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. 6888 February 1, 1996 SCHOOLS AND SCHOOL DISTRICTS: Setting aside up to 5% of the foundation allowance received annually under the State School Aid Act of 1979 in a building and site fund that will be used in years subsequent to the year in which the funds were received The board of education of a school district may set aside up to 5% of the foundation allowance received annually under the State School Aid Act of 1979 in a building and site fund that will be used in years subsequent to the year in which the funds were received. Honorable Allen Lowe State Representative The Capitol Lansing, Michigan You have asked if the board of education of a school district may set aside up to 5% of the foundation allowance received annually under the State School Aid Act of 1979 in a building and site fund that will be used in years subsequent to the year in which the funds were received. Under section 20 of the State School Aid Act of 1979, MCL 388.1601 et seq; MSA 15.1919 (901) et seq, school districts in Michigan receive a foundation allowance for each membership pupil in the district. Money received under the State School Aid Act of 1979 may be used only for purposes specified in the act. Section 18 of the same act sets forth the permissible applications for the foundation allowance received by a school district. It provides, in pertinent part: Except as provided in another section of this act, each district or other entity shall apply the money received by the district or entity under this act to salaries and other compensation of teachers and other employees, tuition, transportation, lighting, heating, ventilation, water service, the purchase of textbooks which are designated by the board to be used in the schools under the board's charge, other supplies, and any other school operating expenditures defined in section 7. An amount equal to not more than 5% of the total amount received by a district under article 2 or intermediate district under article 8 may be transferred by the board to either the building and site fund or to the debt retirement fund for debt service. The money shall not be applied or taken for a purpose other than as provided in this section. [Emphasis added.] Public money must be accounted for as provided by law. Const 1963, art 9, Sec. 21. Under section 1281 (1)(c) of the School Code of 1976, MCL 380.1 et seq; MSA 15.4001 et seq, the State Board of Education is required to prescribe uniform accounting procedures for school districts. See also, 1979 AC, R 340.852. Section 18(2) of the State School Aid Act of 1979 similarly directs that financial audits of a school district are subject to the requirements established in the auditing and accounting manual approved and published by the Department of Education. Under these statutory directives, the State Board of Education publishes a manual entitled the Michigan School District Accounting Manual. A school district that maintains a building and site fund is required by section 1215 of the School Code of 1976 to maintain this fund and account for money in it separate from the district's general fund. A building and site fund is a fund, other than the general fund, used to account for receipt and disbursement of monies used for the acquisition of capital assets, including equipment. This includes monies used to purchase and/or develop school sites and to construct or renovate school buildings. In a recent revision of the Michigan School District Accounting Manual, the term "building and site fund" has been replaced by the term "capital projects fund." The change was made to alleviate some of the confusion caused by the common, albeit improper, use of the term "building and site fund" and the term "sinking fund," as interchangeable terms. The term "sinking fund" is one of many possible subsets within the "building and site fund." The concept of a capital projects fund is that such funds are to be used for nonroutine capital items. For example, construction of new buildings, major remodeling of buildings, and acquisition of equipment to equip newly constructed or remodeled buildings. Routine operation, maintenance and repair are to be accounted for in the district's General Fund. Michigan School District Accounting Manual, Sec. E.19, March 1995. Neither the State School Aid Act of 1979, the School Code of 1976 nor the Michigan School District Accounting Manual imposes limits on when money transferred to a building and site fund under section 18 of the State School Aid Act of 1979 may be spent or prohibit the accumulation of a fund balance in the fund at the end of the fiscal year. As described above, money in this fund is used for nonroutine, capital items involving major expenditures of a school district that require significant sums of money apart from the routine operational expenses of a district. Because of the magnitude of the proposed expenditures, money which has been set aside for those purposes may be expected to be accumulated for some period and actually be expended in a year beyond the year in which the funds are received. The reasonableness of expenditures from the fund and compliance with the State School Aid Act of 1979 are subject to audit and school districts must maintain adequate records to verify that funds in the account are spent in the proper manner. It is my opinion, therefore, that the board of education of a school district may set aside up to 5% of the foundation allowance received annually under the State School Aid Act of 1979 in a building and site fund that will be used in years subsequent to the year in which the funds were received. Frank J. Kelley Attorney General