Dearest reader,
Lady B has seen some discussion today about Michigan school bonds. Specifically, what it costs a district to have a bond issue qualified by the State of Michigan.
Recently, this became the topic of discussion from a voter in St. Charles. The voter claimed that by not seeking state qualification, the district was saving money. That is not always true.
So let's separate a few things in the ledger. 🪶
First, a state-qualified bond DOES carry a qualification fee.
According to the Michigan Department of Treasury's published fee table, the fee begins at $5,000 for an issue up to $5,999,999 and increases as the size of the bond issue increases.
But here is where the discussion has gotten muddled.
Bond counsel.
Financial advisers.
Underwriting.
Architects and engineers.
Election expenses.
Those are not simply hundreds of thousands of dollars in extra expenses that exist because a district chooses state qualification.
A district issuing a non-qualified bond WILL still incur professional, financing, election and project-planning expenses.
So taking all of those costs, putting them underneath the heading "cost of qualifying," and then concluding that avoiding qualification demonstrates financial stewardship does not establish the actual savings.
There is another side of the ledger, too.
Michigan Treasury explains that qualified school bonds receive access to the State of Michigan's credit rating, which Treasury says will usually result in a LOWER interest rate and LOWER cost.
Qualification also involves state review of things such as construction costs, enrollment projections and debt-service schedules. Treasury describes on-site inspection of existing facilities as part of that process as well.
That doesn't mean a qualified bond is automatically the better choice.
It doesn't mean a non-qualified bond is automatically the worse choice, either.
It means we need the numbers.
For any district not seeking qualification, the useful questions are:
What would state qualification actually have cost?
Which expenses are truly avoided by issuing the bonds as non-qualified?
What financing terms will the district receive without the state's credit enhancement?
What would the financing terms have been with qualification?
And what is the total borrowing cost under each scenario?
THAT comparison would tell taxpayers whether choosing a non-qualified bond saved money.
"Non-qualified" is not synonymous with bad stewardship.
But "we avoided the qualification fee" isn't proof of good stewardship, either.
The ledger needs both sides.
With receipts and respect. 🪶
Sources: Michigan Department of Treasury, School Bond Qualification & Loan Program; Form 3451 Qualification Fee Schedule; 2025 SBQLP Annual Report.
#LadyBudgetdown #WithReceiptsAndRespect #MichiganSchools #SchoolBonds #StCharles
From Facebook comments:
does risk / repercussions of non-payment factor into the equation?
Reply: Yes. That's another piece of the equation. State qualification provides a credit enhancement and, for qualified bonds, access to the state's School Loan Revolving Fund mechanism if a district needs assistance making debt-service payments. That additional protection is part of why qualified bonds can receive lower borrowing rates. It doesn't erase the district's obligation, though. Money borrowed from the state must still be repaid, with interest. So that's another factor that belongs on the BENEFIT side when comparing qualified and non-qualified bonds.