The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us) STATE OF MICHIGAN FRANK J. KELLEY, ATTORNEY GENERAL Opinion No. 5240 November 4, 1977 BONDS: Transfer by a school district from a Building and Site Fund to the General Fund. SCHOOLS AND SCHOOL DISTRICTS: Transfer of funds from a Building and Site Fund to the General Fund. Where a Building and Site Fund is created by a bonding resolution of a school district and the bond proceeds are deposited in such fund, the district may not transfer bond proceeds to the General Fund even with the approval of the electors in the school district. After a project for which bonds have been issued has been completed, funds in the Building and Site Fund should be transferred to the Debt Retirement Fund and such funds shall remain in the Debt Retirement Fund for a period of two years after retirement of the bonds unless prior approval to transfer the funds is authorized by the Municipal Finance Commission. If the electors of a K-12 school district have approved a tax levy for sinking fund purposes to acquire building sites or to construct buildings, as distinguished from the approval of issuance of bonds, the school electorate voting on the question may approve transfer of such sinking fund moneys to the operating fund. Honorable Dan Angel State Representative 49th District The Capitol Lansing, Michigan 48901 You have asked for my opinion on a question which can be phrased as follows: May a K-12 school district transfer money from the Building and Site Fund to the General Fund with the approval of the voters in such a school district? The answer to your question will be determined by the authority under which the Building and Site Fund was created. A common method for a school district to establish a building and site fund is as a part of a bonding transaction into which fund bond proceeds are deposited. For example, such authority is derived from the school code of 1976, 1976 PA 451, Sec. 1351; MCLA 380.1351; MSA 15.41351 which provides in pertinent part: 'A school district may borrow money and issue bonds of the district to defray all or part of the cost of purchasing, erecting, completing, remodeling, improving, furnishing, refurnishing, equipping, or reequipping school buildings, including library buildings, structures, athletic fields, playgrounds, or other facilities, or parts thereof or additions thereto; acquiring, preparing, developing, or improving sites, or parts thereof or additions thereto, for school buildings, including library buildings, structures, athletic fields, playgrounds, or other facilities; purchasing school buses; participating in the administrative costs of an urban renewal program through which the school district desires to acquire a site or addition thereto for school purposes; refunding all or part of existing bonded indebtedness; or accomplishing a combination of the foregoing purposes.' OAG, 1963-1964, No 4123, p 55 (March 22, 1963) interpreted a provision of the school code of 1955, (1) similar to the above-quoted provision, saying: 'A plain reading of Sec. 681 of the School Code of 1955, is persuasive of the legal conclusion that the legislature has not authorized school districts to borrow money and issue bonds for operating purposes. Nor does the statute empower school districts to divert bond proceeds from the enumerated purposes for which moneys were borrowed and bonds issued. 'The proceeds of bonds issued by a school district must be applied solely to purposes for which the bonds were issued and the funds may not be diverted to other purposes or uses. Bell v. Board of Education of Barren County School District (Ky.) 343 S.W. (2) 804 (1961). Therefore, it is my opinion that the transfer of bond proceeds derived by a school district from the sale of bonds issued for the purpose of constructing and equipping elementary school buildings, a high school building, and purchasing school sites to the general operating fund of the district is illegal. School tax electors are without authority to vote such a transfer.' Because of the similarity of Sec. 681 of the school code of 1955 to the present provision of the school code of 1976, the reasoning of the referenced opinion is controlling and is applicable to all school districts within the state. Therefore, where a building and site fund is created by bonding resolution of the school district and bond proceeds are deposited into such a fund, the district may not transfer bond proceeds to the General Fund even with the approval of the electors in the school district. After a project for which bonds were issued has been completed, moneys in the Building and Site Fund should be transferred to the Debt Retirement fund. The Municipal Finance Act provides that such moneys shall remain in the Debt Retirement Fund for a period of two years after the retirement of the bonds unless a previous approval to transfer the funds is authorized by the Municipal Finance Commission [MCLA 137.1(a); MSA 5.3188(45a)] Accordingly, it is my opinion that if the school electorate of a K-12 school district approved a tax levy for sinking fund purposes to acquire building sites or construct buildings, as distinguished from the approval or issuance of bonds, the school electorate voting on the question may approve transfer of such sinking fund moneys to the operating fund. Further, however, it is my opinion that bond moneys placed in a building and site fund of a K-12 school district cannot be used for operating purposes unless the bonds are retired or, as permitted by the Municipal Finance Act, 1943 PA 202, MCLA 137.1 et seq; MSA 5.3188(45) et seq, the Municipal Finance Commission approves such a transfer. Therefore, it is my opinion that bond moneys placed in a building and site fund of a K-12 school district cannot be used for operating purposes unless the bonds are retired and the Municipal Finance Commission approves such transfer. However, if the school electorate of a K-12 school district approved a tax levy for sinking fund purposes to acquire building sites or construct buildings, the school electorate, voting on the question, may approve transfer of such sinking fund moneys to the operating fund. Frank J. Kelley Attorney General (1)