Interfund Loans..

Below is the opinion from Corporation Counsel asked for by the Council regarding inter-fund loans

9-G
Corporation
Counsel
Gary T. Miotke
Corporation Counsel
Daniel S. Paletko
Mayor
APPROVED FOR
AGENDA OF
March 29,2011

VIA HAND-DELIVERY
Honorable City Council
c/o City Clerk Judy Dudzinski
City of Dearborn Heights
6045 Fenton
Dearborn Heights, MI 48127
Re: Interfund Loans
Dear City Council Members:
Per Motion 11-071, your Honorable Body directed that I research interfund loans
and make a recommendation on my findings. More precisely, I was to research the
propriety of interfund loans and how to properly effectuate them. Subject to what is
otherwise stated in this letter, it is my opinion that the types of interfund loans that are
specifically contemplated by the City are proper provided they are approved by your
Honorable Body. – —
– —-
Treasurer Riley raised the issue in a letter to your Honorable Body. In his letter,
Treasurer Riley referred to an email from Michael P. McGee, a public finance attorney
associated with the law firm of Miller Canfield. In his emailv Mr. McGee concluded that
a municipal interfund loan is “permitted provided it is properly documented and approved
as a loan by city council so as to distinguish it from an inappropriate transfer.” Based on
this communication, Treasurer Riley requested and your Honorable Body approved
Motion 11-071.
I agree with the opinions expressed by Mr. McGee and Miller Canfield.
However, my opinion is also subject to the following.
First, any such interfund loan must truly be treated as a loan in all relevant
respects. Per Treasurer Riley, the four (4) funds from which interfund loans are likely to
be made are water, major streets, local streets, and library. These funds are special or
dedicated funds based on State law, dedicated millages, and/or user fees. Based on
general law and Michigan case law from the 1800’s, “the well-settled rule is that special
funds cannot be used for another and different purpose.” See McQuillin Municipal
Corporations, Section 39.50, Volume 15, p. 186 and see Chaffee v. Granger, 6 Mich 51,
57 (1858). Yet, there is authority that has been recognized in general and in Michigan
City of Dearborn Heights·
that a truly temporary interfund loan from a special fund is not inappropriate provided the
fund receiving the loan has sufficient revenue to repay the loan and provided further that
that the borrowed funds are idle, are loaned with the express intent that they are to be
repaid, are available if needed to pay persons entitled to be paid from such fund, and are
repaid to the fund from which they have been borrowed. See McQuillin Municipal
Corporations, Section 39.50, footnote 5 (and authorities cited therein) and see Michigan
Op. Atty. Gen. 1951, No. 1451 (August 1,1951), p. 327 (citing the McQuillin section just
cited and an Illinois court opinion). Hence, interfund loans from special funds can be
appropriate if they meet the requirements in the preceding sentence and otherwise are
truly temporary loans.
Second, any such inter fund loan must be approved by your Honorable Body. This
is required by the Uniform Budgeting and Accounting Act. See MCL 141.437 and MCL
141.439.
Third, this opinion is limited to the propriety of interfund loans from the City
funds for water, major streets, local streets, and library. Since I have not researched this
issue in relation to any other City special funds, I am unable at this time to offer an
opinion about the propriety of interfund loans from other City special funds.
Fourth, I must caution that this opinion is based on rather meager authority. More
specifically, there is very limited authority either supporting or opposing the conclusion
that interfund loans from special funds can be appropriate. Yet, in my opinion, the
limited weight of that authority tends to support this conclusion particularly where it is
also supported by an opinion of the Michigan Attorney General.
In conclusion, the contemplated interfund loans from the City’s special funds for
water, major streets, local streets, and library are not inappropriate provided they are truly
lernporary loans meeting the requirements noted in this letter. To be effectuated, any
such interfund loans must be approved by your Honorable Body as required by the
Uniform Budgeting and Accounting Act.
If you should require my further assistance regarding this matter, or any other
matter, please feel free to contact me at your convenience.
Very truly yours,

GARY T. MIOTKE
GTMleem
xc via hand-delivery only:
Mayor Daniel S. Paletko
Treasurer John J. Riley II
2

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