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. 5588

November 8, 1979

SCHOOLS AND SCHOOL DISTRICTS

Bonds

BONDS:

School districts

Upon receipt of approval of the Superintendent of Public Instruction or the Municipal Finance Commission, a school district may, without a vote of the electorate, use the unexpended proceeds of a bond issue up to and including 15% of the amount of the issue for a purpose set forth in 1961 PA 108, Sec. 4a. Where such action is taken, the qualification certificate of the bond issue should be amended to reflect the additional projects to the extent that they are not encompassed within the purview of the certificate originally issued.

Dr. Eugene T. Paslov

Interim Superintendent of Public Instruction

Department of Education

Lansing, Michigan 48909

My opinion has been requested as to whether a school district may conduct an election to seek authorization from its voters to divert unexpended proceeds received from a prior bond issue to other capital outlay purposes. The surplus proceeds were created because changed conditions dictated elimination or alteration of certain of the projects originally contemplated.

The question has also been asked as to whether there is any necessity for your office to alter the qualification certificate of the bond issue.

The authority of the school district to issue bonds is contained in the School Code of 1976, 1976 PA 451; MCLA 380.1 et seq; MSA 15.4001 et seq. Section 1351 thereof provides in pertinent part:

'A school district may borrow money and issue bonds of the district to defray all or a 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 therefor, 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.' MCLA 380.1351; MSA 15.41351.

Utilization of the bond revenues is limited to purposes enumerated in the statute authorizing the bond issue. As noted in 15 McQuillin, Municipal Corporations, (3d ed), Sec. 43.68, p 606:

'The proceeds of bonds sold by a municipality, including premiums obtained by the sale of bonds, must be applied to the purposes for which the bonds were issued and sold, as determined from a proper construction of the applicable law, and, unless so provided by statute, such funds may not be validly diverted to other purposes or uses. . . .'

In OAG, 1963-1964, No 4123, p 55 (March 22, 1963) and OAG, 1977-1978, No 5240, p ___ (November 4, 1977), it was held that surplus bond proceeds may not be used for operating expenses of the district since such use was not contemplated by the statute authorizing issuance of the bonds.

Further, the use of unexpended school district bond proceeds is covered by 1961 PA 108, Sec. 4a, as last amended by 1977 PA 26; MCLA 388.954a; MSA 3.424(114a); which provides in pertinent part:

'. . . [A]n unexpended balance of the proceeds of sale of any school district bonds heretofore or hereafter issued, remaining after completion of the project, to the extent of 15% of the amount of the issue . . . may be used for school construction, equipment and site acquisition and development if that use is approved by the superintendent of public instruction if the bonds are qualified bonds as defined by section 3, or by the municipal finance commission if the bonds have not been so qualified, and any remaining balance shall be paid immediately into the bond and interest redemption fund established for the bonds and shall be used either for the redemption of callable bonds, or, before the first call date only, for purchasing the bonds on the open market at not more than the fair market value or used to reduce the amount required to be levied to meet current principal and interest on the bonds as they become due. . . .'

Therefore, upon receipt of approval of the Superintendent of Public Instruction or the Municipal Finance Commission, it is my opinion that the school district may, without seeking prior approval of its electors, use unexpended proceeds up to an including 15% of the amount of the issue for purposes set forth in 1961 PA 108, Sec. 4a supra, unless such use is prohibited under covenants with the bondholders and if such use does not impair the pre-existing contractual rights of such bondholders in any way as certified to the Superintendent of Public Instruction or the Municipal Finance Commission.

Approval of the Superintendent of Public Instruction for the use of the funds is required for qualified bonds pursuant to 1961 PA 108, Sec. 4a, supra, and such approval would be conditioned upon the findings set forth in section 4 of that act. Therefore, responding to your second question, the qualification certificate should be amended to reflect the additional projects to the extent that they are not encompassed within the purview of the certificate originally issued.

Frank J. Kelley

Attorney General