Reforms will limit school bond debt and ensure long-term viability of the School Bond Loan Fund

I have consistently vowed to put the long-term economic interests of Michigan first. Since I took office, we have faced Michigan’s serious challenges with a bold vision and an eye on the future. The result has been a reinvigorated economy, reduced unemployment and a state government that is more accountable.

Now we are facing another challenge: Reforming the state’s school bond loan program, which is currently $1.2 billion in debt. 

The program was created to allow school districts to borrow money from the state for construction projects under certain conditions. The intent of the fund was that it would be self-sustaining while giving schools access to capital using the state’s credit rating.

Unfortunately, the fund is in deficit due to declining property values and school districts choosing to delay repayment of their loans by rolling over their state debt into new bonds. This has forced the state to issue general obligation bonds to cover the loans.

The state’s principal and interest costs of these bonds are charged to the School Aid Fund. That cost is almost $100 million in the current fiscal year and estimated to increase 87 percent to approximately $175 million in six years if no action is taken. 

More simply, this means $60 of the state per-pupil allowance is going to pay for the debt service and it is estimated to double by 2020. Each dollar spent on debt service is a dollar not going into our classrooms, which is why we introduced reforms to stop abuse of the School Bond Loan Fund and ensure the fund’s long-term viability.

The main reform measure, Senate Bill 770, would cap the fund’s outstanding loan balance at $1.8 billion, prohibit the rollover of unpaid loans, and require school districts to disclose the fiscal impact of additional borrowing in their ballot language.

The Chippewa Valley School District in Macomb County is an example of a district abusing the program. The district has been borrowing from the state through the program for 45 years.  Since 1997, the district has issued new bonds and rolled over their outstanding loans four times. 

It’s estimated that some schools like Brandon School District in Oakland County and Harper Woods School District in Wayne County won’t pay off their outstanding loan balance until 2097 and 2108 respectively.

We must stop enabling schools to take out new loans to fund new spending instead of forcing them to first pay off their debt.

My reform, SB 870, would develop a time-out period of five years to prevent schools from getting more qualified loans immediately after paying off an outstanding balance. 

I am taking on this tough task because all Michigan schools deserve the ability to borrow for capital improvements using the state’s credit rating.

Unfortunately, a few bad apples and some lax lending rules are costing all students and putting the state’s credit rating and the fund’s long-term sustainability in jeopardy. 

None of the schools in the 35th Senate District are currently using the program, yet they are paying $60 a student for other schools to participate. In fact, out of Michigan’s 553 school districts, only 122 are using the program – 39 of which cannot meet the mandatory final loan repayment date.   

I am disappointed that none of our local school superintendents have come out publicly in support of our efforts. I hope they will help us reform a broken system and allow us to put more dollars toward educating our children by reducing our bonding debt and the interest state taxpayer must pay on it.

Darwin L. Booher

State Senator – 35th District