Thursday, June 12, 2014

Sessa v Macomb County case brief summary

Sessa v Macomb County case brief summary

(more than revenue bond because it had to raise taxes, but not a full faith and credit bond b/c there was a cap on the faith and credit) notice of sale
1.       Issues bonds secured by revenues of lease and a limited GO pledge. County doesn’t just issue the bond b/c avoids referendum. There is a cap on amt of pledge and therefore is a limited tax obligation bond and that is not proscribed by constitution – they are only not allowed to issue bonds by an unlimited pledge of the taxing power. They create a building authority to build a court and issue bonds (why? b/c a vote probably wouldn’t work and maybe they were at their debt limit). They issue these limited tax obligation bonds. The “limited GO bond” worked like this – it was secured by rental payments on the lease and full faith and credit / tax from the general fund of the county but only up to a certain limit. The bonds would be backed by the full faith and credit of the county, with the specified limitation that the rev to pay the bondholders would come from a combination of lease payments received from the county and allocations from the county's general fund budget within its authorized 4.2-mill limitation. Notice placed in paper allowing for 45 day period for presenting a challenge to the project – no takers.
2.       Taxpayers argue that there should have been a tax limit and a vote since they are indeed secured by taxes.
3.       Ct says since it was only subject to existing taxes then no taxpayer is in jeopardy of having their taxes increased to pay for the bond. Nonetheless, we agree with ∆ that the action is barred by a related preclusive doctrine established in Bigger v Pontiac. Bigger dealt with a constitutional challenge to the issuance of public obligation bonds that had been brought before actual issuance and sale of the bonds. There, the suit was deemed untimely because it was not commenced until soon before the planned date of issuance of the bonds and thus would have prevented an orderly process of adjudication. However, the applicability of Bigger is broader than this. As interpreted by this Court and the Supreme Court, the rule is designed to deal with challenges that could prevent or frustrate public improvements in general.
4.       An equally important aspect of the Bigger rule comes into play here where suit was not begun until after the bonds had been issued and sold on the open market. The interests of third parties, the bondholders, who are bona fide purchasers for value and who, at the time of purchase, were not on notice of any such challenge, represents a vested interest that the entertaining of such litigation on its merits could defeat. In this regard, therefore, the Bigger rule is distinct from the statute of limitations and simply obligates those who would challenge such action to move promptly. Plaintiffs were obviously on notice of the need to mount their challenge promptly following publication of the May 10, 1995, notice of intent to bond in The Macomb Daily. Further, π Sessa individually, and as a member of the board of commissioners, was in possession of the requisite notice by virtue of attending the meeting on March 23, 1995, at which the board of commissioners adopted the resolution of intent to bond.
5.       However, there is simply no suggestion that Macomb County, as a "unit of local government," has levied a tax not authorized by law or charter on December 23, 1978, or that it has increased the rate of an existing tax above the rate authorized by law or charter on December 23, 1978, without approval of a majority of the qualified electors of Macomb County voting thereon. Contrary to plaintiffs' assumption that no unit of local government may issue any bond without approval of the electorate, Const 1963, art 9 merely prohibits units of local government from issuing bonds that require an increase in authorized tax rates to fund the repayment obligation. Nothing in Const 1963, art 9,prohibits Macomb County either from increasing the existing tax rate of 4.2 mills to the authorized rate of 4.7431 mills to repay these bonds or simply from repaying such bonds out of general revenues within existing tax levies.  
a.       Interesting discussion as well of the procedural issue of whether or not the plaintiff could bring the case and whether or not they had brought it on a timely basis – the bonds had already been sold and money starting to be spent. There is a provision in state law that you have to notify the public and they have to sue before the bond is issued. That is true even if you are alleging a constitutional violation – that raises some very interesting policy questions we will return to.
The court concluded that the action was barred because the action was not begun until after the bonds had been issued and sold on the open market. The court noted that nothing in art. 9 prohibited the county either from increasing the existing tax rate or simply from repaying such bonds out of general revenues within the existing tax levies.

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