Elements of a Sound Debt Policy for School Districts

by Michael Arens

1. Long-term debt should not be used to finance current operations or to capitalize expenses.
2. Long-term debt should be used only for capital projects that cannot be financed from current revenue sources.
3. Total district indebtedness should not exceed 15 percent of the district taxable valuation for any given year.
4. Retire 50 percent of the total principal on debt within ten years.
5. Avoid variable-rate debt and back-loading and balloon repayment schedules.
6. Bonds should only be re-issued (for the purpose of interest rate savings) under limited circumstances.
7. Avoid capital leases, certificates of participation, or similar instruments for the acquisition or use of facilities or equipment.
8. Limit capital fund investment instruments to reliable sources.
9. Issue debt through a competitive bidding process.
10. Seek independent debt counsel through formal requests for proposals.
11. The district and its financial advisors should comply with all applicable financing and full disclosure reporting rules.
12. Public funds, property, and resources should not be used, directly or indirectly, to influence the outcome of ballot questions.

Source: "The Need for Debt Policy in Michigan Public Schools,"
by Michael Arens, Mackinac Center for Public Policy, January 1998.