School construction is booming across Michigan. Districts in need of more classroom space and updated facilities are undertaking projects in record numbers and dollar amounts. Evidence of this is the recent level of state-guaranteed debt for local K-12 school construction projects, which rose from $2.5 billion to $6.3 billion between 1990 and 1996.1 This statewide need for school construction mirrors a national trend: Estimates show that a backlog of $112 billion in school repairs and construction exists across the United States.2 As they have in the past, Michigan’s public schools will look to general obligation bonds to provide funds needed for facility construction and renovation. Now more than ever, it is important that schools develop clear policies for the issuance of bonds.

Voter approval is required for schools to issue bonds, and bond elections in Michigan are often contentious. Seldom do bonds pass by overwhelming majorities; as often as not they fail. There are several possible explanations for this. One is that there may be voter resistance due to already high levels of taxation. Another is that local demographics may pit parents of school-aged children against older "empty-nesters" and retirees on fixed incomes. Or the proposed bond amount may just be too much for a majority of electors. Some voters may, for various reasons, be dissatisfied with their local schools or public education in general. There may be organized opposition, and a certain percentage of voters may never be won over to support the bond issue.

Many school officials view their failure to win bond elections as the result of an inadequate public relations effort.3 They feel that enrollment projections or the poor condition of school facilities should be enough to convince the voters—if only they were better informed. There may indeed be a genuine need for school construction and the bond money to finance it. But beyond that, "voter education" and good PR should not be the primary basis for gaining voter approval for the issuance of debt. Bond elections should rather be won as a result of a school’s reputation for responsibility in conducting its affairs and handling its finances.

Many units of government show their responsibility by committing to capital planning and budgeting on a long-term, ongoing basis, and not just when they need to place a bond before the voters. A key management tool for this is the capital improvement program. This program forecasts future demands, schedules major renovations and repairs, anticipates finances, and plans capital acquisitions. It also forecasts future annual operation and maintenance costs associated with new improvements.4 An integral part of the capital improvement program is the debt policy.5

A debt policy is a formal document governing when, how, for what purposes, and to what extent debt may be issued. A sound debt policy offers many benefits to schools that want to better manage their capital improvement programs. Debt policy

  • helps schools avoid common pitfalls of debt issuance and management;

  • promotes long-term financial stability;

  • sends a message of responsibility to taxpayers;

  • can help schools earn better bond ratings from rating agencies;

  • enhances regulatory compliance; and

  • assures that borrowing is done at the lowest cost to taxpayers.

These areas all represent opportunities for improvement in Michigan’s public schools. Some districts have been criticized over these issues and cannot afford to ignore problems in debt issuance and management. Maintaining trust with voters is imperative at a time when support for the concept of public education seems to be waning. Public schools are ultimately accountable to voters and must therefore seize every opportunity to earn and keep their confidence.

School district leaders who wish to build that trust and confidence can solve many debt management problems locally by implementing policies like those presented in this paper. Other problems have statewide significance and there is much that state-level policy makers can do through debt policy to improve the long-term financial health of Michigan public education.