LEGAL DEBT MARGIN

FISCAL YEAR 2023-2024 ANNUAL BUDGET

City of Royal Oak - Legal Debt Limit

Section 21 of Article VII of the Michigan Constitution authorizes the enactment of laws for the incorporation of cities and grants cities the power to levy taxes for public purposes, subject to statutory and constitutional limitation:


“The legislature shall provide by general laws for the incorporation of cities and villages. Such laws shall limit their range of ad valorem property taxation for municipal purposes and restrict the powers of cities and villages to borrow money and contract debts. Each city and village are granted power to levy other taxes for public purposes, subject to limitations and prohibitions provided by the constitution or by law.”


In accordance with the foregoing, the Home Rule City Act. Act 279, Michigan Public Acts, 1909, as amended, limits the amount of debt a home rule city may have outstanding at any time. Section 4-a of the Home Rule City Act provides, in pertinent part:


“Notwithstanding a charter provision to the contrary the net indebtedness incurred for all public purposes shall not exceed the greater of the following:

(a) 10 percent of the assessed value of all the real and personal property in the city.

(b) 15 percent of the assessed value of all the real and personal property in the city if that portion of the total amount of indebtedness incurred which exceeds 10 percent is or has been used solely for the construction or renovation of hospital facilities.”


The provision of the Home Rule City Act cited above overrides the City’s charter provision which limits the City indebtedness to five percent of the “assessed valuation” (SEV) of all real and personal property in the city. However, other limitations may apply if specifically set forth in a statute authorizing a particular kind of borrowing.


Certain types of indebtedness are not subject to the 10 percent limitation of the Home Rule City Act, including:

  • Special Assessment bonds;
  • Michigan transportation fund bonds;
  • Revenue bonds, whether secured by a mortgage or not;
  • Bonds issued or contract obligations or assessment incurred to comply with an order of the Water Resource Commission of the state or a court of competent jurisdiction;
  • Obligations incurred for water supply, sewage, drainage or refuse disposal or resource recovery projects necessary to protect the public health by abating pollution; and bonds issued for construction, improvements and replacement of a combined sewer overflow abatement facility.
  • The resources of a sinking fund pledged for the retirements of outstanding bonds shall also be excluded in compounding debt limitation.

Pursuant to the statutory and constitutional debt provisions set forth above, the following table reflects the amount of additional debt the city may legally incur as of June 2022: