upper Peninsula at present, with respect to either forest practices or facilities.
'B. Nonrevenue Financing
Until financing from project income is proved practical, it is still possible to finance forest improvement practices if another source of funds is provided to repay the bonds. The buyer would then look to the soundness of the other source of funds and would be much less concerned with the feasibility of the project itself. Four possible sources of funds are:
1. proceeds of a severance tax on timber products, levied either within an individual district or state-wide;
2. proceeds of sales of timber from state lands, whether within an individual district or state-wide;
3. other state funds (either annual appropriations from the legislature or general obligation bonds pledging the full faith and credit of the state); and
4. federal funds.
Except for federal funding, all of these potential sources of funds are subject to the provisions of the Michigan Constitution, including the Headlee Amendment adopted by the Michigan voters in the recent general election.'
(9) 1980 PA 298, supra, is silent as to whether the bonds are to be reviewed under the Municipal Finance Act, 1943 PA 202, as amended; MCLA 131.1 et seq; MSA 5.3188(1) et seq.
Under the Municipal Finance Act, supra, ch I, Sec. 2, 'obligations' are defined as:
'(c) 'Obligations' means evidences of indebtedness such as bonds, refunding bonds, notes, certificates of indebtedness, contracts or assessments for the payment of bonds, and other similar instruments issued or incurred by a municipality, which are general obligations of the municipality, or which, on their face, meet any or all of the following requirements:
(i) Pledge the full faith and credit of the municipality.
(ii) Are payable primarily or secondarily from taxes, or special assessment, or both.
'(d) 'Obligations' does not include evidences of indebtedness authorized under any of the following:
(vi) Any act which, by its terms, excludes an evidence of indebtedness it authorizes to be issued from the terms of this act or from the definition of an obligation provided by subdivision (c).'
(10) The provisions of these sections may be violative of Const 1963, art 3, Sec. 6 which provides:
'The state shall not be a party to, nor be financially interested in, any work of internal improvement, nor engage in carrying out any such work, except for public internal improvements provided by law.'
The courts have given great weight to the legislative declaration of public policy, but have also relied heavily in the interpretation of this provision and of Const 1963, art 9, Sec. 18 upon the self-funding of the subject activity and the self-liquidating nature of any debt incurred. Advisory Opinion re Constitutionality of 1976 PA 295, 1976 PA 297, 401 Mich 686; 259 NW2d 129 (1977); Advisory Opinion on Constitutionality of 1975 PA 301, 400 Mich 270; 254 NW2d 528 (1977); Advisory Opinion re Constitutionality of PA 1966, No 346, 380 Mich 554; 158 NW2d 416 (1968); City of Gaylord v Gaylord City Clerk, 378 Mich 273; 144 NW2d 460 (1966); City of Dearborn v Michigan Turnpike Authority, 344 Mich 37; 73 NW2d 544 (1955).