Meaning and Purpose
Schools in the community need financing to meet their daily needs. However, the amount realized through contributions by various key players may not be enough to meet all the needs that are required for development as well as other running and operational costs. Therefore, schools that are in need apply for bonds to bridge the gap. A school bond is a loan that meets the immediate need of a school, is repayable over a defined amount of time, and it fetches interest. Additionally, the bonds must be qualified by the state treasurer, and the proceeds of the bonds must be used for capital expenditure purposes.
Since a school within a community is a public utility, bond repayment costs are shared with the community in which the schools are based. The cost is added to the taxes realized from the community, with implications that the amount contributed per millage per annum increases. In the present case, the district needs to seek a bond issue to build and repair facilities. However, the community should be aware of the School bond Qualification and Loan program (SBQLP). The program was established by the Michigan constitution of 1963 and amended by the Public Act n0.92 of 2005 to provide a state credit enhancement and loan mechanism for the school district bond issue.
The state treasurer approves the state-qualified bonds after six steps process is achieved. The steps include strategic planning and defining the project scope, preliminary qualification approval, election, final qualification approval and issuance of bonds, construction, and audit of bonded construction funds.
The project scope must be well defined to show when the project begins and ends to qualify for the bond. In the present scenario, the scope includes the defined buildings to be constructed as well as the repairs to be made. School district bond elections should also be done as per the regulations provided by law. The bonding propositions are then presented to the district’s citizens for the preliminary qualification process. At this level, a site visit may be conducted by the officials to review conditions and plans.
At the final qualification stage, if a majority of the district’s citizens votes in favor of the propositions, the district applies for final qualifications of the bond after satisfying the requirements set out by the law. The district then enters the construction period when the proceeds are used to attend to the needs that had been laid out in the preliminary qualification application and the ballot proposals. The Revised School Code Part 17 lays out the allowable and unallowable uses of bond proceeds. Upon the completion of the proposed projects, an independent audit is performed of all bonding activities. Additionally, the law requires that the audits be completed 120 days after all projects are complete. The audit report is then filed with the Local Audit and Finance Division, Department of the treasury.
Total Amount Payable per Year on Loan
In the case in question, the total amount needed for the bond project is $20, 000, 000 with an interest rate of 3.5%. That translates to an interest of $21 000 000, which is realized by using the principal, 20 000 000, multiplied by the interest, which is 0.0035, and time, which is 30 years.
$20 000 000 x 3.5/100 x 30 = $21 000 0000
To determine interest payable per year, the principal amount, which is 20 000 000, should be added to the interest of $ 21 000 000 then the total divided by the duration, which is 30 years.
$20 000 000 + $21 000 000 = $41 000 000
$41 000 000/30 = $1 366 666.67
Millage Rate Payable by the community
The millage rate will be determined by the Projected annual taxable value for the community, which is $ 650 000 000. Therefore, if 1 millage is represented by 0.001, the total millage will be
$650 000 000 x 0.001 = 650 000
The bond amount payable per year is $1 366 666. 67. The total payable per millage on the bond will be
$1 366 666.67 x 0.001 = $136.67
The total that will now be payable per year per millage will be
$650 000 + $136. 67 = $650 136.67