PA 07-87—sHB 7385
Finance, Revenue and Bonding Committee
Education Committee
AN ACT CONCERNING SCHOOL CONSTRUCTION BOND MATURITY
SUMMARY: This act allows municipalities and regional school districts to issue bonds for school construction projects with a maximum term of 30 rather than 20 years. The 30-year bonds are allowed only for projects for which the General Assembly authorized grant commitments on or after July 1, 1996, thus barring municipalities and regional school districts from refinancing earlier projects for a longer term. The act makes conforming changes by requiring annual repayments of any municipal or regional school district bond anticipation notes issued in conjunction with 30-year school project bonds to be at least 1/30th instead of 1/20th of the total project cost.
The act also increases regional school districts' flexibility in issuing bonds to refinance outstanding debt (“refunding bonds”).
EFFECTIVE DATE: July 1, 2007
MUNICIPAL AND REGIONAL SCHOOL DISTRICT BONDS FOR SCHOOL BUILDING PROJECTS
Under the act, municipalities may issue 30-year bonds for building, buying, extending, replacing, renovating, or making major alterations in a building to be used for a public school, and for acquiring and improving land for a public school. They cannot use 30-year bonds for any project that the General Assembly authorized before July 1, 1996 or for buying equipment or making minor improvements to land or buildings for schools unless these activities are part of a larger school project.
The act allows regional school districts to issue 30-year bonds to acquire land, prepare sites, and buy or equip buildings for school purposes. As is the case with municipalities, regional school districts may issue 30-year bonds only for grant commitments the General Assembly authorized on or after July 1, 1996. By law, the General Assembly annually authorizes state grant commitments for school construction projects.
REGIONAL SCHOOL DISTRICT REFUNDING BONDS
The act increases regional school districts' flexibility to issue refunding bonds. It does so by requiring only that total debt service for such bonds constitute a net present value savings over that of the bonds being refinanced, after accounting for the cost of issuance and the underwriters' discount.
Prior law required regional school district refunding bonds to meet the same requirements as the original bonds, namely that:
1. they be payable either (a) in substantially equal annual installments of principal and interest or (b) so that no principal installment is more than 50% higher than any prior installment, and
2. the first installment come due within three years of the issue date and the last installment by the end of the original bond term.
The law already allowed this refunding bond flexibility for municipal refunding bonds.
BACKGROUND
School Project Financing for Projects Authorized On or After July 1, 1996
In 1997, the General Assembly changed the way the state funds state school construction grants starting with projects the General Assembly authorized for state grant commitments on or after July 1, 1996. For earlier projects, the state funded 20% to 80% of a school district's eligible costs for the project, including interest on local bonds issued to pay the local share of the projects. For more recent projects, the state and municipalities or regional school districts bond their respective shares of the project cost separately, thus eliminating the state's responsibility to issue state bonds to cover interest payable on municipal or regional school district bonds for school construction projects.
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