2016 Michigan Finance Authority State Aid Note Loan Program

The Michigan Finance Authority’s (“MFA”) August state aid note pool application materials, including the loan application, cash flow form, instructions, and calendar, are now available on MFA’s website at www.michigan.gov/mfa. Click on “Finance Programs,” located on the left-hand side of the MFA homepage, scroll down to the “K-12 School Programs” heading, and click on “State Aid Note Program.” The filing deadline to submit the application materials is Wednesday, June 29, 2016.

As in the past, the MFA requires that school districts adopt a resolution authorizing the state aid note, and the resolution must be prepared by nationally recognized note counsel. The form of resolution for the August state aid note pool has recently been approved by MFA. Accordingly, school districts should begin preparing the cash flow and application materials and contact note counsel to review the draft application materials and prepare the resolution.

School districts will have the option to participate in the “set-aside pool,” the “no set-aside pool,” or both. In the no set-aside pool, the school district pays off principal and interest on the note as a lump-sum payment when the note matures in August 2017. In the set-aside pool, however, the school district is required to make monthly payments on the note before the note matures in July 2017 as set forth below:

3 set asides - May 2017 through July 2017

OR

5 set asides - March 2017 through July 2017

OR

7 set asides - January 2017 through July 2017

The MFA prefers participation in the set-aside pool, as it places fewer restrictions on participants and provides lower overall borrowing costs.

The MFA’s borrowing parameters are unchanged from last year. In summary, they are:

  • School districts must use the cash flow form that is posted on the MFA’s website. School dis­tricts are not allowed to use their own cash flow form.
  • The overall borrowing limit is 55% of state aid.
  • The overall borrowing limit in the no set-aside pool is 42% or 35% of state aid, depending on the amount borrowed in 2015.
  • In general, a school district cannot exceed its 2015 no set-aside borrowing percentage.
  • School districts that did not participate in the MFA’s 2015 pool must amortize (i.e.,

    participate in the set-aside pool) at least 50% of the proposed total borrowing amount.
  • Minor exceptions to the borrowing parameters may be considered by the MFA on a case-by-case basis.

Many school districts are “dual bidders” that sub­mit an application to participate in the MFA note pool and also solicit bids from local banks to purchase the note. Dual bidders must affirmatively opt-in to the pool shortly after the interest rate announcement at the end of July.

Regardless of whether your district plans to participate in the MFA pool, please contact the Thrun Law Firm attorney who assists your school district with finance matters to begin the state aid note process if you need cash flow financing this summer.