The Michigan Finance Authority Modifies August 2013 State Aid Note Loan Program

The Michigan Finance Authority (“MFA”) is expected to offer its August Note Pool program in 2013 with several changes from previous years. The anticipated date to file the application materials with MFA is tentatively planned for June 28, 2013. The application, instructions, cash flow form, and information about the August note pool program are expected to be posted on MFA’s website on or about mid-May. We encourage clients to check MFA’s website ( periodically in early-to mid-May to access the materials when they are posted

As in the past, MFA will permit schools to participate in the August state aid note loan program by using one of three different borrowing alternatives. Schools may borrow from MFA by: (1) issuing a note in a “set-aside pool” that will be repaid through periodic set-aside payments; (2) issuing a note in a “no set-aside pool” that will be repaid in full at maturity; or (3) doing both by dividing the total amount to be borrowed between the two pools and issuing a set-aside note and a no set-aside note in a “partial set-aside pool” (referred to as a “dual note issuance”). The extent to which a school that elects the dual note issuance option may divide its total borrowing amount between the set-aside pool and the no set-aside pool will depend on the school district’s projected cash flow situation and ability to afford the setaside payments required to be made on the set-aside note.

MFA has revised the eligibility criteria for participation in the 2013 note pool. The total borrowing limit is 55% of annual state aid, a reduction from 60% in prior years. However, districts that borrowed less than 50% of state aid in 2012 will not be permitted to borrow more than 50% in the 2013 pool. Districts that borrowed between 50% and 55% of state aid in 2012 may not exceed their 2012 borrowing percentage for the 2013 pool. MFA sent a detailed description of the new criteria to all school districts on March 29, 2013. A copy of the correspondence is attached to this News article.

MFA crafted further restrictions for the 2013 “no setaside” pool, which now caps a district’s total “no set-aside” borrowing at 45% of annual state aid. In addition, districts that borrowed less than 35% of state aid in the “no setaside” pool in 2012 may not exceed 35% in 2013. Similarly, districts that borrowed between 35% and 45% of state aid in the “no set-aside” pool in 2012 may not exceed their 2012 “no set-aside” borrowing percentage in 2013. By mid-May, MFA will provide local note counsel with a list of the 2012 SAN pool borrowers and an analysis of the estimated maximum amount that each school district will be permitted to borrow in the August 2013 pool. When you contact note counsel for the authorizing resolution to issue the SAN, you should discuss the new criteria to determine the size of the note.

Beginning in 2013, MFA now will require all borrowers to use the MFA cash flow form on its website. MFA will not accept local school district cash flow forms that are not in the same format as the MFA cash flow form. The final cash flow form and instructions are expected to be available on MFA’s website in mid-May.

Please note that more flexibility has been added to MFA’s set aside pool in 2013. Borrowers may now chose 3, 5 or 7 set asides beginning in the months set forth below:

3 set asides - May 2014 through July 2014
5 set asides - March 2014 through July 2014
7 set asides - January 2014 through July 2014

School officials should forward their projected cash flow schedules to note counsel as soon as possible so that note counsel can review and provide comments on the schedules. Once the projected cash flow schedules are finalized, note counsel will prepare the state aid note authorizing resolution so that the resolution can be adopted by the board of education and filed with the MFA (along with the MFA application and related materials) before the tentative June 28 application deadline. Please contact the Thrun Law Firm attorney who assists your school with finance matters to begin the SAN process.

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PDF icon MFA Correspondence 3-29-13.pdf 177.5 KB