750 KAR 1:010. Commission procedures.

 

      RELATES TO: KRS 157.420, 157.440,

157.611, 157.615, 157.617, 157.620, 157.622, Pub.L. 111-5

      STATUTORY AUTHORITY: KRS 157.617(1),

157.622(4)

      NECESSITY, FUNCTION, AND CONFORMITY: KRS

157.617(1) authorizes the School Facilities Construction Commission (SFCC) to

promulgate administrative regulations for the orderly conduct of its affairs,

including assisting local school districts to meet the school construction

needs of the state. KRS 157.622(4) requires the SFCC to promulgate an

administrative regulation governing allocations of state funds to eligible

school districts. This administrative regulation establishes the procedures the

SFCC utilizes in determining eligibility, determining the level of participation

of each local school district, making the offer of assistance to the local

school districts, determining allowable expenditure of funds, cumulating credit

for those districts that maintain their eligibility, but do not have sufficient

funds to complete their first priority project, and allocating savings from refinancing.

 

      Section 1. Definitions. (1)

"Available local revenue" is defined by KRS 157.615(1).

      (2) "Daily interest" means the

total interest divided by the number of days in the first coupon.

      (3) "Eligible district" is

defined by KRS 157.615(16).

      (4) "Level repayment schedule"

means a repayment schedule in which the combined annual amount of principal and

interest payments for each issue of bonds remains relatively constant over the

life of the issue.

      (5) "Maximum annual repayment

amount" means the maximum aggregate total of SFCC annual payments for all

bonds issued for a particular school district in which the SFCC has participated.

If a bond series has been refunded, the original issue and debt schedule shall

be the one used in making this computation.

      (6) "Offer of assistance" means

the amount available for a school district from a current biennium along with

any allocation available from a prior period which has not expired according to

KRS 157.622(5) and (6).

      (7) "SFCC" means the School

Facilities Construction Commission.

      (8) "Total interest" means the

first gross interest payment of the debt service for the SFCC portion of the

schedule.

 

      Section 2. Eligibility. (1) The SFCC

shall use the statement of need and available local revenue as certified by the

Kentucky Board of Education in determining the rate of participation of each

school district in any given biennium. Eligibility for participation as

established in KRS 157.620(1) shall be certified by the Kentucky Board of Education.

      (2) A school district retaining capital

outlay funds in its current expense general fund under the provisions of KRS

157.420 in the year preceding the biennium in which funds are available or

during the biennium shall be ineligible to participate in the SFCC Program

during that funding period.

 

      Section 3. Rate of Participation. (1) The

rate of participation of each eligible district shall be determined by dividing

the unmet needs of that district by the total unmet needs of all eligible

districts and multiplying that fraction times the total new debt service

budgeted for the biennium.

      (2) If there are insufficient funds

budgeted in the first year of the biennium to fund all the requests, bond sales

shall be scheduled in the order in which the SFCC receives requests for approval

of bond sales.

      (3) All bond sales may proceed after

January 1 of the first year of the biennium.

 

      Section 4. Offer of Assistance. Upon

certification of the rate of participation by the SFCC, the Executive Director

of the SFCC shall notify each eligible district of its entitled rate of

participation and the requirements to be met if it wishes to accept the offer

of assistance. These requirements shall include:

      (1) The amount of local revenue to be

expended as certified by the Kentucky Board of Education;

      (2) The priority order of facilities to

be built as certified by the Kentucky Board of Education; and

      (3) The sequence of events and deadlines

to be met if the local school district accepts the offer of assistance.

 

      Section 5. Acceptance of Offer of

Assistance. (1) Within thirty (30) days of receipt of the offer of assistance,

the local board of education shall notify the SFCC of acceptance or rejection

of the offer of assistance. The local district response shall indicate the

amount of the offer it plans to commit to construction or renovation

immediately and the amount it wishes to count as cumulative credit.

      (2) A district not responding within

thirty (30) days shall be declared ineligible and the offer of assistance shall

be withdrawn and redistributed to the eligible recipients. In extenuating circumstances

and upon written request within the original thirty (30) day period, a single

thirty (30) day extension shall be granted by the Executive Director of the

SFCC.

 

      Section 6. Review of Building Plans. The

review and approval of building plans shall be the responsibility of the

Kentucky Department of Education.

 

      Section 7. Allowable Expenditures of

Funds. (1) Funds available from available local revenue shall be expended

before funds generated by bond sales authorized by the SFCC.

      (2) Funds available for a project shall

be expended for the purpose of major renovation or construction of the

identified project except that the balance of funds remaining after the completion

of the project may be expended on the next project on the approved facilities

plan of the respective districts.

      (3) Project costs may include site

acquisition, providing architectural and engineering services, financial and

legal services, and equipment.

      (a) The site acquisition cost shall be limited

to the lesser of:

      1. The actual cost of acquiring a site;

or

      2. The fair market value of the site as

determined by a qualified appraisal obtained by the SFCC and charged to the

project account.

      (b) Construction costs shall not include

the cost of supplies. An item shall be considered a supply if the item:

      1. Does not retain its original shape,

appearance, and character with use;

      2. Loses its identity through fabrication

or incorporation into a different or more complex unit;

      3. Is expendable. An item shall be

expendable if it is more feasible to replace, rather than repair, an item that

has been damaged or has lost or worn parts;

      4. Is expected to serve its principal

purpose for less than ten (10) years, even with reasonable care and

maintenance;

      5. Is not an integral part of the

building. An item shall be an integral part of a building if it:

      a. Is permanently fastened or attached to

the building;

      b. Functions as part of the building,

meaning that the item is essential for the building or site to be used for its

intended purpose; or

      c. Will cause appreciable damage to the

building if removed; or

      6. Does not enhance the value of a

bondholder's collateral or the project.

      (4) SFCC funds or funds from the

restricted account shall not be used to:

      (a) Purchase a site not approved by the

Kentucky Department of Education in accordance with 702 KAR 4:050; or

      (b) Reimburse the local board of

education for a site acquired before enactment of KRS 157.611.

 

      Section 8. Bond Issuance Procedures. (1)

Upon acceptance of an offer of assistance by a local school district, the SFCC

shall determine if the local school district or the SFCC shall issue the bonds.

Local school districts may request authority from the SFCC to issue the bonds

through a city, county, or other agency and instrumentality of the Board of

Education.

      (2) If the SFCC grants permission to

issue bonds at the local level, the procedures for issuing the bonds shall be as

follows:

      (a) The local board of education shall

obtain the services of a financial advisor;

      (b) The contract with the financial

advisor shall be submitted to the SFCC for final approval after signature by

the local school district and the financial advisor; and

      (c) The local board of education shall

obtain the services of a licensed trustee, paying agent, and registrar.

      (3) If the size of the bond issues is

less than $1,000,000 or there is no local participation in the repayment, the

SFCC may determine that it is in the best interests of the SFCC and the local

school board for the SFCC to manage the bond sale procedures. If the SFCC determines

that it is in the best interest of the SFCC and the local school board for the

SFCC to manage the bond sale procedures:

      (a) The bonds shall be sold in the name

of the SFCC;

      (b) The SFCC shall obtain the services of

a financial advisor;

      (c) The SFCC may combine multiple

projects into single bond issues; and

      (d) The SFCC shall obtain the services of

a licensed trustee, paying agent, and registrar.

      (4) The following procedures shall be

followed by all participating districts in construction of SFCC debt service

schedules:

      (a) The SFCC's portion of the bond sale

shall be limited to a twenty (20) year issue, with a level repayment schedule.

The maximum annual repayment amount shall not exceed the offer of assistance

from the SFCC.

      1. The debt service schedule shall have

twenty (20) years of payments based on six (6) month intervals or forty (40)

payments. If the payments begin so that only one (1) payment is made in the

first fiscal year of the schedule, payments may extend over twenty-one (21)

fiscal years, if the amounts of the first and last payments combined do not

exceed the amount of one (1) annual payment.

      2. Annual payments shall be based on a

fiscal year. The fiscal year of the SFCC shall begin on July 1 and end the

following June 30. All schedules shall be prepared in a way that annual amounts

based on a fiscal year are presented in a clear, easy-to-read format while each

interest and principal payment is both segregated and totaled by payment

period.

      (b) The local school district's portion

of the bond sale shall be structured to meet the unique financial needs of the

district. Debt service on the bonds issued shall include the minimum amount required

for eligibility to participate in the program as certified by the Kentucky

Board of Education. The minimum term of the local bond issue to meet

eligibility criteria shall be twenty (20) years. At the discretion of the local

board of education, the bond issue may include a local contribution to debt

service in excess of the minimum required, and the length of the local portion

of the repayment schedule may exceed twenty (20) years.

      (c) Interest collected and accrued on

funds derived from the bond sale shall be allocated to the debt service

schedules of the school district and the SFCC in the same proportions as its

respective participation in the bond issue.

      1. For allocation purposes, each month

shall be calculated as thirty (30) days.

      2. The accrued interest allocated to the

SFCC shall be calculated by multiplying the number of days times the daily

interest.

      3. The number of days shall be calculated

from the issue date of the bonds to the day the bonds are delivered, excluding

the day of settlement.

      4. If local payments are involved in the

bond issue, the accrued interest available to the local district shall be

calculated as required by subparagraph 2 of this paragraph.

      (d) The proceeds of the bond sale shall

be continually invested until expended on the project or until the project is

completed. Any remaining proceeds or investment income received after

completion of the project shall be applied to the debt service. Credit against

the district's and the SFCC's debt service schedule shall be applied in the

same percentage as the participation in the bond issue or, if permitted by the

bond resolution or indenture, excess funds may be applied to an approved

project next in order priority.

      (e) A certificate of project completion

shall be filed with the SFCC by the local school district. The certification

shall summarize the application of the bond proceeds, investment earnings, and

any remaining funds from either source. The certificate shall also verify the use

of cash contribution as may be required for eligibility by the local school district.

      (f) Fees paid to a financial advisor

shall be in accordance with this paragraph. A fee that exceeds this schedule

shall be paid by the local board of education.

      1. The maximum fee for services and

expenses of a fiscal agent shall be the highest amount according to the

following schedule:

      a. $7,500, for any amount of bonds

issued;

      b. $11 per $1,000, if the bond amount is

under $1 million;

      c. $10 per $1,000, if the bond amount is

between $1 million and $2 million; or

      d. $4 per $1,000, if the bond amount is

over $2 million.

      2. The fee shall:

      a. Be based upon the amount of bonds

actually issued;

      b. Include attorney fees, printing of

bonds and official statements, advertising the bond issue, travel of the fiscal

agent, and other normal expenses related to the bond closing; and

      c. Not include a title search or rating

service.

 

      Section 9. Cumulative Credit. Any

eligible district which fails in any budget period to receive an allocation of

state funds sufficient to fund the first priority project on the approved

facilities plan of the district may request the approval of the SFCC to accumulate

credit subject to the availability of funds, for its unused state allocation for

a period not to exceed eight (8) years. Districts which receive funds in excess

of those required to complete the first project may apply those funds to the

next priority project on their approved facilities plan. If there are

insufficient funds to complete the next project, those funds may accumulate as

previously outlined. All fund credit accumulated in this manner shall be

forfeited at any time that the local district fails to accept an offer of

assistance tendered to the district.

 

      Section 10. Refinancing Savings. Savings

that occur as the result of a refinancing in which the SFCC was a participant

shall be divided as follows and in the following order or priority:

      (1) If the SFCC's amount of participation

in the bond issue being refinanced is of such a level that the same amount of

annual debt service can be maintained on behalf of the SFCC, it shall be

maintained at the same annual amount; therefore, lowering the local district’s

account for annual debt service payments by the amount of the total savings on

the refinancing. Consequently, the bonding capacity of the local district shall

be increased allowing the district to pursue its next facility priority. Any

accrued interest shall be deemed a part of the total savings.

      (2) If the SFCC's amount of participation

in the bond issue being refinanced is of such a level that the same amount of

annual debt service paid on behalf of the SFCC is greater than the annual debt

service of the refinanced bond issue debt, annual savings generated shall be

added to that school district’s cumulative credit with the SFCC. These credits

shall not have an expiration time period for their use.

 

      Section 11. Notwithstanding any other

provision of this administrative regulation that conflict with the provisions

of this section, and pursuant to the applicable provisions of the American

Recovery and Reinvestment Act of 2009, (ARRA), Pub.L. 111-5, and Notices

2009-30 and 2009-35 issued by the U.S. Department of the Treasury, the SFCC

shall be authorized to take advantage of any and all provisions to maximize and

realize benefits and favorable treatment related to the structuring of

financial bond transactions to or on behalf of the eligible school districts

even if portions of the prospective financing arrangements conflict with any

other provision of this administrative regulation. (12 Ky.R. 1962; eff.

7-2-1986; Am. 17 Ky.R. 2875; eff. 5-3-1991; 22 Ky.R. 627; 906; eff. 11-2-1995;

25 Ky.R. 1959; 2369; eff. 4-5-1999; 33 Ky.R. 234; 768; eff. 10-6-2006; 36 Ky.R.

1339; 2062-M; eff. 4-2-2010.)