Senate Bill 603 was recently signed by the Governor and becomes Act 1220 of 2001, effective July 1, 2001. In part, the Act amends the process of issuing second lien bonds. Since 1997 the issuance of second lien bonds has been subject to restrictions based on Additional Base Funding calculations and the affect on the Federal Range Ratio. Arkansas law required these calculations.
A.C.A. 6-20-1205(d) states:
"The department shall not provide a local school district that issues second-lien bonds more additional base funding for which it would otherwise qualify excluding the issuance of second-lien bonds"
The Little Rock School District millage increase affected Additional Base Funding, and, therefore, affected the State's compliance with the Federal Range Ratio. In spite of strict adherence to the existing second lien bond issuance policy, further restrictions on the issuance of second lien bonds became necessary. These additional restrictions are intended to keep the State in compliance with the Federal Range Ratio and to conform to the current funding formula. These further restrictions do not completely prohibit the issuance of second lien bonds. Furthermore, they add the ability for districts to refund outstanding second lien bonds. The following is a summary of the additional criteria (Section 18. of Act 1220 of 2001, effective July 1, 2001) required for reviewing and recommending approval of second lien bonds issues:
· The first interest payment must be due within eight (8) months of the issuance of the second lien bond;
· Payments within the annual repayment schedule must be either substantially equal or declining;
· The issuance will not cause an increase in the amount of Additional Base Funding a district receives;
· If a district's total state and local revenue per average daily membership is within ten dollars ($10.00) of the minimum state and local revenue per average daily membership, that district will not be authorized to issue second lien bonds; and
· A district that has suffered damage or destruction due to a natural disaster or criminal activity may issue second lien bonds regardless of the stated prohibitions.
At the April 9, 2001, meeting the State Board of Education unanimously approved the following Policy and Motion. These actions were necessary for the Department to implement Act 1220 of 2001, Section 18. on the effective date of July 1, 2001.
STATE BOARD OF EDUCATION POLICY
Effective April 30, 2001, the State Board of Education directs the Loan and Bond Committee to table all second lien bond applications until after July 1, 2001, or until the final approval of the Rules and Regulations Governing Loans and Bonds Applications.
STATE BOARD OF EDUCATION MOTION
Under the authority granted the State Board of Education in Arkansas Code Annotated §6-20-1215 (Repl. 1999) the State Board hereby authorizes Mr. Raymond Simon, Director of the Department of Education, (or his designee), to approve second lien bond applications through April 30, 2001, when so recommended by the Loans and Bonds Committee of the Department of Education.
The current Rules and Regulations Governing Loans and Bond Applications will be revised to comply with Act 1220 of 2001. A public hearing will be held at the Arch Ford Education Building, #4 Capitol Mall, Room 201-A on May 10, 2001, at 2 p.m. The proposed revisions to the Rules and Regulations will be distributed with a Director's Memo at a later date. Your comments are welcome.