CHICAGO -- Gov. John Engler of
Michigan last weekend signed into law measures that will ban the usof
capital appreciation bonds by schl
districts starting next year andsure
funding for outstanding tax
increment financing district debt
Aides to the governor said he
signed the bills, which took effe
immediately, without making any
vetoes.
School districts will be prohibed
from issuing the zero coupon bond
starting May 1, 1995. Nick Khouri
Michigan's chief deputy treasurer
said yesterday that the ban mightot
be permanent. He said the Engler
Administration and legislature wi be
reviewing the debt issuance by scol
districts and other local governmts
over the next year.
"It's possible that [capital]
appreciation bonds] could be rested by the
legislature before 1995," Khouriid.
The Michigan legislature passed the ban last month in the wake of
successful lawsuit brought by the Pontiac School District against i
bond counsel over a 1991 $54.6
million bond issue that includedout
$35 million of capital appreciati
bonds.
In May, an Oakland County jury
found Miller, Canfield, Paddock a
Stone, the district's bond counse
liable on three counts of legal
malpractice, including a conflictf interest
charge. A judge could set the dame
award -- an anticipated $25.6
million -- as early as tomorrow.
The provision regarding capital appreciation bonds was contained a
school debt bill that also contaid
another amendment related to the
Pontiac school case.
That amendment requires boards
of school districts to obtain
disclosure from prospective bondtorneys
as to whether they are also
representing an underwriter or another party
involved in the districts' debt iues.
If such representation exists,
majority vote of the school boardould
be required to approve a contract with a bond attorney. The
amendment also calls for bond couel to
submit monthly itemized billings a
school district for services andso
any payments made to third partie
in connection with the bond
counsel's work for the district.
The Pontiac district successful
argued on its conflict of interes
charge that Miller Canfield serveas
its bond counsel for the deal ate
same time the law firm represente
Kemper Securities Inc., the senio
manager, without the district's
consent.
The legislation also prohibits
school districts from refinancing their outstanding debt unless the
can achieve a present-value savin
and restores their ability to useond
proceeds to buy computers and pay for partial remodeling of their
facilities.
Engler also signed three billsat
allow existing tax increment
financing districts and new distrts that
were being planned as of last Augt
to access property taxes collecteby
the state and by school districtso
pay off debt.
In addition, the TIF districts
would continue to receive propert
tax revenues collected by other
municipalities. If those revenueurces
aren't sufficient to pay debt serce,
the legislation calls for the sta to
make annual appropriations to cov
the shortfall.
Funding for TIF debt was one of the last elements left unresolvedn
the wake of the state's new schoo
funding system that was approved
voters in March. The new system
eliminated $6 billion of school
property taxes used for operating purposes and replaced the money wh
an increase in the state sales taand
other revenue measures.
