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SB-0406, As Passed Senate, June 30, 2005

HOUSE SUBSTITUTE FOR

SENATE BILL NO. 406

A bill to prescribe the procedures, terms, and conditions for

the qualification or approval of school bonds and other bonds; to

authorize this state to make loans to certain school districts for

the payment of certain bonds and to authorize schools to borrow

from this state for that purpose; to prescribe the terms and

conditions of certain loans to school districts; to prescribe the

powers and duties of certain state agencies and certain state and

local officials; to provide for certain fees; to prescribe certain

penalties; and to repeal acts and parts of acts.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 1. This act shall be known and may be cited as the

"school bond qualification, approval, and loan act".

Sec. 2. The purpose of this act is to implement section 16 of

article IX of the state constitution of 1963 and to provide for

loans to school districts.

Sec. 3. As used in this act:

Senate Bill No. 406 (H-1) as amended June 29, 2005

(a) "Computed millage" means the number of mills in any year,

not less than 7 mills and not more than 13 mills, determined on the

date of issuance of the order qualifying the bonds or on a later

date if requested by the school district and approved by the state

treasurer, that, if levied by the school district, will generate

sufficient annual proceeds to pay principal and interest on all the

school district’s qualified bonds plus principal and interest on

all loans related to those qualified bonds no later than the date

specified in the note and repayment agreement entered into by the

school district under this act.

(b) "Qualified bond" means a bond that is qualified under this

act for state loans as provided in section 16 of article IX of the

state constitution of 1963. A qualified bond includes the interest

amount required for payment of a school district’s net interest

obligation under an interest rate exchange or swap, hedge, or other

agreement entered into pursuant to the revised municipal finance

act, 2001 PA 34, MCL 141.2101 to 141.2821, but does not include a

termination payment or similar payment related to the termination

or cancellation of an interest rate exchange or swap, hedge, or

other similar agreement. [A qualified bond may include a bond issued to

refund loans owed to the state under this act.]

PA 108, MCL 388.951 to 388.963, from this state to a school

district to pay debt service on a qualified bond.

(d) "Revolving loan fund" means the school loan revolving fund

created under section 16c of the shared credit rating act, 1985 PA

227, MCL 141.1066c.

(e) "School district" means a general powers school district

organized under the revised school code, 1976 PA 451, MCL 380.1 to

380.1852, or a school district of the first class as described in

the revised school code, 1976 PA 451, MCL 380.1 to 380.1852, having

the power to levy ad valorem property taxes.

(f) "State treasurer" means the state treasurer or his or her

duly authorized designee.

(g) "Superintendent of public instruction" means the

superintendent of public instruction appointed under section 3 of

article VIII of the state constitution of 1963.

(h) "Taxable value" means the value determined under section

27a of the general property tax act, 1893 PA 206, MCL 211.1 to

211.157.

Sec. 4. (1) A school district may issue and market bonds as

qualified bonds if the state treasurer has issued an order granting

qualification under this act.

(2) Except with regard to qualification of new bonds, nothing

in this act shall be construed to alter the terms and conditions

applicable to outstanding qualified bonds issued in accordance with

1961 PA 108, MCL 388.951 to 388.963, and the loans associated with

those qualified bonds. Unless otherwise amended as permitted by

this act, outstanding qualified loans incurred in association with

outstanding qualified bonds described in this subsection shall

continue to bear interest and be due and payable as provided in the

repayment agreements entered into between the school district and

the state before the effective date of this act.

(3) The state treasurer may qualify bonds for which the state

treasurer has received an application for prequalification on or

before May 25, 2005 without regard to the requirements of section

5(2)(f) if the electors of the school district approve the bonds at

an election held during 2005.

Sec. 5. (1) A school district may apply to the state treasurer

for preliminary qualification of a proposed school bond issue by

filing an application in the form and containing the information

required by this act.

(2) An application for preliminary qualification of a school

bond shall contain all of the following information:

(a) The proposed ballot language to be submitted to the

electors.

(b) A description of the project or projects proposed to be

financed.

mills the school district will levy to provide revenue the school

district will use to pay the qualified bonds. For the purpose of

the pro forma debt service projection, the school district may

assume for the first 5 years following the date of the application

the average growth in taxable value for the 5 years preceding the

date of the application and the lesser of that average growth rate

or 3% for the remaining term of the proposed bonds.

(d) Evidence that the rate of utilization of each project to

be financed will be at least 85% for new buildings and 60% for

renovated facilities. If the projected enrollment of the district

would not otherwise support utilization at the rates described in

this subsection, the school district may include an explanation of

the actions the school district intends to take to address the

underutilization, including, if applicable, actions to close school

buildings or other actions designed to assure continued assured use

of the facilities being financed.

(e) Evidence that the cost per square foot of the project or

projects will be reasonable in light of economic conditions

applicable to the geographic area in which the school district is

located.

(f) Evidence that the school district will repay all

outstanding qualified loans at the times described in section 9.

(g) The weighted average age of all school buildings in the

school district based on square footage.

(h) The overall utilization rate of all school buildings in

the school district, excluding special education purposes.

(i) The taxable value per pupil.

(j) The total bonded debt outstanding of the school district

and the total taxable value of property in the school district for

the school district fiscal year in which the application is filed.

(k) A statement describing any environmental or usability

problems to be addressed by the project or projects.

(l) An architect’s analysis of the overall condition of the

facilities to be renovated or replaced as a part of the project or

projects.

(m) An amortization schedule demonstrating that the weighted

average maturity of the qualified bond issue does not exceed 120%

of the average reasonably expected useful life of the facilities,

excluding land and site improvements, being financed or refinanced

with the proceeds of the qualified bonds, determined as of the

later of the date on which the qualified bonds will be issued or

the date on which each facility is expected to be placed in

service.

Sec. 6. The state treasurer shall prequalify bonds of a school

district if the state treasurer determines all of the following:

(a) The issuance of additional qualified bonds will not

prevent the school district from repaying its outstanding qualified

loans on the earlier of the dates described in section 9.

(b) The form of the ballot conforms with the requirements of

this act.

Sec. 7. (1) The state treasurer shall qualify bonds of a

school district if the state treasurer determines all of the

following:

(a) A majority of the school district electors have approved

the bonds.

(b) The terms of the bond issue comply with applicable

provisions of the revised school code, 1976 PA 451, MCL 380.1 to

380.1852.

municipal finance act, 2001 PA 34, MCL 141.2101 to 141.2821.

(d) The weighted average maturity of the qualified bond issue

does not exceed 120% of the average reasonably expected useful life

of the facilities, excluding land and site improvements, being

financed or refinanced with the proceeds of the bonds, determined

as of the later of the date on which the qualified bonds will be

issued or the date on which each facility is expected to be placed

in service.

(e) The school district has filed any information necessary to

update the contents of the original application to reflect changes

in any of the information approved in the preliminary qualification

process.

(f) The school district has paid a qualification fee of not

less than $3,000.00 or the amount determined by the state

treasurer, which shall be approximately equal to the amount

required to pay the estimated administrative expenses incurred

under this act for the fiscal year in which the state treasurer

imposes the fee.

(2) An order qualifying bonds shall specify the principal and

interest payment dates for all the bonds, the maximum principal

amount of and maximum interest rate on the bonds, the computed

millage, if any, the final repayment date for any loans made with

respect to those bonds, and other matters as the state treasurer

shall determine or as are required by this act.

(3) If the application for prequalification demonstrates that

the school district will borrow from this state in accordance with

this act, the state treasurer and the school district shall enter

into a loan agreement setting forth the terms and conditions of any

qualified loans to be made to the school district under this act.

(4) If a school district does not issue its qualified bonds

within 180 days after the date of the order qualifying bonds, the

school district may reapply for qualification by filing an

application and information necessary to update the contents of the

original application for prequalification or qualification.

(5) The state treasurer shall qualify refunding bonds issued

to refund qualified bonds if the state treasurer finds that the

refunding bonds comply with the provisions of the revised municipal

finance act, 2001 PA 34, MCL 141.2101 to 141.2821.

Sec. 8. A ballot submitted to the school electors of a school

district after November 8, 2005 requesting authorization to issue

unlimited tax general obligations that will be guaranteed by this

state in accordance with section 16 of article IX of the state

constitution of 1963 shall inform the electors that if the school

district borrows from this state to pay debt service on the bonds,

the school district may be required to continue to levy mills

beyond the term of the bonds to repay this state.

Sec. 9. (1) Except as otherwise provided in this act, a school

district may borrow from the state an amount not greater than the

difference between the proceeds of the school district’s computed

millage and the amount necessary to pay principal and interest on

its qualified bonds, including any necessary allowances for

estimated tax delinquencies.

(2) For school districts having qualified loans outstanding as

of the effective date of this act, the state treasurer shall review

information relating to each school district regarding the taxable

value of the school district and the actual debt service of

outstanding qualified bonds as of the effective date of this act

and shall issue an order establishing the payment date for all

those outstanding qualified loans and any additional qualified

loans expected to be incurred by those school districts related to

qualified bonds issued before the effective date of this act. The

payment date shall be not later than 72 months after the date on

Senate Bill No. 406 (H-1) as amended June 29, 2005

which the qualified bonds most recently issued by the school

district are due and payable.

(3) For qualified loans related to qualified bonds issued

after the effective date of this act, the qualified loans shall be

due not later than 72 months after the date on which the qualified

bonds for which the school borrowed from this state are due and

payable. [This section does not preclude early repayment of qualified

bonds or qualified loans.]

(4) Except with regard to qualified loans described in

subsection (2), each loan made or considered made to a school

district under this act shall be for debt service on only a

specific qualified bond issue. The state treasurer shall maintain

separate accounts for each school district on the books and

accounts of this state noting the qualified bond, the related

qualified loans, the final payment date of the bonds, the final

payment date of the qualified loans, and the interest rate accrued

on the loans.

(5) For qualified loans relating to qualified bonds issued

after the effective date of this act, a school district shall

continue to levy the computed mills until it has completely repaid

all principal and interest on its qualified loans.

(6) For qualified loans relating to qualified bonds issued

before the effective date of this act, a school district shall

continue to comply with the levy and repayment requirements imposed

before the effective date of this act. Not less than 90 days after

the effective date of this act, the state treasurer and the school

district shall enter into amended and restated repayment agreements

to incorporate the levy and repayment requirements applicable to

qualified loans issued before the effective date of this act.

(7) Upon the request of a school district made before June 1

of any year, the state treasurer annually may waive all or a

portion of the millage required to be levied by a school district

to pay principal and interest on its qualified bonds or qualified

loans under this section if the state treasurer finds all of the

following:

(a) The school board of the school district has applied to the

state treasurer for permission to levy less than the millage

required to be levied to pay the principal and interest on its

qualified bonds or qualified loans under subsection (1).

(b) The application specifies the number of mills the school

district requests permission to levy.

the school district, or both.

(d) The waiver will not reduce the millage levied by the

school district to pay principal and interest on qualified bonds or

qualified loans under this act to less than 7 mills.

(e) The board of the school district, by resolution, has

agreed to comply with all conditions that the state treasurer

considers necessary.

(8) Except as otherwise provided in this act, loans shall bear

interest at the greater of 3% or the average annual cost of funds

computed annually on the basis of all state general obligations

issued under section 16 of article IX of the state constitution of

1963.

Sec. 10. The state treasurer shall keep all certificates of

qualification or approval in a permanent file and shall deliver

copies of the certificates to the school district.

Sec. 11. The state treasurer shall promulgate rules to

implement this act pursuant to the administrative procedures act of

1969, 1969 PA 306, MCL 24.201 to 24.328.

Sec. 12. If a school district does not apply for

prequalification or qualification or approval of a bond issue

before the issuance of those bonds, the state treasurer shall not

approve or qualify those bonds as qualified bonds under this act.

Sec. 13. (1) If a school district owes a balance due to the

revolving loan fund or has been identified as a potential borrower,

the school district shall file an annual loan activity application

with the state treasurer no less than 60 days before certifying its

annual tax levy. The annual loan activity application shall be

submitted in a format prescribed by the state treasurer and shall

provide the taxable value, debt service, and any other information

necessary to determine the proper required millage levy required

under this act. The application shall contain a resolution passed

by the local school board authorizing a designated school district

official to complete all necessary documents to obtain a loan from

the revolving loan fund or for making repayment to the revolving

loan fund for the year.

(2) If a school district is eligible to borrow for debt

service on qualified bonds, the school district shall file a draw

request with the state treasurer not less than 30 days before each

date on which the school district owes the debt service. The draw

request shall include all of the following:

(a) A statement of the debt service owed in the next 6 months.

(b) A copy of the most recent bank statement showing the

amount on hand in the debt service accounts for all qualified

bonds.

debt service since the date of the bank statement.

(d) A statement of any withdrawals made from the debt service

account since the date of the bank statement.

(3) Not more than 7 days before the date established by the

state treasurer for making qualified loans, the school district

shall confirm in writing the final qualified loan amount to be

drawn on a certificate in the form prescribed by the state

treasurer.

(4) Upon receipt of a qualified loan confirmation described in

subsection (3), the state treasurer shall determine the amount of

the draw, which shall be the difference between the funds on hand

in all debt service accounts and the amount of the debt service,

and shall make a qualified loan in that amount to the school

district no later than 6 days before the date the debt service is

due.

(5) When a school district’s computed millage is sufficient to

pay principal and interest on its qualified bonds, a school

district shall file a loan activity statement with the state

treasurer no later than 30 days before the date set for payment of

the qualified bonds setting forth all of the following:

(a) A statement of the debt service owed in the next 6 months.

(b) A copy of the most recent bank statement showing the

amount on hand in the debt service account for the qualified bonds.

debt service since the date of the bank statement.

(d) A statement of any withdrawals made from the debt service

account since the date of the bank statement.

(6) Within 30 days after receipt of the loan activity

statement under subsection (5), the state treasurer shall send an

invoice to the school district for the amount of repayment the

school district owes on its outstanding qualified loans, which

shall be the difference between the debt service payable or paid to

bondholders and the funds on hand at the school district, less a

reasonable amount of funds on hand, as determined by the state

treasurer, to cover minimum balance requirements or potential tax

disputes. The school district shall remit the amount specified in

the invoice within 30 days after the dated date of the invoice.

Sec. 14. (1) If any paying agent for a school district’s

qualified bonds notifies the state treasurer that the school

district has failed to deposit sufficient funds to pay principal

and interest due on the qualified bonds when due, or if a

bondholder notifies the state treasurer that the school district

has failed to pay principal or interest on qualified bonds when

due, whether or not the school district has filed a draw request

with the state treasurer, the state treasurer shall promptly pay

the principal or interest on the qualified bond when due.

(2) If the state treasurer pays any amount described in this

section, the state treasurer shall bill the school district for the

amount paid and the school district shall immediately remit the

amount to the state treasurer. If the school district would have

been eligible to borrow the debt service in accordance with the

terms of this act, the school district shall enter into a loan

agreement establishing the terms of the qualified loan as provided

in this act. If the state treasurer directs the Michigan municipal

bond authority to pay any amount described in this section, the

state treasurer shall cause the Michigan municipal bond authority

to bill the school district for the amount paid and the school

district shall immediately remit the amount to the Michigan

municipal bond authority.

Sec. 15. (1) If a school district that owes this state loan

repayments relating to qualified bonds fails to levy at least the

computed millage upon its taxable value for debt retirement

purposes for qualified bonds and for repayment of a qualified loan

made under this act while any part of the qualified loan is unpaid

or defaults in its agreement to repay a qualified loan or any

installment of a qualified loan, the school district shall increase

its debt levy in the next succeeding year to obtain the amount

necessary to repay this state the amount of the default plus a late

charge of 3% and shall pay that amount to this state together with

any other amounts owed during the next tax year. The school

district may use other funds to repay this state including a

transfer of general funds of the school district, if approved by

the state treasurer. The state treasurer shall not disburse state

school aid to the school district until the school district has

made satisfactory arrangements with the state treasurer for the

payment of the amount in default.

(2) If a school district fails to process any report,

application, confirmation, or repayment as required under this act,

the state treasurer may withhold a school district's state aid

funds until the school district complies with the requirements

under this act.

Sec. 16. The state treasurer shall deposit all fees collected

under this act into a separate fund established within the state

treasury, and shall use the proceeds of the fees solely for the

purpose of administering and enforcing this act. The unexpended and

unobligated balance of this fund at the end of each state fiscal

year shall be carried forward over to the succeeding state fiscal

year and shall not lapse to the general fund but shall be available

for reappropriation for the next state fiscal year.

Sec. 17. A person who knowingly makes a false statement or

conceals material information for the purpose of obtaining

qualification of a bond issue under this act or for the purpose of

obtaining a qualified loan under this act, or who knowingly uses

all or part of the proceeds of a qualified loan obtained under this

act for any purpose not authorized by this act, is guilty of a

felony punishable by imprisonment for not more than 4 years or a

fine of not more than $5,000.00, or both.

Sec. 18. If a school district has completed the projects

approved by the school electors of the school district to be funded

from proceeds of qualified bonds, a school district may use any

remaining proceeds of the qualified bonds as follows:

(a) To pay for enhancements to the projects approved by the

school electors as described in the ballot proposing the qualified

bonds.

(b) To pay debt service on the qualified bonds.

Sec. 19. The state treasurer may designate in writing a person

or persons to take any actions required to be taken by the state

treasurer under this act. The signature of any designee shall have

the same force and effect as the signature of the state treasurer

for all purposes of this act.

Enacting section 1. 1961 PA 108, MCL 388.951 to 388.963, is

repealed.

Enacting section 2. This act does not take effect unless all

of the following bills of the 93rd Legislature are enacted into

law:

(a) Senate Bill No. 407.

(b) Senate Bill No. 408.

(d) Senate Bill No. 411.