SB-0406, As Passed House, June 29, 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.]
(c) "Qualified loan" means a loan made under this act or 1961
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.
(c) A pro forma debt service projection showing the estimated
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.
(c) The school district is in compliance with the revised
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.
(c) The waiver will be financially beneficial to this state,
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.
(c) A statement of any revenue received for payment of the
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.
(c) A statement of any revenue received for payment of the
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.
(c) To repay this state.
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.
(c) Senate Bill No. 410.
(d) Senate Bill No. 411.