Michigan Advisory Opinions August 13, 1979: AGO 5539 (August 13, 1979)

AGO 5539.

You have requested my opinion on an issue which may be phrased as follows:

When may a school district levy taxes upon its property owners to collect funds for the payment of interest and principal upon bonds which have not been delivered but the sale of which has been previously approved? (fn1)

At the outset it must be recognized that the process for the issuance of bonds differs from the process of appropriations by the school district to meet the debt service requirement on the bonds; separate and distinct procedures must be complied with to effectuate such appropriations.

The municipal finance act, 1943 PA 202, Ch VII, Sec. 1a, MCLA 137.1a; MSA 5.3188(45a), requires a tax levy to meet the debt service of bonds payable from taxes. This section provides in pertinent part:

'(1) If a municipality has outstanding bonds, refunding bonds, notes, or certificates of indebtedness payable from taxes, an officer or official body charged with a duty in connection with the determination of the amount of taxes to be raised or with the levying of the taxes, shall include in the amount of taxes levied each year:

'(a) An amount such that the estimated collections will be sufficient to promptly pay when due the interest on all the obligations and the portion of the principal falling due either at maturity of the obligations, or in the case of term obligations, by the prior redemption or maturity of those obligations, before the time of the following year's tax collection.

'(d) An amount, if any, required to be levied in that year for each principal and interest reserve.

'(3) At the time of making an annual tax levy, if there is surplus money on hand for the payment of principal or interest and provision has not been made in the bond resolution for the disposition of that money, then credit may be taken upon the annual levy for principal or interest.' [Emphasis added]

In regard to school bonds, the School Code of 1976, 1976 PA 451, MCLA 380.1 et seq; MSA 15.4001 et seq, authorizes the issuance of bonds for purposes stated therein. Since the bonds are generally payable from ad valorem taxes, the School Code of 1976, supra, further requires a tax levy to meet debt service requirements on the bonds. Section 1364 of the School Code of 1976, supra, states:

'The board of a school district which borrows money shall impose an annual tax on the taxable property in the district for the purpose of paying the principal borrowed, or a part thereof, and the interest thereon, to be levied and collected as other school taxes are levied and collected.'

It is clear that the liability of the issuer of the bonds does not arise until delivery of the bonds. Hazel Park Nonpartisan Association v Royal Oak Township, 317 Mich 607, 625; 27 NW2d 249, 256 (1947). Further, delivery may not be effected until several years after voter authorization under certain circumstances. Quaid v City of Detroit, 319 Mich 268; 29 NW2d 687 (1947). However, with respect to bonds that are expected to be delivered in the immediate future, the school district may be faced with the problem of meeting the first debt service payment on the bonds after delivery but before the taxes levied for this purpose can be collected. Under these circumstances, the money needed for such debt service due before the collection of taxes from which such interest is to be paid may be included within the bond issue. 1943 PA 202, Ch V, Sec. 6, supra.

It may be noted that the School Code of 1976, supra, Sec. 1214, subsection (2) provides that the taxes needed for the first debt service on a bond which has been approved by the electors after June 1 and before September 1 of any year may be collected with the county taxes upon resolution by the school board but this section does not authorize any tax levy before the bonds are delivered.

It is, therefore, my opinion that a school district may only levy taxes for the first anticipated debt service on bonds after the bonds have been delivered. The taxable real and personal property located within a school district does not become liable for the bonds of the school district until the bonds are delivered.

Frank J. Kelley

Attorney General

1. Const 1963, art 9, Sec. 6 and Sec. 31 as recently amended by the voters on November 7, 1978, through ballot proposal E (the Headlee Amendment), set forth limitations on millage and taxes that may be imposed without a vote of the electors. However, Const 1963, art 9, Sec. 16 continues to provide that taxes to meet debt service on qualified general obligation bonds issued by a school district shall be without limitation as to rate or amount.