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A r c h i v e d  I n f o r m a t i o n

How Could School Modernization Bonds Help Schools in My Area?

School Modernization Bonds would work differently in various communities. Below are three examples that illustrate differences among communities based on their: (1) school construction needs; (2) authority to issue bonds; and (3) ability to issue bonds.

School District A -- A Rapidly Growing School District

School District A needs funds to construct additional schools to educate its rapidly growing enrollment. The State would allocate bond authority to School District A. This community would have to pass a bond initiative that would compel it to use tax proceeds to repay the bond that it issues. It would then enter into an agreement with a financial company to sell the bonds to bond holders in order to raise funds to build schools in the community. The school district would use these funds to plan, design, and build additional schools. The community would repay the principal on the bonds to the bond holders, but it would not pay interest on the bond. The bond holders would receive a tax credit equivalent to the amount of interest they would ordinarily have received on the loan.

School District B -- A School District with School Buildings in Need of Renovation

School District B needs funds to renovate its aging school buildings. This school district would receive a direct allocation of bond authority from the Federal Government because it is one of the 100 school districts with the largest number of students in poverty. This community has already passed a bond initiative, so it does not have to go to its citizens to gain the authority to issue bonds. The district is still eligible to issue School Modernization Bonds because it has not yet issued all of the bonds its citizens authorized it to issue. It would issue the bonds through a financial company to raise the funds necessary to renovate its schools. School District B would use these funds to renovate its facilities taking into account the need to accommodate modern educational technologies; provide access to individuals with disabilities; improve the energy efficiency of its buildings; and to bring its buildings, including its roofs and boilers, into good overall condition. The bond holders would be repaid as they would under the example for School District A. One difference would be that School District B would be able to use money saved from its energy bill to help it repay the principal on the loan.

School District C -- A School District on a Poor Indian Reservation

This poor public school district needs funds to renovate a school and build a new school but is unable to issue bonds itself because of its small tax base. School District C would receive a heavily subsidized loan from the State. The State would subsidize the loan either by contributing the State's own funds toward the loan or by decreasing the amount of the subsidy other communities would receive under School Modernization Bonds in the State. School District C would not issue the bond itself; the State would issue it on behalf of School District C and several other school districts. School District C would use the funds to plan, design, and construct its new building and to renovate its existing school. The State could guarantee that School District C would repay the loan by retaining State aid in event that the school district stopped making payments. School District C would pay only a portion of the principal on the loan to the State because the loan is subsidized. The bond holders would be repaid as described in the above examples, except the State rather than the community would repay the principal to the bond holders.


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Last Updated -- April 3, 2000 (mhm)