CHICAGO — A Michigan school district has sued the state for blocking a bond sale that would allow the district to pay off a state school fund loan and achieve interest rate savings.

A preliminary hearing is set for Nov. 8 in the Ingham County Circuit Court courtroom of Judge Rosemarie Aquila.

The Plainwell Community Schools wants to pay off a $9.6 million loan it borrowed from the state through the School Bond Qualification and Loan Program. The district has borrowed the money over the last 10 years to cover debt-service payments above its seven millage levy. The district, rated AA-minus by Standard & Poor's, has roughly $50 million of outstanding debt, including the state loan.

The district wants to pay off the state with proceeds generated from selling bonds in a direct placement to a bank.  With interest rates at historic lows, the district's finance team estimated a 7% net present value savings on the debt.

But the state has refused to approve the transaction unless the district agreed to raise its levy by roughly 1.3 mills to offset a decline in property values. Without the levy increase, it would take the district an additional three or four years to pay off its debt.

"The concern there is because we have had a decrease in our property values in the last five years, the millage doesn't generate the same dollar amount it did five years ago," Plainwell Superintendent Susan Wakefield. "We know there are other districts in the same situation as we're in as well that would like to do this."

Wakefield added that the state approved a pair of private placement refinancings last summer for districts in similar positions with similar use of the proceeds.

The district's team believes that the Michigan school revolving loan fund law allows refinancings as long as there are net present value savings, and that a longer repayment date is not prohibited under the law.

Treasury officials said they don't comment on open litigation.

"We have three hopeful, positive outcomes," Wakefield said. "One is to save taxpayers money over the life of the debt; the second is to pay back our debt to the state of Michigan; and the third is it's going to get us closer to a repayment date [by lowering interest costs]."

The district's financial advisor is H.J. Umbaugh & Associates. Its attorney is George Brookover with Brookover, Carr & Schaberg PC. Bond counsel is Thrun Law Firm PC.

 

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