Financial Management of School District Debt

School District Debt deene.dayton@state.sd.us 773-5932

CO Certificates • CO certificates represent long-term debt with the intent to pay it back utilizing the CO levy.

CO Certificates • Complete your 5-year CO plan to ensure that your district has sufficient resources available to take on a series of long-term debt payments SDCL 13-16-9.2 • 3 Mill max regarding the CO levy

CO Certificates • Set up a capital projects fund #41 for the construction phase of the project • If there are different sources of funding, it is recommended to use a separate fund number for each capital project.

CO Certificates • Place all means of finance for the project into the Capital Projects Fund……such as: • CO certificate issuance • Capitalized interest directly to CO Fund • Transfer from CO Fund • Grants….energy grant • Donations

CO Certificates • Make all the payments towards the project from the Capital Projects Fund…….even early payments such as architect fees, if possible

CO Certificates • Spend issuance money in compliance with bond covenants • Furnishings??? • Leftover money on stadium lights???

CO Certificates • Adopt a spending priority for the Capital Projects Fund…….which dollar is spent first, CO certificates???, transfer in??? Donations?? • Consider operational unit field or a spreadsheet for tracking

CO Certificates • The capital projects fund should have a budget. • Most large projects fall within two school years.

GO Bond • General Obligation bonds are similar to CO certificates except the source of funding for repayment of the debt is a separate tax levy

GO Bond • Most of the slides pertaining to CO certificates will also apply to GO bonds. Such as the use of a capital projects fund, budgeting and spending priority.

GO Bond • One significant difference from CO certificates is that a GO bond will trigger the use of a separate Debt Service Fund #31 (separate fund for each bond issuance) • GASB 54 states that debt service funds are used to account for financial resources restricted to expenditure for principal and interest …

GLTD • General long-term debt, such a CO certificates and GO bonds, are tracked during the year in a separate self balancing set of accounts referred to as General Long Term Liabilities • Fund #00

GLTD • Some of the accounts within Fund #00 are: • 708 Unrestricted Net Assets 501 Bond Payable 502 CO Certificates Payable

GLTD • The balance of the General Long Term Liabilities is added to Exhibit I at the end of the year by reconciling entry.

GLTD • General long-term liabilities are reported on Exhibit I (Statement of Net Assets) in two accounts as follows: • Due within one year • Due in more than one year

The Issuance • Debt issuance dollars are placed into a Capital Projects Fund as follows: • 41-101 Cash • 41-5000-614 Issuance Costs: • Bond Counsel Fee • Underwriters Discount Fee • Insurance • 41-8150-619 Discount on Bonds Sold • Or • 41-5123 Premium on Bonds Sold • 41-5121/5125 G.O. Bonds/Certificates Issued

The Issuance • There generally is a premium (other financing source) or a discount (other financing use) on each issuance. This arises when the “stated rate of interest” is more or less than the “market rate of interest”. • These accounts are amortized annually and the end of year balance may be blended with the liability account on Exhibit I.(193/473)

The Issuance • The debt issuance accounts, 5121 and 5125, are always reported at the full face amount stated on the debt instruments….. generally a large round number. • These accounts are reported as increases in liabilities on Exhibit I during the reconciliation process.

The Issuance • Issuance costs, reported as 5000 Debt Service Expenditures on Exhibit IV, are reported as an asset account called “Deferred Charge” (194) on Exhibit I. • Materiality is always a consideration.

The Issuance • Sometimes the timing of a bond issue is such that the tax levy cannot be put in place in time to have tax dollars available to make the first debt service payments. In that case, some of the issuance dollars are peeled off and placed directly into a Debt Service Fund to service the first debt service payment or two. • Cash • G.O. Bonds Issued (OFS)

Servicing the Debt • Governments have the option of recognizing an expenditure and a liability in a debt service fund in the current period if “debt service fund resources have been provided during the current year for payment of principal and interest due early in the following year” (within 30 days)

Servicing the Debt • An interest expense accrual should be recognized on the G-W statements when a significant amount of time has elapsed since the last interest payment date. (materiality) • Debit Expense Credit Liability

Financial Management of School District Debt

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