Opinion ID: 1597762
Heading Depth: 1
Heading Rank: 5

Heading: public purpose as it relates to the status of the state housing development authority as a quasi-corporate state agency.

Text: Setting aside for the moment the involvement of the State housing development authority in the actual construction of dwellings, there can be no doubt that it is a proper public purpose for the State to concern itself with the housing of its inhabitants. The following powers are granted to the authority: Sec. 22. The authority shall have all the powers necessary or convenient to carry out and effectuate the purposes and provisions of this act, including the following powers in addition to all other powers granted by other provisions of this act:    (b) To undertake and carry out studies and analyses of housing needs within the state and ways of meeting such needs, including data with respect to population and family groups and the distribution thereof according to income groups, the amount and quality of available housing and its distribution according to rentals and sale prices, employment, wages and other factors affecting housing needs and the meeting thereof; and to make the results of such studies and analyses available to the public and the housing and supply industries; and to engage in research and disseminate information on housing.    (d) To survey and investigate the housing conditions and needs, both urban and rural, throughout the state and make recommendations to the governor and the legislature as to legislation and other measures necessary or advisable to alleviate any existing housing shortage in the state.    (f) To encourage community organizations to assist in initiating housing projects for low income or moderate income persons as provided in this act. (g) To encourage research in, and demonstration projects to develop, new and better techniques and methods for increasing the supply of housing for low income or moderate income persons. It is clearly a public purpose and a proper governmental function to encourage the private sector of the economy to build houses. It is equally proper for the State to assist private enterprise to this goal by research, study, and the dissemination of information. The location of our State in the north temperate zone makes it evident that human life cannot subsist in Michigan without man-made shelter. The condition of our present urbanization and industrialization makes it practically impossible for the vast majority of our citizens to construct their own dwelling houses. Modern technology, the logistics of moving building supplies, the intricacy of plumbing, electrical, and other building codes, and the need for economy in land use, all conspire to move the construction of single and multiple dwellings further from the competence of the average householder. The construction of housing has become in our times an enterprise affected with a public interest. By the most ancient principles of jus publicum the creation of a State agency in our day to take some measures to promote the construction of housing is a proper governmental function. The grant of corporate powers to such an agency make it a quasi corporation only. It remains an instrumentality of the State. Its members are engaged in a public work. For this reason, Act No 346 is a general act and not a local or special act within the meaning of Const 1963, art 4, § 29. VII. PUBLIC PURPOSE AS IT RELATES TO THE CONSTITUTIONAL LIMITATION UPON THE CONSTRUCTION OF INTERNAL IMPROVEMENTS. Setting aside for a moment the use of funds appropriated or to be appropriated by the legislature, does Act No 346 violate article 3, § 6, Constitution 1963? [12] First, is the construction of housing for persons of low or moderate income a public internal improvement? Section 1 of Act No 346 provides as follows: It is hereby determined that there exists in the state of Michigan a seriously inadequate supply of safe and sanitary dwelling accommodations within the financial means of low income or moderate income families. It is further determined that to undertake the clearance of slums and blighted areas, and at the same time meet the urgent needs of the residents of these areas, it is a valid public purpose to construct such housing for low income or moderate income persons who are displaced by such programs, and who would otherwise be unable to obtain adequate dwelling accommodations which they could afford. (Emphasis supplied.) Courts give great weight to legislative declarations of public purpose. In this case, there is a gap between the legislative declaration and the provisions of the act. While section 1 declares that it is a public purpose to construct housing for low income persons or moderate income persons who are displaced by slum clearance, it makes no such declaration with respect to low income or moderate income persons who are not so displaced. Section 11, subd (g) of the act provides, among other things: Among low income or moderate income persons, preference shall be given to those displaced by urban renewal, slum clearance or other governmental action in accordance with regulations and procedures applicable to housing projects assisted with federally-aided mortgages. (Emphasis supplied.) Section 45 of the act likewise provides: Among low income or moderate income persons, preference shall be given to those displaced by urban renewal, slum clearance or other governmental action. (Emphasis supplied.) Thus, even if the legislative declaration were conclusive, it is not broad enough to encompass the functions to be carried out under the act. We must, therefore, test the question of whether the construction of housing for low and moderate income persons, as envisioned in the act, is a public internal improvement without reference to the declaration quoted. The relation between housing and health, welfare, and safety of the people of the State has been recognized in many legislative enactments and in legislative declarations of public policy. Typical of these, is the declaration contained in PA 1941, No 250, § 2, being CL 1948, § 125.902 (Stat Ann 1958 Rev § 5.3058[2]), as follows: It is hereby declared that in the cities of the state substandard and insanitary areas exist which have resulted from inadequate planning, excessive land coverage, lack of proper light, air, and open space, defective design and arrangement of buildings, lack of proper sanitary facilities, and the existence of buildings, which, by reason of age, obsolescence, inadequate or outmoded design, or physical deterioration, have become economic or social liabilities, or both; that such conditions are prevalent in areas where substandard, insanitary, outworn or outmoded industrial, commercial or residential buildings prevail, and are conducive to ill health, transmission of disease, infant mortality, juvenile delinquency, crime and poverty; that such conditions impair the economic value of large areas, infecting them with economic light [blight?]. The erection of housing for persons of insufficient means has generally been upheld by the courts as a proper legislative action, being related to the improvement of the health, morals, and safety of the people. The taking of some areas by power of eminent domain and the erection thereon of low-cost housing has been held to be a public purpose. [13] It is abundantly clear that the rationale of the Brewster Street decision, and others like it, is that there is a logical relationship between housing and disease, between housing and crime, between housing and immorality, and between housing and poverty. The erection of low-cost housing may also serve the same public purpose long recognized in direct welfare programs in the construction and maintenance of poorhouses, and in a multitude of State legislative acts by which the corporate conscience of the community in such matters is expressed. But Act No 346 is not such a welfare measure. There is no test of need, in the sense that the construction of the housing contemplated by the act is the sine qua non of adequate shelter for the persons the act seeks to benefit. Act No 346 provides for mortgage loans to be made by the State housing development authority to qualified nonprofit housing corporations and consumer housing cooperatives. Section 11, subd (k) describes a qualified nonprofit housing corporation as one incorporated pursuant to the provisions of the Michigan general corporation act and the provisions of Act No 346. It requires that such nonprofit housing corporation be organized exclusively to provide housing facilities for persons of low and moderate income. Section 11, subd ( l ) of the act defines a consumer housing cooperative as a nonprofit corporation organized under the laws of the State for the purpose of providing dwelling accommodations for its members which would be qualified, under Federal regulations, for Federally-aided financing. In section 11, subd (g) of the act, low income or moderate income persons are defined as follows: Families and persons who cannot afford to pay the amounts at which private enterprise, without federally-aided mortgages or state-aided loans, is providing a substantial supply of decent, safe and sanitary housing. The income limits applicable for the admission of such families and persons to housing projects financed with federally-aided mortgages shall be those established pursuant to the rules applicable to such housing projects assisted with such federally-aided mortgages. A Federally-aided mortgage is defined in section 11, subd (c) of the act as being a below-market-interest-rate mortgage insured or purchased by the secretary of the department of housing and urban development, or a market-interest-rate mortgage insured by the secretary and augmented by a program of rent supplements authorized by the housing and urban development act of 1965. A reading of Act No 346, with its many references to Federal rules and regulations and adaptation to Federal standards, makes it abundantly clear that one of the purposes of the legislature in enacting this law was to take advantage of Federal funds made available under the housing and urban development act of 1965 and other Federal regulations and appropriations. Ever since the case of Massachusetts v. Mellon (1923), 262 US 447 (43 S Ct 597, 67 L ed 1078), it has been generally accepted that Federal government spending is limited only by the bounds of congressional largess. Certainly, the Federal government is not prohibited from undertaking nonpublic works of internal improvement as is the State of Michigan. Under 5 USC § 624 (c), being Public Law 89-174, § 5a, the powers and duties of the Federal housing administration have been transferred to the secretary of housing and urban development. Section 4a of the same act provides that there shall be an assistant secretary in that department who shall be called the Federal housing commissioner, who shall head a Federal housing administration within the department. The definition of Federally-aided mortgage, which appears in section 11, subd (c) of Act No 346, relates to the mortgages purchased or insured by the secretary of the department of housing and urban development, which are below-market-interest-rate mortgages. These below-market-interest-rate mortgages are authorized by section 221 (d) (5) of the national housing act, which provides certain types of mortgages to carry an interest rate of 3% with an increment based upon current interest rates required on certain bonds of the Federal government. Such below-market-interest-rate mortgages are stated in that section of the national housing act to be permitted to mortgagors who are defined or described in section 221 (d) (3) of the national housing act, being 12 USC, § 1715( l ) (d) (3). Mortgagors permitted to receive these low interest rate mortgages are defined as public bodies or agencies, cooperatives, limited dividend corporations, and nonprofit corporations, who are regulated as to rents, charges and methods of operation, either by local agencies or units of government or by contract with the housing commissioner. The only standard mentioned in the act as to who can occupy the housing built by these corporations or agencies is as follows: low and moderate income families or displaced families shall be eligible for occupancy. The type of housing to be built under this section and by these mortgagors is generally multiple residence units. Under various conditions they are to be permitted to cost between $8,000 per unit and $32,987.50 per unit. The second type of Federally-aided mortgage referred to in section 11, subd (c) of Act No 346 is a market-interest-rate mortgage insured by the secretary and augmented by a program of rent supplements authorized by the housing and urban development act of 1965. That act authorizes the payment of rent supplements to owners of multiple dwelling units on behalf of qualified tenants. The qualified tenants are described therein (79 Stat 451, Public Law 89-117, being the housing and urban development act of 1965), as those who have an income below the maximum which can be established under section 2(2) and section 15(7) (b) (ii) of the United States housing act of 1937, and in addition to that income qualification are persons who are displaced by government action or 62 years of age or over, are physically handicapped, are occupying substandard housing or are living in a damaged home in a disaster area as defined by the small business administration. This reference to an income limit contained in the housing and urban development act of 1965 refers to the housing act of 1937, and is contained in 50 Stat 888, 42 USC, § 1402(2). The description is as follows: families who are in the lowest income group and who cannot afford to pay enough to cause private enterprise in their locality or metropolitan area to build an adequate supply of decent, safe, and sanitary dwellings for their use. The other reference, section 15(7)(b)(ii), United States housing act of 1937, defines low income persons as those whose ability to pay rent represents a 20% gap between the highest public housing rentals and the lowest private housing rentals available in the area. 42 USC § 1415(7) (b) (ii). Neither Act No 346 nor the Federal statutes referred to in the act contain any limitation upon the holdings which an eligible person may have. Thus a person may own a dwelling house free and clear, he may in fact own several houses and derive rental income therefrom, and still be eligible for occupancy of one of the units constructed under this program. In point of fact, the construction program envisioned by the statutes under consideration are not primarily designed to assist certain people, per se. The major thrust of the legislation is to fill a gap in the housing market. The definitions of eligibility are essential only as descriptive of the kinds of housing the acts seek to encourage. The conclusion is inescapable that the construction of housing envisioned in the act is not a work of public internal improvement. The construction to be encouraged by the act is, however, a work of internal improvement, and it is therefore necessary to decide whether the State will be a party to it, financially interested in it, or engaged in carrying on such work, as prohibited by article 3, § 6, Constitution 1963. The act does not authorize the State housing development authority to build buildings. It does not anticipate that the State housing development authority will be party to building contracts. It cannot be said then that the State agency will be a party to, nor engaged in, carrying on the construction of housing. The State housing development authority will, however, be making advances and mortgages for the purpose of financing such construction. Section 23 provides: (1) There is created and established under the jurisdiction and control of the authority a revolving fund to be known as the `housing development fund'. (2) There shall be paid into the housing development fund (a) any moneys appropriated and made available by the state for the purposes of the fund; (b) any moneys which the authority receives in repayment of advances made from the fund, and (c) any other moneys which may be made available to the authority for the purpose of the fund from any other source or sources. Section 39, subd (1) provides, in part: (1) All moneys of the authority, except as otherwise authorized or provided in this section, shall be paid to the state treasurer as agent of the authority, who shall not commingle such moneys with any other moneys. Such moneys shall be deposited in a separate bank account or accounts. Moneys of the State housing development authority are not moneys of the State. The funds to be established under the act are trust funds to be administered by the State housing development authority. The State has no beneficial interest in such funds, and when such funds are used to finance the construction of housing, the State cannot be said to be financially interested in such construction. The State government can neither gain nor lose by reason of such construction. We conclude, therefore, that while the construction of private housing is not a public work of internal improvement, the act does not make the State party to, financially interested in, or engaged in carrying on such work, and the act does not therefore offend against Constitution 1963, art 3, § 6. VIII. PUBLIC PURPOSE AS IT RELATES TO THE APPROPRIATION OF PUBLIC FUNDS. The final light in which the notion of public purpose must be viewed has to do with the appropriation of public funds to the State housing development authority. As has been already seen, Act No 346 is itself an appropriation bill, by reason of the provisions of section 57 providing $5,000 for the initial administration of the law. Since the creation of the State housing development authority as an agency of State government is a constitutional means to serve a proper public purpose (see subdivision VII of this opinion), an appropriation to be used purely for the administration of the authority is an appropriation for a public purpose. But the act contemplates appropriations to the housing development fund, and to the capital reserve sinking fund as well. The housing development fund will be used to make loans and advances to private corporations. The capital reserve sinking fund will be used to repay bonds issued for the same purpose. Appropriations to these funds do not constitute appropriations for public purposes. [14] This does not mean, however, that the State can, under no circumstances, appropriate public money to such funds. Constitution 1963, art 4, § 30, provides: The assent of two-thirds of the members elected to and serving in each house of the legislature shall be required for the appropriation of public money or property for local or private purposes. This provision of the Constitution recognizes that the doctrine of public purpose is not an exact measuring rod for the appropriation of public moneys. What it says to us in effect is, that when the legislature speaks through a majority of two-thirds, it is not the function of the Court to measure the expenditure against traditional notions of public purpose. That the delegates to the Constitutional Convention have chosen to express the concept in terms of authorizing the use of public money for private purposes, is not fatal. The Constitution merely acknowledges that the legislature speaks for the public, and in a very broad sense its sights are always leveled upon public concerns and its purposes are always to advance the public interest. To be sure the procedural safeguard of a two-thirds majority makes the undertaking of a novel projects of public welfare more difficult. But at the same time, the provision opens wide the vistas of governmental action whenever general agreement upon the need exists. SUMMARY. 1. PA 1966, No 346, is not unconstitutional. 2. The bonds of the State housing development authority are not obligations of the State. 3. The encouragement of housing construction is a proper public purpose for the creation of a State agency. 4. The State may not directly engage in the financing or construction of private housing. 5. The funds of the State housing development authority are not State funds. 6. An appropriation to the State housing development authority for the purpose of administration is a proper public purpose. 7. An appropriation to the housing development fund, or the capital reserve fund of the State housing development authority is not a proper public purpose. 8. An appropriation to the housing development fund or the capital reserve fund of the State housing development authority may be made upon the assent of two-thirds of the members elected to and serving in each house of the legislature.