North East School District Approves $10,000,000 Bond Issue

In accordance with the provisions of the Local Government Unit Debt Act, the Act of December 19, 1996, notice is hereby given that on May 21, 2015, at a public meeting duly called and held in accordance with the provisions of applicable law, at 7:00 p.m., local time, at the Elementary Center Board Room, 50 East Division Street, North East, PA, the Directors of the North East School District, finally enacted a Resolution authorizing an increase in the non-electoral debt of North East School District, Erie County, Pennsylvania, by authorizing and approving the issuance and sale of $10,000,000 General Obligation Bonds, Series of 2015 (the “Bonds”) for the purpose of providing funds for a current refunding of the School District’s General Obligation Bonds, Series of 2005 and to pay the costs of issuance of the Bonds.

The Bonds were sold at private sale upon invitation to RBC Capital Markets. The price bid for the Bonds was an amount not less than 95% and not more than 110% including underwriting discount in an amount not greater than 1.000% and any original issue discount or premium of the aggregate principal amount of the Bonds issued and delivered plus any accrued interest. The maximum interest rate for the Bonds is 6.000% for Bonds maturing in 2016 through 2025.

The final text of the Resolution as enacted may be examined by any citizen in the office of the Board Secretary of the Board of School Directors of the North East School District, 50 East Division Street, North East, PA, between the hours of 8:30 a.m. and 3:30 p.m. on any business day. Shelley Allen, Assistant Board Secretary Board of School Directors North East School District Knox McLaughlin Gornall & Sennett, P.C. 120 West 10th Street Erie, PA 16501

Additional notes from North East PA Online

The public notice above references “non-electoral debt” of the North East School District. The document below explains what that is, the applicable section is quoted directly.

Debt Management Handbook from the PA Department of Community and Economic Development (DCED)

From the Handbook:

Types of Borrowing

There are several different types of classification for debt. The classification of debt is important because it determines which laws, regulations and limits apply.

Electoral and Nonelectoral & Lease Rental Debt

The primary classifications of debt are electoral, nonelectoral and lease rental. Electoral debt is debt that has been incurred with the approval of a majority of the voters in a referendum. It also includes debt which is approved by the voters subsequent to its incurrence. The Pennsylvania Constitution exempts electoral debt from the statutory debt limits contained in the Local Government Unit Debt Act. The only limits to this type of borrowing are the willingness of the voters to borrow and the willingness of the debt market to buy the debt.

Nonelectoral debt are the bonds or notes the municipality issues directly, without voter approval. Lease rental debt is the backing by the municipality of debt of an Authority or another local government unit through leases, subsidy agreements, guarantees or other agreements.

Nonelectoral debt and lease rental debt, on the other hand, are limited by law. The Local Government Unit Debt Act establishes the limits for nonelectoral debt by type of local unit. However, if a majority of the voters approve in a referendum, nonelectoral debt and lease rental debt can be reclassified as electoral debt and is no longer chargeable against the debt limit.

Further explanation here is from Chapter 12 of the Manual of Accounting and Financial Reporting for Pennsylvania Public Schools:

Is There A Statutory Debt Limit On Pennsylvania Public Schools?

LEAs (Local Education Agencies) are independent local governments. An LEA’s existence, form and power are derived from the Constitution of the Commonwealth, the Pennsylvania Public School Code, and Acts of the General Assembly. One of the powers granted Pennsylvania Public Schools is to borrow funds and pledge future revenues. Thus, local debt levels have been controlled by the state since 1874. The Pennsylvania Local Government Debt Act was initially passed in 1972 to control debt, and is monitored by the Pennsylvania Department of Community and Economic Development.

What Is The Local Government Unit Debt Act?

The Local Government Unit Debt Act (the “Debt Act”) provides the framework for the issuance of debt by Pennsylvania Local Education Agencies (LEAs). The Debt Act was re-enacted and revised by Act No. 177 of 1996. The Act contains the absolute debt limits determined by the legislature. It provides the exclusive methods of borrowing by LEAs and municipalities, and it applies to all local governmental units except for Philadelphia City and county. It grants every local governmental unit the “full power and authority” to issue bonds or notes, and make guarantees, leases, subsidy contracts or other agreements within the absolute limits. The Act provides general debt limits and special debt limits.

In addition to granting the authority and conditions required to issue debt, this Act provides various definitions pertaining to debt. Limitations on the amount of debt a school district can incur are established. Procedures to be performed in the issuance of debt, whether it is a bond, note, lease, or tax anticipation note, are described. Guidelines are provided for acceptable preliminary cost estimates. Remedies are provided for failure of the school district, the borrower, to comply with legal requirements.

The Department of Community and Economic Development (DCED) is named as the enforcement agency within the Commonwealth of Pennsylvania for the approval of debt. The Debt Act also requires the establishment of sinking funds for the repayment of debt, and defines allowable investments for sinking funds.

A transcript of all proceedings undertaken in the issuance of debt is required to be filed with the DCED. All debt issued by an LEA is deemed to be non-electoral debt unless it is specifically approved as electoral debt via a general election. Procedures and requirement for approval are set forth in Chapter 80, Subchapter C of the Debt Act for non-electoral debt. There are no limitations on electoral debt.

The issuance of non-electoral debt requires that the school district calculate and certify its (1) borrowing base and (2) net non-electoral debt plus net lease rental debt as part of the proceedings to be filed with the DCED. The borrowing base for a local government unit is the arithmetic average of the total revenues for the three (3) full fiscal years immediately preceding the year of borrowing non-electoral debt or lease rental debt. The borrowing base certificate submitted to DCED will list the revenues for each of the three (3) preceding years and the average revenue. It will be signed and executed by authorized officials of the school district or by an independent auditor. A detailed description of the calculation of nonelectoral debt plus net lease rental debt is provided in DCED’s Debt Management Handbook.

The borrowing base calculation is used to determine nonelectoral borrowing limitations for a school district. A complete explanation of this calculation and the debt limitations on nonelectoral debt, lease rental debt and combined debt can be found in the DCED Debt Management Handbook, and by referencing 53 Pennsylvania C.S.A. Local Government Unit Debt Act.

The Department of Community and Economic Development (DCED) must approve the sale of bonds or notes issued by a school district. Approval of the DCED is not required for the issuance of tax and revenue anticipation notes (TRANS); however, there are certain filing requirements that must be met. The Department has the power to prescribe the form and content of the filings. Failure of a school district to meet filing and / or approval requirements will nullify the validity of the incurred debt. The DCED is also empowered with the authority to audit bond sinking funds and to enforce investment provisions of the Pennsylvania Local Government Debt Act.