Questions and Answers
Michigan Department of Treasury
December 29, 1997
Dear Local or Intermediate School District Superintendent:RE:The Durant Resolution Package Bonding Option to Intermediate School Districts and Local School Districts with Offers of Settlement Amounts under Section 11h of Public Act 142 of 1997
On November 17, 1997, Governor Engler signed into law three bills that provide a solution to the Durant situation. One of these laws, Public Act 142 of 1997, describes the provisions for the offer of settlement amounts to non-plaintiff school districts and intermediate school districts. One of these provisions gives districts eligible to receive the settlement amount the option to participate in a special November 1998 Michigan Municipal Bond Authority bonding program.
The enclosed document, "Questions and Answers Regarding the Bonding Option in the Non Plaintiff Offer of Settlement Amounts in the Durant Resolution Package," provides currently available information regarding this bonding option. This document will answer many of the initial questions your district may have regarding the non‹plaintiff bonding program. Detailed information regarding this November 1998 pooled bond issue will be provided by the Michigan Municipal Bond Authority as soon as it is available.
To obtain a copy of Public Act 142 of 1997, call or write to:
Legislative Document Room
North Capitol Annex
P.O. Box
30036
Lansing, Michigan 48909-7536
(517) 373-0169
Questions and Answers
Q: What is the bonding option in the non-plaintiff offer of settlement?
A: In Public Act 142 of 1997, enacted in November 1997 as part of the Durant Resolution Package, school districts and intermediate school districts are offered settlement amounts to settle, compromise, and resolve, in their entirety, any potential claims they may have asserted for violations of section 29, Article IX, of the constitution through September 30, 1997, which are or were similar to the claims asserted by the plaintiffs in the Durant v. State of Michigan case. To be eligible to receive its offer of settlement amount, the non-plaintiff district must adopt and submit to the State Treasurer a waiver resolution, in the form set forth in Public Act 142 of 1997, waiving any potential claims through September 30, 1997, no later than March 2, 1998.
Settlement amounts are based on the formula used to determine amounts owed to Durant plaintiffs. Half the settlement amount will be received in ten annual payments; the other half may be received in a lump sum by participating in a special bonding program offered through the Michigan Municipal Bond Authority (MMBA) or in fifteen annual payments.**
Sections 11f to 11i of Public Act 142 of 1997 specify the form of the waiver resolution, offer of settlement amounts, and other important details. Section 11f(8), which specifies the form of the waiver resolution, is attached.
Waiver resolutions should be sent to:State Treasurer
A: No. Eligible districts with offers of settlement amounts less than $75,000 will receive one lump-sum payment in November 1998, if the required waiver resolution has been adopted and submitted to the State Treasurer no later than March 2, 1998.
Q: What must my district do to participate in the bonding program?
A: After submitting a waiver resolution to the State Treasurer by March 2, 1998, districts wishing to participate in the bonding program must submit, in writing, their intention to participate in the bonding program to the Department of Treasury by June 30. Districts are also required to hold a public hearing by June 30, 1998, to discuss the use of the funds. (This hearing is required regardless of whether the district participates in the bonding program or opts to receive the 15 annual payments.)
Notification should be sent to:State Treasurer
A: The bonds do not constitute a general obligation debt of the district. Because the state aid payment stream (i.e., the fifteen annual payments assigned by the districts to the MMBA) is the sole security for the bonds, bondholders, not the district, assume the risk of default should the Legislature fail to make an annual appropriation. Investors are familiar with the risks associated with these kinds of "appropriation risk" bonds.
Q: When will the bond program be offered? What is the term of the issue?
A: The pooled bond issue will be offered in November 1998 or shortly thereafter. The term of the issue is fifteen years.
Q: If my district participates in the bonding option, will we receive less than one-half our settlement amount because of issuance costs? Who will pay the issuance costs, local bond counsel fees, and any local financial advisor costs?
A: A district participating in the bonding option will receive one-half its settlement amount. The cost of issuing the bonds and related legal fees are paid by the state, as these costs are included in the bond issue. The MMBA will provide information at a later date on the details of the structure of the issue and local bond counsel fees. Because local financial advisor services are not statutorily required to participate in this bonding program, districts are responsible for these costs if they are incurred.
Q: How will the debt service on the bonds be paid?
A: Districts participating in the bonding program will assign their 15 annual payments to the MMBA. The MMBA will then be responsible for paying the debt service. Payments to the bondholders will begin in May 1999 and continue through May 2013.
Q: Can my district participate in the bond issue for less than the one-half the settlement amount allocated to my district? For example, if one half our settlement amount is $500,000, can we bond for, say, only $300,000 and receive the rest over 15 years in cash payments?
A: No. A district choosing to participate in the bonding program must bond for one-half its settlement amount. Remember, the other half of the settlement amount is being paid in ten equal cash payments.
Q: What are permissible uses of the bond proceeds? May bond proceeds be spent for operational purposes?
A: Bond proceeds may be used only for purposes specified in Section 1351a of the Revised School Code. Bond proceeds may not be spent for operational purposes, as this is not permitted in Section 1351a. A copy of Section 1351a is attached.
Q: May my district use bond proceeds to pay off existing debt?
A: Yes, to the extent permitted by Section 1351a.
Q: Can my district finance projects that have an average useful life of less than 15 years, the term of the bond issue?
A: Again, Section 1351a of the Revised School Code specifies the purposes for which your district may issue bonds. Your district may not finance projects with an average useful life of less than 15 years. However, if such a project is only one part of an overall plan which includes projects with useful lives greater than 15 years, it may be possible for your district to finance the plan. Your district should consult with local legal counsel.
Q: Can the bond proceeds be used to pay off installment notes?
A: No. Section 1351a does not permit it.
Q: May my district use the bond proceeds to pay off technology leases?
A: Section 1351a of the Revised School Code does not mention leases. However, there is a distinct difference in operating leases and financing leases. School districts should consult with their local legal counsel to determine eligibility.
Q: Can my district order buses now for the start of school next fall, pay for the buses in July or August, and reimburse the General Fund with the bond proceeds in November? I understand a Board of Education can pass a resolution within 60 days of the purchase stating its intent to reimburse.
A: Possibly. As stated in the answers above, a district must borrow one half the settlement amount allocated to it, and the property financed must have an average useful life of at least fifteen years. It is unlikely that buses alone would meet these requirements. There are certain additional legal requirements that must be met prior to going forward with such transactions. School districts should consult with their local legal counsel prior to implementing such transactions.
Q: How long can bond proceeds be held?
A: Generally, bond proceeds may be held up to three years with some restrictions, after which time districts may be subject to Internal Revenue Service penalties for arbitrage income on invested proceeds. Districts should consult with their local legal counsel for more specific information.
Q: Does my school district have to apply to the Local Audit and Finance Division of the Department of Treasury if it participates in this bonding program?
A: No. These bonds are exempt from the requirements of the Municipal Finance Act (Public Act 202 of 1943).
Q: When will the MMBA notify my school district of the borrowing process?
A: Districts will be notified of the process after submitting the written intent to participate in the bonding program. Details of the structure of the issue will be available once the MMBA determines the number of districts wishing to participate and the size of the issue.
Q: Will the MMBA offer more than the one November 1998 issue?
A: No.
Q: Should my district include debt issued in this bonding program when calculating the statutory non-voted debt limitations specified in the Revised School Code?
A: No. Public Act 152 of 1997 specifies that the bond issue is not used in calculating the non voted debt limitations for school districts and intermediate school districts.
Q: Must my district conduct an audit of the use of the bond proceeds within 120 days of completion of the project(s), as required in Section 1351a of the Revised School Code for other bond issues?
A: Public Act 152 of 1997 amends the Revised School Code to give your school district two choices:
A: No.
Q: Who should I call if I have additional questions?
A: The Departments of Treasury, Education, and Management and Budget
are working together to develop the process to implement the provisions of the
Durant Resolution Package. On
December 8, 1997, the Department of
Education released "The Durant Solution and Changes in State School Aid
for 1997-98 and 1998-99," a document summarizing the three bills in the package.
A copy of this document was sent to all intermediate school district
superintendents and is available on the Department of Education's web site
(http://www.mde.state.mi.us/legis/).
This "Questions & Answers" document provides initial information regarding the bonding option for non-plaintiff districts with offers of settlement amounts. Additional detailed information regarding the November 1998 pooled bond issue will be provided by the MMBA as soon as it is available.
If you have general questions regarding the provisions of the Durant Resolution Package, contact:
To obtain a copy of Public Act 142 of 1997, call or write to:
*This "Questions and Answers" document is only intended
as a guide and does not take place of the law.
**
This applies only to school districts eligible to receive a settlement amount of
$75,000 or more (see following question).
Michigan Department of Treasury
December 29, 1997
Section 11f(8) of the State School Aid Act
(MCL
388.1611f(8))
(8) The resolution to be adopted and submitted by a district or intermediate district under this section and section 11g shall read as follows:
"Whereas, the board of (name of district or intermediate district) desires to settle and compromise, in their entirety, any claim or claims that the district (or intermediate district) has or had for violations of section 29 of article IX of the state constitution of 1963, which claim or claims are or were similar to the claims asserted by the plaintiffs in the consolidated cases known as Durant v State of Michigan, Michigan supreme court docket no. 104458-104492.
Whereas, the district (or intermediate district) agrees to settle and compromise these claims for the consideration described in sections 11f and 11g of the state school aid act of 1979, 1979 PA 94, MCL 388.1611f and 388.1611g, and in the amount specified for the district (or intermediate district) in section 11h of the state school aid act of 1979, 1979 PA 94, MCL 388.1611h.
Whereas, the board of (name of district or intermediate district) is authorized to adopt this resolution.
Now, therefore, be it resolved as follows:
1. The board of (name of district or intermediate district) waives any right or interest it may have in any claim or potential claim through September 30, 1997 relating to the amount of funding the district or intermediate district is, or may have been, entitled to receive under the state school aid act of 1979, 1979 PA 94, MCL 388.1601 to 388.1772, or any other source of state funding, by reason of the application of section 29 of article IX of the state constitution of 1963, which claims or potential claims are or were similar to the claims asserted by the plaintiffs in the consolidated cases known as Durant v State of Michigan, Michigan supreme court docket no. 104458-104492.
2. The board of (name of district or intermediate district) directs its secretary to submit a certified copy of this resolution to the state treasurer no later than 5 p.m. eastern standard time on March 2, 1998, and agrees that it will not take any action to amend or rescind this resolution.
3. The board of (name of district or intermediate district) expressly agrees and understands that, if it takes any action to amend or rescind this resolution, the state, its agencies, employees, and agents shall have available to them any privilege, immunity, and/or defense that would otherwise have been available had the claims or potential claims been actually litigated in any forum.
4. This resolution is contingent on continued payments by the state each fiscal year as determined under sections 11f and 11g of the state school aid act of 1979, 1979 PA 94, MCL 388.1611f and 388.1611g. However, this resolution shall be an irrevocable waiver of any claim to amounts actually received by the school district or intermediate school district under sections 11f and 11g of the state school aid act of 1979.".
Section 1351a of the Revised School Code
as amended by Public
Act 152 of 1997
(MCL 380.1351a)
Sec. 1351a. (1) Beginning with bonds issued after May 1, 1994, a school district may not borrow money and issue bonds of the district under section 1351(1). However, a school district may borrow money and issue bonds of the district to defray all or a part of the cost of purchasing, erecting, completing, remodeling, or equipping or reequipping, except for equipping or reequipping for technology, school buildings, including library buildings, structures, athletic fields, playgrounds, or other facilities, or parts of or additions to those facilities; furnishing or refurnishing new or remodeled school buildings; acquiring, preparing, developing, or improving sites, or parts of or additions to sites, for school buildings, including library buildings, structures, athletic fields, playgrounds, or other facilities; purchasing school buses; acquiring, installing, or equipping or reequipping school buildings for technology; refunding all or part of existing bonded indebtedness if the net present value of the principal and interest to be paid on the refunding bonds, excluding the cost of issuance, will be less than the net present value of the principal and interest to be paid on the bonds being refunded, as calculated using a method approved by the department of treasury; or accomplishing a combination of the purposes set forth in this subsection. Section 1351(2) to (4) applies to bonds issued under this section.
(2) The proceeds of bonds issued under this section or under section 11i of the state school aid act of 1979, MCL 388.1611i, shall be used for capital expenditures and to pay costs of bond issuance, and shall not be used for maintenance costs. Except as otherwise provided in this subsection, a school district that issues bonds under this section or under section 11i of the state school aid act of 1979, MCL 388.1611i, shall have an independent audit, using generally accepted accounting principles, of its bonding activities under these sections conducted within 120 days after completion of all projects financed by the proceeds of the bonds and shall submit the audit report to the department of treasury. For bonds issued under section 11i of the state school aid act of 1979, MCL 388.1611i, the independent audit required under this subsection may be conducted and submitted with the annual report required under section 5 of chapter III of the municipal finance act, 1943 PA 202, MCL 133.5.
(3) Bonds issued under this section or under section 11i of the state school aid act of 1979, MCL 388.1611i, for an asset with a useful life of less than 30 years shall not be issued for a term that is longer than the useful life of the asset.
(4) A school district shall not borrow money and issue notes or bonds under this section to defray all or part of the costs of any of the following:
(a) Upgrades to operating system or application software.
(b) Media, including diskettes, compact discs, video tapes, and disks, unless used for the storage of initial operating system software or customized aplication software included in the definition of technology under this section.
(c) Training, consulting, maintenance, service contracts, software upgrades, troubleshooting, or software support.
(5) A resident of a school district has standing to bring suit against the school district to enforce the provisions of this section in a court having jurisdiction.
(6) As used in this section, "technology" means any of the following:
(a) Hardware and communication devices that transmit, receive, or compute information for pupil instructional purposes.
(b) The initial purchase of operating system software or customized application software, or both, accompanying the purchase of hardware and communication devices under subdivision (a).
(c) The costs of design and installation of the hardware, communication
devices, and initial operating system software or customized application
software authorized under this subsection.
Copyright ©1998 by State of Michigan
Last Updated: 05/18/1999 at 3:00 pm