Source: https://www.ag.state.mi.us/opinion/datafiles/1970s/op05308.htm
Timestamp: 2020-04-01 02:46:11
Document Index: 406700466

Matched Legal Cases: ['Art 9', 'Art 9', 'art 7', 'art 9', 'art 9', 'art 10', 'art 10']

Opinion #5308
Opinion No. 5308
Art 9, Sec. 18 (lending credit of State)
Art 9, Sec. 19 (acquisition of interest in stock)
A city may not invest its surplus funds in shares of a regulated company which invests its funds in types of securities authorized by 1943 PA 20.
You have asked for my formal opinion concerning the following question:
'Does direct investment of a city's surplus funds in shares of a regulated investment company, rather than the securities themselves, conflict with MSA 3.843(1); MCLA 129.91 or any other applicable law when the investment company invests its funds solely in the types of securities enumerated under MSA 3.843(1).'
1943 PA 20, as amended, Sec. 1, being MCLA 129.91; MSA 3.843(1), to which you refer in your opinion request, provides as follows:
'The legislative or governing body of a county, city, village, township, or special assessment district, or an agency, board, or commission of a county, by resolution, may authorize its treasurer or other chief fiscal officer to invest surplus funds belonging to and under the control of the political subdivision, special assessment district, or agency, board, or commission of a county as follows:
'(a) In bonds and other direct obligations of the United States or an agency or instrumentality of the United States.
'(b) In certificates of deposit, savings accounts, or depository receipts of a bank which is a member of the federal deposit insurance corporation.
'(c) In commercial paper rated prime one (1) or A-1 or its equivalent by a nationally recognized rating service at the time of purchase and maturing not more than 270 days after the date of purchase. Not more than 50% of any fund may be invested in commercial paper at any time.'
Const 1963, art 7, Sec. 26 provides as follows:
Const 1963, art 9, Sec. 18 provides as follows:
'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.
'This section shall not be construed to prohibit the investment of public funds until needed for current requirements or the investment of funds accumulated to provide retirement or pension benefits for public officials and employees, as provided by law.'
It is also necessary to consider the provisions found in Const 1963, art 9, Sec. 19:
'The state shall not subscribe to, nor be interested in the stock of any company, association or corporation, except that funds accumulated to provide retirement or pension benefits for public officials and employees may be invested as provided by law; and endowment funds created for charitable or educational purposes may be invested as provided by law governing the investment of funds held by trustees.'
Reading these two sections together, the intent of the people is clear. A city may invest surplus funds until needed for current requirements only as provided by law. Moreover, a city may not subscribe to nor be interested in the stock of any company with the sole exception that funds accumulated to provide retirement and pension benefits for public officials and employees of the city may be invested as provided by law.
Under the Constitution of 1908, art 10, Sec. 13, the State was prohibited from subscribing to or being interested in the stock of any company. The Michigan Supreme Court, in Michigan Savings & Loan League v Municipal Finance Commission, 347 Mich 311; 79 NW2d 590 (1957), held that Const 1908, art 10, Sec. 13 barred school districts from depositing school funds in savings and loan associations because such deposit would constitute an investment in the shares of the savings and loan company.
The legislature has determined that the manner in which a municipality may invest its surplus funds, subject to the provisions of 1943 PA 20, supra, is in those securities designated by the act. The statute authorizes a city, or other designated governmental unit, to invest its surplus funds in bonds or other direct obligations of the United States of America or in certificates of deposit or depository receipts of any bank which is a member of a federal deposit insurance corporation, or in commercial paper which is rated prime 1 or A-1 and in no other manner.
Therefore, it is my opinion that a city may not invest its surplus funds in shares of a regulated investment company which invests it funds solely in the types of securities enumerated in 1943 PA 20, supra.