SB-1077, As Passed Senate, December 9, 2014

SUBSTITUTE FOR

SENATE BILL NO. 1077

A bill to amend 2005 PA 92, entitled

"School bond qualification, approval, and loan act,"

by amending sections 3, 4, 5, 6, 7, 8, 9, 11, 12, 14, and 16 (MCL

388.1923, 388.1924, 388.1925, 388.1926, 388.1927, 388.1928,

388.1929, 388.1931, 388.1932, 388.1934, and 388.1936), sections 3,

4, 5, 6, 7, 8, 9, 11, and 16 as amended by 2012 PA 437.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

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~~ up to 13 mills, determined

on the date of issuance of ~~the~~ an order qualifying ~~the~~ bonds or on

~~a later date if requested by the school district and approved by~~

~~the state treasurer,~~ otherwise as described in this act 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 qualified loans

related to those qualified bonds no later than the final mandatory

repayment date. Based on changes of circumstances, including, but

not limited to, additional bond qualification, refundings, changes

in qualified loan interest rates, changes in taxable values, and

assumptions contained in any then currently effective ~~guidelines~~

rules issued by the state treasurer pursuant to section 5(2)(c),

the school district shall not less than annually, beginning on

October 1, 2013, using methods prescribed in this act, recalculate

the computed millage necessary to generate sufficient annual levy

proceeds to pay principal and interest on all of the school

district's qualified bonds and principal and interest on all

qualified loans related to those qualified bonds not later than the

final mandatory repayment date. If the school district determines

that the recalculated computed millage is lower than its current

millage levy rate, the school district shall promptly notify the

state treasurer in writing of the recalculated computed millage.

Immediately thereafter, the school district shall decrease its

millage levy rate to the recalculated computed millage, but not

below the computed millage established pursuant to the most recent

order qualifying bonds for that school district, or to the minimum

levy prescribed by law for receipt of qualified loans, whichever

rate is higher. If the school district determines that the

recalculated computed millage is higher than its current millage

levy rate, the school district shall promptly notify the state

treasurer in writing of the recalculated computed millage.

Immediately thereafter, the school district shall increase its

millage levy rate to the recalculated computed millage, subject to

1 of the following exceptions, and subject to any maximum millage

levy rate otherwise prescribed for by law:

(i) For each school district's first recalculated computed

millage required as of October 1, 2013, increase its millage levy

by a percentage amount equal to the equivalent percentage of

taxable value change for that school district over the immediately

preceding 5 years, but not higher than the recalculated computed

millage.

(ii) For each school district's subsequent recalculated

computed millage beginning October 1, 2014 and each year

thereafter, increase its millage levy by a percentage amount equal

to the percentage of taxable value decline for the immediately

preceding year ending September 30, but not to a rate higher than

the recalculated computed millage.

(iii) If it is determined that a district's current computed

millage is sufficient to pay all qualified loans by the mandatory

final loan repayment date, no ~~recalculation of~~ change to the

district's computed millage is required.

(b) "Final mandatory repayment date" means the final mandatory

repayment date determined by the state treasurer under section 9.

authority created under Executive Reorganization Order No. 2010-2,

MCL 12.194.

(d) "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.

(e) "Qualified loan" means a loan made under this act or

former 1961 PA 108 from this state to a school district to pay debt

service on a qualified bond.

(f) "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.

(g) "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.

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

duly authorized designee.

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

27a of the general property tax act, 1893 PA 206, MCL 211.27a.

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

former 1961 PA 108. Unless otherwise amended as permitted by this

act, outstanding qualified loans incurred in association with

outstanding qualified bonds described in this subsection shall bear

interest as provided in section 9(8) but otherwise shall 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~~

preliminary qualification 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~~ computed millage the school district will levy to provide

revenue the school district will use to pay the qualified bonds,

any outstanding qualified bonds, and any outstanding or projected

qualified loans of the school district. 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 or decline in taxable value for the 5 years or such other

period of time requested by the school district if approved by the

state treasurer preceding the date of the application and the

average growth or decline rate for the 20 years immediately

~~preceeding~~ preceding the date of the application but not more than

3% or less than 0% growth rate, 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 bonds, the proposed qualified bonds, all

outstanding qualified loans, and all qualified loans expected to be

incurred with respect to all qualified bonds of the school

district, including the proposed qualified bond issue, not later

than the applicable final mandatory repayment date.

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

the school district, excluding special education purposes.

(h) 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.

(i) A statement describing any environmental or usability

problems to be addressed by the project or projects.

(j) An architect's analysis of the overall condition of the

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

projects.

(k) 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.

(l) An agreement that the school district will keep books and

records detailing the investment and expenditure of the proceeds of

the qualified bonds and, at the request of the state treasurer, the

school district will promptly, but not later than the date

specified in the request, which date shall be not less than 5

business days after the date of the request, submit information

requested by the state treasurer related to the detailed

information maintained by the school district as to the investment

and expenditure of the proceeds of its qualified bonds.

Sec. 6. (1) The state treasurer shall ~~prequalify~~ preliminarily

qualify 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

bonds, the proposed bonds, all outstanding qualified loans, and all

qualified loans expected to be incurred with respect to all

qualified bonds of the school district, including the proposed bond

issue, not later than the applicable final mandatory repayment

date.

(b) The form and language of the ballot conforms with the

requirements of this act.

with the requirements of section 5.

(d) If the proposed bond issue is approved by the voters after

September 30, 2012 and will result in additional qualified loans,

the outstanding balance of all qualified loans on the most recent

May 1 or November 1 did not exceed $1,800,000,000.00. ~~The~~

~~$1,800,000,000.00 limitation described in the immediately preceding~~

~~sentence does not apply after June 30, 2016.~~

(e) The issuance of additional qualified bonds approved by

voters after September 30, 2012 will not have an adverse financial

impact on the school district, this state, or the school loan

revolving fund. In making this determination, the state treasurer

shall consider relevant factors, including, but not limited to,

whether the issuance of the proposed bond issue will cause the

aggregate outstanding amount of qualified and nonqualified bonds,

including the proposed bond issue, and currently outstanding

qualified loans of the school district to exceed 25% of the taxable

value of the school district at the time the proposed bonds are

issued.

(2) Any preliminary qualification issued by the state

treasurer shall expire 10 years after the date of its issuance or

upon a sooner date stated in the preliminary qualification order.

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, and those changes, including bond structure, estimated

borrowing, and project scope, are not substantially different.

(f) The school district has agreed that the school district

will keep books and records detailing the investment and

expenditure of the proceeds of the qualified bonds and, at the

request of the state treasurer, the school district will promptly,

but not later than the date specified in the request, which date

shall be not less than 5 business days after the date of the

request, submit information requested by the state treasurer

related to the detailed information maintained by the school

district as to the investment and expenditure of the proceeds of

its qualified bonds.

(g) The preliminary qualification order pursuant to which

qualification is being sought is still effective.

(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 mandatory repayment date, and other

matters as the state treasurer shall determine or as are required

by this act.

(3) If the application for ~~prequalification~~ preliminary

qualification 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

order shall no longer be effective. However, 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 loans or qualified bonds if the state treasurer

finds that all of the following are met:

(a) The refunding bonds comply with the provisions of the

revised municipal finance act, 2001 PA 34, MCL 141.2101 to

141.2821.

(b) That the school district will repay all outstanding

qualified bonds, the proposed qualified bonds, all outstanding

qualified loans, and all qualified loans expected to be incurred

with respect to all qualified bonds of the school district,

including the proposed qualified bond issue, not later than the

applicable final mandatory repayment date.

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~~ of all the

following:

(a) Clear descriptions of the purposes for which the proceeds

of the bonds will be used.

(b) Whether the school district expects to borrow from this

state to pay debt service on the bonds. ~~, the~~

to pay debt service of the bonds the estimated total amount of the

principal of ~~that borrowing~~ and the interest ~~to be paid~~ on that

borrowing. ,

(d) The current computed millage, the estimated average annual

computed millage accounting for the proposed bonds and any

borrowing, and the estimated duration of the millage levy. ~~, and~~

~~the estimated computed millage rate for that levy. The ballot shall~~

~~also inform the electors of the~~

(e) The total amount of qualified bond and loan debt currently

outstanding. ~~and~~

(f) A statement that the estimated computed millage rate and

duration may change based on changes in certain circumstances.

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. The computed millage for any district

upon receiving a qualified loan regardless of how it is provided

pursuant to this act, or with an outstanding qualified loan

balance, shall be 7 mills or the district's actual computed

millage, whichever is higher.

(2) For school districts having qualified loans outstanding as

of July 20, 2005, 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 July 20, 2005 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

July 20, 2005. 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. The payment date

established pursuant to this subsection for a school district is a

final mandatory repayment date.

(3) For qualified loans related to qualified bonds issued

after July 20, 2005, the qualified loans shall be due 72 months

after the date on which the qualified bonds for which the school

borrowed from this state are due and payable. The due date

determined pursuant to this subsection for a school district is a

final mandatory repayment date. This section does not preclude

early repayment of qualified bonds or qualified loans.

(4) 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 mandatory repayment date of the

qualified loans, and the interest rate accrued on the loans.

(5) For qualified loans relating to qualified bonds issued

after July 20, 2005, a school district shall continue to levy ~~the~~ a

computed millage until it has completely repaid all principal and

interest on its qualified loans.

(6) For qualified loans relating to qualified bonds issued

before July 20, 2005, a school district shall continue to comply

with the levy and repayment requirements imposed before July 20,

2005. Not less than 90 days after July 20, 2005, 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 July 20,

2005.

(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 computed 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) All qualified loans shall bear interest at 1 of the

following rates:

(a) The greater of 3% or the average annual cost of funds used

to make qualified loans plus 0.125%, but not less than the cost of

funds on outstanding qualified notes and bonds issued by the

Michigan finance authority to finance loans computed by the state

treasurer not less often than annually.

(b) A lesser rate determined by the state treasurer to be

necessary to maintain the exemption from federal income tax of

interest on any bonds or notes issued to fund qualified loans.

necessary to prevent the impairment of any contract of this state

or the Michigan finance authority in existence on the effective

date of the amendatory act that added this subdivision.

(9) A payment date determined under subsection (2) or a due

date determined under subsection (3) is a final mandatory repayment

date. Once established for a school district as provided in this

section, a final mandatory repayment date shall apply to all

qualified loans of the school district, whenever made, until 30

days after the date the school district has no outstanding

qualified loans and no outstanding debt incurred to refund

qualified loans. Notwithstanding this subsection, the state

treasurer may determine a later mandatory repayment date for a

school district that agrees to levy a higher millage, acceptable to

the state treasurer, not to exceed 13 mills, than its ~~existing~~

current computed millage.

Sec. 11. The state treasurer may promulgate rules to implement

this act pursuant to the administrative procedures act of 1969,

1969 PA 306, MCL 24.201 to 24.328. ~~, and may issue bulletins as~~

~~authorized by this act.~~

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

~~prequalification~~ preliminary qualification 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. 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~~ finance authority or its successor to pay any amount described

in this section, the state treasurer shall cause the Michigan

~~municipal bond~~ finance authority to bill the school district for

the amount paid and the school district shall immediately remit the

amount to the Michigan ~~municipal bond~~ finance authority.

Sec. 16. (1) The state treasurer may charge a ~~prequalification~~

preliminary qualification application fee, a qualification

application fee, and an annual loan activity fee in the amounts

determined by the state treasurer to be required to pay the

estimated administrative expenses incurred under this act for the

fiscal year in which the state treasurer imposes the fee.

(2) 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.