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


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


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


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


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.

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