School Bond Loan Servicing Process

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1 Michigan Department of Treasury School Bond Loan Servicing Process Presenter: Cathy Clark MSBO Annual Conference April 2015 School Bond Qualification and Loan Program Facts Approximately 423 school districts have State qualified debt Approximately 136 school districts participate in the school loan revolving fund (SLRF) Michigan public school districts currently have over $13 billion of qualified debt outstanding Over $1.2 billion in new public school district debt was qualified in

2 School Bond Qualification and Loan Program Overview Qualification requires approval from State Treasurer and a positive vote from electors. Bond Qualification Guarantee bondholders that debt service payments will be made by the State in case a district defaults. Qualified bonds receive a credit rating equal to the State. Eligible to borrow from the State if needed. Loan Program School districts can borrow from the School Loan Revolving Fund (SLRF) to make debt service payments. Districts must levy a minimum of 7.00 mills to borrow from the SLRF. Repay loan within six years of final debt service payment. SLRF Borrowing Effect on Millage Rates Mills Year Millage w/out SLRF Millage w/slrf 2

3 School Bond Qualification and Loan Program Advantages Debt service payments are backed by the State. Credit rating equal to State s credit rating. Eligible to borrow from the State if needed. Disadvantages Increased interest costs if borrowing from the SLRF. Cannot reduce millage until loans are repaid. Adhere to Michigan s Prevailing Wage Act. School Building and Site Bonds 2014 Elections Results 51 School Districts 38 passed 13 failed (1 district held more than 1 election in 2014) 3

4 Loan Servicing Process Loan program for schools to assist with making principal and interest payments on their qualified bonds. Districts must levy a minimum of 7.00 and a maximum of debt mills to borrow from the SLRF. The loan is repaid to the State with interest. Statutory requirements for paying the loan back within 6 years of final debt service payment on outstanding qualified debt. State has used a combination of State issued bonds and theschoolloanrevolvingfundtoprovidefundingof loans. State bonds were last issued in 2013; SLRF has issued bonds in 2014 and The goal is for the SLRF to be a self-sufficient revolving fund. Interest Rates Previously there used to be a School Bond Loan Rate and a School Loan Revolving Fund Rate. These rates have been combined since Current rate is 3.44%. Changes approximately 8-10 times a year: Every quarter Principal payments are made New debt is issued, etc. 4

5 Important Terms to Remember Computed Millage Number of mills, not less than 7 and not more than 13 mills, determined on the date of issuance of the order qualifying bonds that a district must levy Final Mandatory Repayment Date (FMRD) Payment date for all outstanding qualified loans. This shall not be later than 72 months after the date on which the qualified bonds are due and payable. Recalculated Millage Every year districts must review their debt schedules and determine if they can meet the FMRD with the computed millage. If this is not met, an increase in their millage is necessary. Application Process Annual Loan Activity Application and Annual Millage Recalculation (due August 1 st ) Draw Requests (due October 1 st and April 1 st ) Loan Confirmation Repayment Modes and Procedures 5

6 Annual Loan Activity ed to districts the first week of July Cover transmittal Update contact person Certificate Must be signed by the Board This is where the authorized officer is selected Calculate potential balance due in a year using 5% interest Worksheet borrow / repayment mode Reconciled bank statements 6

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9 Annual Millage Recalculation ed same day as the Annual Loan Activity packets, under separate cover Section A Original computed millage Recalculated millage to be levied in the upcoming year Per spreadsheet Statutorily limited increase No change Worksheet available, upon request Statistics from the First Millage Recalculation (Summer of 2014) 142 worksheets received 83 districts were not required to increase their millage 59 districts did have to increase their millage 8 were not limited by statutory phase-in 47 were limited by statutory phase-in 4 were required to levy the maximum of 13 mills 9

10 Statistics from the First Millage Recalculation (Summer of 2014) continued districts are projected to be paid off by FMRD 51 districts are not projected to meet their FMRD 5 of those districts are not projected to be paid off in 100+ years 6 districts now levying 13 mills 7 districts increased millage more than statutorily required 12 districts were in repayment mode; this year it increased to 20 districts Draw Requests ed to districts the first week of September / March Please confirm receipt of Due on October 1 st / April 1 st 10

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12 Draw Requests (continued ) Once the packets have been reviewed, you will receive a confirmation Confirmations are due on October 15 th / April 15 th The funds are deposited 6 days before debt service payments are due Districts must make debt service payments 5 business days before November 1 st / May 1 st You will get a statement confirming the amount borrowed by a district 12

13 Non-Compliance PA 92 provides penalties to districts for non-compliance Withholding of a district s state aid funds Notification to the district s school board and requires a written response of remedy A district is in non-compliance if it: Fails to levy computed mills Defaults on repayment of loans Does not file required documents by the required due dates Repayment Mode & Procedures Repayment begins once mills needed for debt service are less than mills levied. Payment can be made at anytime throughout the year in any denomination. Contact the School Bond Loan Program for payment instruction. Winter leviers should ensure enough funds on hand for November interest payment. 13

14 Miscellaneous Items Loan Account Statement Computed Mills This is the current millage levied. Hoping to update it soon! Federal Subsidies QSCB / BABs Reductions System has not been updated to reflect any Cap - $1.8 Billion Balance as of April 17, $1.77 Billion Sunset June 30, 2016 Waivers 14

15 Contact Information Cathy Clark, Loan Servicing Carol Densmore, Qualification Process Debbie Roberts, Assistant Director Questions??? 15