Michigan Governor Jennifer M. Granholm (D) is attempting to seize money from motorist-funded automobile theft prevention efforts to spend it elsewhere in the state's budget. On March 22, Granholm issued an executive order freezing $4 million in funds paid by motorists to the Automobile Theft Prevention Authority.

Michigan's legislature in 1986 set a $1 fee on annual insurance payments to create the Automobile Theft Prevention Authority. Last year, the fee generated $6.3 million in revenue that was distributed by a board composed of representatives from the public, the insurance industry and police. It awarded grants to programs throughout the state designed to nab car thieves.

The authority says the programs have yielded measurable results worth far more than the fee paid. Michigan's automobile theft rate has declined 33 percent since the program's introduction, although it still ranked 11th in the nation in 2005 for auto theft. Last year, grant recipients recovered 4437 vehicles worth $43,205,590. Prosecutors also convicted 2340 individuals for car theft, fraud and related offenses. The net effect, the authority claims, has been a $26 annual reduction in the average comprehensive automobile insurance premium paid by motorists.

Last month, Attorney General Mike Cox (R) issued a ruling preventing Granholm from spending the authority's money, although he admitted she had the ability to freeze it.

"Although the executive branch possesses a certain amount of discretion, it may not under the guise of executing the laws frustrate the legislature's intent," Cox wrote.

Granholm has not released her hold on the funding, which is expected to force the shut down of most local auto theft prevention programs by September.

Article Excerpt:

STATE OF MICHIGAN
MIKE COX, ATTORNEY GENERAL

Reduction of funds in the Automobile Theft Prevention Program by Executive Order 2007-3

The Governor, having gained the approval of both the House and Senate appropriations committees, may use her Const 1963, art 5, § 20 powers to reduce the spending authority for the Automobile Theft Prevention Authority. The $4,000,000 for which spending authority was removed by Executive Order 2007-3, however, remains in the Automobile Theft Prevention Fund until new authority to spend is obtained pursuant to legislative appropriation; it does not lapse to the General Fund and thus does not result in a direct increase of $4,000,000 to the General Fund.

Opinion No. 7203

April 25, 2007
Board of Directors, Automobile Theft Prevention Authority
714 South Harrison Road
East Lansing, MI 48823

Mr. David S. Leyton, Genesee County Prosecutor
900 S. Saginaw St.
Flint, MI 48502

Mr. Eric Smith, Macomb County Prosecutor
One South Main St.
Mount Clemens, MI 48013

Ms. Kym L. Worthy, Wayne County Prosecutor
1200 Frank Murphy Hall of Justice
1441 St. Antoine Street
Detroit, MI 48226

You have asked whether the Governor may reduce the FY 2007 Department of State Police appropriation contained in 2006 PA 345 and identified as the Auto Theft Prevention Program by $4,000,000 as set forth in Executive Order 2007-3.

First, your question requires examination of several controlling constitutional principles. The Legislature enacts laws and appropriates funds. The executive branch of the government executes the laws and spends appropriated funds for designated purposes. Although the executive branch possesses a certain amount of discretion, it may not under the guise of executing the laws frustrate the Legislature's intent. The executive branch possesses no inherent constitutional power to decline to spend in the face of a clear legislative intent and statutory directive to do so. Int'l Union, UAW v State of Michigan, 194 Mich App 489, 501; 491 NW2d 855 (1992).

The Governor's authority to reduce state expenditures derives from Const 1963, art 5, § 20, which provides:

No appropriation shall be a mandate to spend. The governor, with the approval of the appropriating committees of the house and senate, shall reduce expenditures authorized by appropriations whenever it appears that actual revenues for a fiscal period will fall below the revenue estimates on which appropriations for that period are based. Reductions in expenditures shall be made in accordance with procedures prescribed by law. The governor may not reduce expenditures of the legislative and judicial branches or from funds constitutionally dedicated for specific purposes.

The Governor has concluded that actual revenues for the current fiscal period will fall below the revenue estimates. As a result, Executive Order 2007-3 was issued pursuant to Const 1963, art 5, § 20 on March 22, 2007, and received the concurrence of the appropriations committees of the House and Senate by March 29, 2007.

Where the approval of the appropriations committees of the House and Senate has not been obtained, neither the Governor nor the Director of the Department of Management and Budget may require a principal department to lapse funds appropriated to that department. OAG, 1979-1980, No 5585, p 445, 447 (October 17, 1979).1 This analysis is one of long standing. In OAG, 1989-1990, No 6607, p 269, 271 (December 5, 1989), Attorney General Frank J. Kelley commented:

I have previously addressed the issue of executive branch efforts to reduce legislative appropriations when actual revenues have fallen below revenue estimates. Those opinions concluded that the people have seen fit to severely limit the executive branch's prerogatives. In 1966, for example, Governor George Romney directed the Department of Social Services to withhold full implementation of Phases II and III of the Medicaid program for which appropriations had been made by the Legislature for reasons, in part, of financial problems. OAG, 1967-1968, No 4576, p 17 (February 3, 1967), addressed the validity of Governor Romney's action and concluded that he did not have the authority to limit or delay benefits under a program established by law and for which legislative appropriations had been made. The opinion noted that approval of the appropriations committees of the Legislature was neither sought nor capable of being validly obtained in the absence of any showing that actual state revenues would fall below estimated revenues as required by Const 1963, art 5, § 20.

The Attorney General reaffirmed that position in a December 11, 1991, Letter Opinion to House Speaker Lewis Dodak and Representative Dominic Jacobetti, stating that reductions in the amounts appropriated to departments within the executive branch may not be mandated without the issuance of an order by the Governor approved by the appropriations committees of the House and Senate as required by Const 1963, art 5, § 20.

Turning to the specifics of your question, the Automobile Theft Prevention Authority (ATPA) was created in 1986 PA 10 to reduce automobile theft in Michigan. In 1992, the Legislature made the ATPA a permanent body in 1992 PA 174, MCL 500.6101 et seq.

The ATPA is governed by a seven-member board of directors appointed by the Governor and consists of two representatives of automobile insurance purchasers, two representatives from Michigan insurance companies, two representatives from law enforcement agencies, and the Director of the Department of State Police. While the ATPA exercises its prescribed statutory powers, duties, and functions independently, the Director of the Department of State Police has supervision of the budgeting, procurement, and administration of employees for the Authority. MCL 500.6103(7).

The ATPA is expressly declared to be a public body corporate and politic. MCL 500.6103(1). It has long been accepted that the Legislature has the authority to give corporate capacity to certain agencies in the administration of civil government. And, in doing so, the Legislature creates neither private corporations nor municipal corporations, but instead a class of artificial entities that have been designated "quasi corporations." Advisory Opinion re Constitutionality of PA 1966, No 346, 380 Mich 554, 568; 158 NW2d 416 (1968).

The ATPA's primary source of funding is an annual assessment paid by each insurer engaged in writing motor vehicle insurance coverage in Michigan. Each insurer's assessment is "equal to $1.00 multiplied by the insurer's total earned car years of insurance" written in this State during the immediately preceding calendar year. MCL 500.6107(1). The assessments are paid by April 1 each year and "shall be segregated and placed in a fund to be known as the automobile theft prevention fund . . . [to] be administered by the authority." MCL 500.6107(2). According to the ATPA, the annual assessments amounted to approximately $6.0 million annually for 2005 and 2006.2

Money in the Automobile Theft Prevention Fund may be used only for automobile theft prevention efforts and is distributed based on need and efficacy as determined by the ATPA. MCL 500.6107(4). "Money in the automobile theft prevention fund shall not be considered state money." MCL 500.6107(5).

Since the creation of the Automobile Theft Prevention Fund, the Legislature has authorized the ATPA's spending within the annual Department of State Police budget. The amounts so authorized are based on the amount of money held in the Automobile Theft Prevention Fund from the assessments received and any other income (such as investment income).

While there is no case precedent involving the ATPA, the bedrock case of Advisory Opinion re Constitutionality of PA 1966, No 346, 380 Mich 554, supra, examined the constitutional underpinnings of the public body corporate known as the Michigan State Housing Development Authority (State Housing Authority), a body characterized by the Court as a "quasi corporation" exercising a proper public purpose. When reviewing receipt of appropriations by the State Housing Authority, the Supreme Court said:

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. [380 Mich at 583.]

Thus, funds appropriated to the State Housing Authority lose their state character and cannot be returned to the General Fund by legislative enactment. OAG, 1973-1974, No 4841, p 187 (October 24, 1974), citing Advisory Opinion and Monticello House v Calhoun County, 20 Mich App 169; 173 NW2d 759 (1969). That same result is required concerning funds appropriated to the ATPA for the same reasons: (a) the ATPA is a public body corporate and politic, serving a public purpose; (b) the ATPA has a dedicated revenue stream from auto insurer assessments; and (c) the ATPA's money, as declared by the Legislature, "shall not be considered state money." MCL 500.6107(5).

But even though the monies in the Fund are not state monies,3 the question arises whether the Authority's expenditure of those monies is still subject to the Governor's Const 1963, art 5, § 20 powers. In the current fiscal year, the ATPA received an appropriation of, and thereby spending authority for, $10,729,400 from the Automobile Theft Prevention Fund. 2006 PA 345, ARTICLE 17, Sec. 102. It is undisputed that this is an expenditure authorized by appropriations as contemplated under Const 1963, art 5, § 20:

The governor, with the approval of the appropriating committees of the house and senate, shall reduce expenditures authorized by appropriations whenever it appears that actual revenues for a fiscal period will fall below the revenue estimates on which appropriations for that period are based.

Therefore, Executive Order 2007-3, having gained the approval of both appropriations committees, may validly reduce the spending authority of the ATPA by $4,000,000.

Insofar as your request questions the ability of the Governor to "take[ ] $4,000,000 from the ATPA fund," however, it must be noted that Executive Order 2007-3 does not purport to transfer the $4,000,000 out of the Automobile Theft Prevention Fund.4 The $4,000,000 would remain in the Fund and the Authority could seek spending authority for the money at some later date. This could be done through a supplemental appropriation in the current fiscal period or by including the sum in an appropriation bill for an upcoming fiscal period.

It is my opinion, therefore, that the Governor, having gained the approval of both the House and Senate appropriations committees, may use her Const 1963, art 5, § 20 powers to reduce the spending authority for the Automobile Theft Prevention Authority. The $4,000,000 for which spending authority was removed by Executive Order 2007-3, however, remains in the Automobile Theft Prevention Fund until new authority to spend is obtained pursuant to legislative appropriation; it does not lapse to the General Fund and thus does not result in a direct increase of $4,000,000 to the General Fund.

MIKE COX
Attorney General

1 But the opinion also noted:

"On the other hand, because an appropriation is not a mandate to spend, a department or agency should, to the extent possible and consistent with legislative intent, reduce its spending by [implementing] all possible efficiencies and economies."

2 2006 ATPA Annual Report, p 18.

3 While these funds are not state money, nevertheless they are public money.

4 Your request also cites a substitute to Senate Bill 220 approved by the Senate on March 22, 2007, which would lapse to the General Fund "the amount of $4,000,000.00 reduced for the appropriation in part 1 for auto theft prevention program represents $2,000,000.00 in current year appropriations and $2,000,000.00 in unappropriated fund balances from the auto theft prevention fund." However, the Attorney General typically does not opine on pending legislative bills.