SB 406, As Passed Senate

SB-0406, As Passed Senate, June 8, 2005

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.

Senate Bill No. 406 as amended June 8, 2005

Sec. 3. As used in this act:

(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. <<

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 all of the following with the state treasurer:

(a) An application in the form and containing the information

required by this act.

(b) An application fee in the amount determined by the state

treasurer to be necessary to fund the costs of processing the

application, but not less than $500.00.

(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 may 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 may 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, an additional application fee determined by the state

treasurer of not less than $500.00, and information necessary to

update the contents of the original application for prequalification

Senate Bill No. 406 as amended June 7, 2005

or qualification.

(5) The state treasurer may 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

Senate Bill No. 406 as amended June 7, 2005

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

shall be <<not later than 72

>> months after the date on 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.

(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.

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 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.

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.

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 school district shall pay to the state treasurer a special

handling fee of $500.00 for the first occurrence and $1,000.00 for

each subsequent occurrence within 30 days after the date the state

Senate Bill No. 406 as amended June 7, 2005

treasurer notifies the school district of the amount due. The school

district may not use debt levy to pay any special handling fee. If a

school district fails to pay a special handling fee required under

this section, the state treasurer may deduct the amount of the unpaid

special handling fee from subsequent state school aid payments to the

school district.

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.