INTEREST RATE REDUCTION ON ASSUMED AMORTIZATIONS
FOR BUILDING AID PURPOSES
(NOTE: This guidance supersedes all previously published information regarding interest rate reduction)
OVERVIEW
- NYS Education law Section 3602 (6)(e)(5)(c) requires the commissioner to reduce the interest rate on an assumed amortization for Building Aid at the end of each ten-year segment of the assumed amortization, if the interest rate upon which the assumed amortization is based minus the applicable interest rate at the end of the ten-year segment is equal to or greater than one quarter of one-one hundredth(one quarter percent)
- Except where waivers are in effect, all assumed amortizations that began in 2007-08 or earlier are subject to interest rate reduction beginning with 2017-18 aid, and rates for all these amortizations will not be subject to this statutory provision again until the 2027-28 aid year. Assumed amortizations that began in 2008-09 are subject to interest rate reduction beginning with 2018-19 aid. (A table of relevant dates appears at the end of this document.)
- A new assumed amortization for the remaining life of the retro bond or prospective project will be established based on the new interest rate and the new rate will be applied going forward. Prior year aid is not affected.
- The State Education Department (SED) must notify districts of projects subject to the interest rate reduction no later than December 1 of the school year preceding the school year of the rate reduction. SED complies with this requirement by including the list of projects subject to interest rate reduction in the SAMS Form FB Interest Rate Reduction Waiver Application (IRRWA) form in the SAMS claim year prior to the school year of the rate reduction.
- A waiver from the interest rate reduction may be granted by the State Aid Office if the district can demonstrate that it is precluded by state or federal law, rule or regulation from refinancing the bond currently financing the impacted project.
- When output reports are published each year in late fall, aid amounts will reflect reduced interest rates for projects subject to the rate reduction for which a) no waiver application was made in SAMS, b) waiver requests were disapproved and c) waiver applications were received too late to process in time for the initial output report release.
- Beginning with 2018-19 published aid projections, both the total current year Building Aid and total projected year Building Aid displayed will reflect lowered interest rates for projects for which a) no SAMS Form FB waiver application was received, b) waiver requests were disapproved and c) waiver applications were received too late to process in time to be included in the frozen data file on which the computer run was based.
- Districts with projects subject to the rate reduction must complete the current year SAMS Form FB IRRWA Form as part of their State Aid claim, in order to avoid inaccurate Building Aid calculations.
IMPACT
Except where waivers are in effect, the interest rate on assumed amortizations for Building Aid will be reduced as specified below:
- Retro amortizations except for DASNY-funded amortizations and B5 city school district amortizations: If no waiver has been approved by SED, the interest rate applied to retro assumed amortizations will be reduced from 4.5% to the final 2016-17 statewide average rate when it becomes available in fall 2017. Building Aid will reflect the reduced rate beginning with 2017-18 aid. All retro assumed amortizations will again be subject to interest rate reduction in the 2027-28 aid year, if they have not expired by that year. (SED waivers are already approved for retro amortizations that display a "Y" in the “Waiver Approved” column of the 2016-17 SAMS Form FB IRRWA Form; as with all components of districts’ State Aid claim, waiver approval may be subject to subsequent claim verification.)
- Prospective assumed amortizations beginning in 2007-08 and earlier, except for DASNY-funded amortizations and B5 amortizations: If no waiver has been approved by SED, the interest rate applied to prospective assumed amortizations beginning in 2007-08 and earlier will be reduced to the final 2016-17 statewide average rate when it becomes available in fall 2017. Building Aid will reflect the reduced rate beginning with 2017-18 aid. These prospective amortizations will again be subject to interest rate reduction in the 2027-28 aid year, if they have not expired by that year. (SED waivers are already approved for 2007-08 and earlier prospective amortizations that display a "Y" in the “Waiver Approved” column of 2016-17 SAMS Form FB IRRWA Form; as with all components of districts’ State Aid claim, waiver approval may be subject to subsequent claim verification.)
- Prospective assumed amortizations beginning in 2008-09, except for DASNY-funded amortizations and B5 amortizations: If no waiver is approved by SED, the interest rate applied to prospective assumed amortizations beginning in 2008-09 will be reduced to the final 2017-18 statewide average rate when it becomes available in fall 2018. Building Aid will reflect the reduced rates beginning with 2018-19 aid. 2018-19 Building Aid projected during 2017-18 will be based on the final 2016-17 rate. Prospective amortizations starting in 2008-09 will again be subject to interest rate reduction in the 2028-29 aid year, if they have not expired by that year. (Districts with one or more amortizations subject to rate reduction beginning with 2018-19 aid must apply for waivers in 2017-18 SAMS as part of their Form FB State Aid claim. SED waivers can be considered approved for 2008-09-start year amortizations if a "Y" is displayed in the “Waiver Approved” column of 2017-18 SAMS Form FB IRRWA Form; as with all components of districts’ State Aid claim, waiver approval may be subject to subsequent claim verification.)
- Prospective assumed amortizations beginning in 2009-10 and each year thereafter, except for DASNY-funded amortizations and B5 amortizations: The table at the end of this document contains time frames for interest rate reductions for these amortizations. Each year, if no waiver is approved by SED for one or more amortizations listed in SAMS as subject to reduction, the interest rate will be reduced to the final statewide average rate calculated based on borrowings occurring during the aid year prior to the aid year in which the interest rate will first be reduced for Building Aid.
- DASNY-funded assumed amortizations, retro and prospective: All the information provided in the four bullets above applies to these amortizations, except that if no waiver is approved by SED, the reduced interest rate on retro and/or prospective assumed amortizations associated with DASNY borrowings will be determined by DASNY and provided to SED. Districts with DASNY-funded assumed amortizations should apply for waivers from interest rate reduction in the same manner and time frames as directed in the four bullets above.
- Big 4 city school district amortizations, retro and prospective, except DASNY-funded amortizations: All the information provided in the first four bullets above applies to these amortizations, except that if no waiver is approved by SED, the rate on Big 4 city district retro and prospective assumed amortizations will be reduced to reflect each district’s calculated interest rate for borrowings occurring during the aid year prior to the aid year in which the interest rate is eligible to be reduced for Building Aid, as calculated pursuant to NYSEL 3602 (6)(e)(5)(a)(i).
- New York City School District: If no waiver has been approved by SED, the rate on assumed amortizations subject to rate reduction will be reduced to reflect the district’s average interest rate for school purposes for borrowings occurring during the aid year prior to the aid year in which the interest rate is first reduced for Building Aid. With the exception of the fourth column, the table at the end of this document applies to NYC. (The New York City School District does not use the SAMS Form FB IRRWA form to apply for waivers.)
REASONS FOR WAIVERS FROM INTEREST RATE REDUCTION
Districts can apply to SED for a waiver from the interest rate reduction on an assumed amortization if they can demonstrate that they are precluded by state or federal law, rule or regulation from refinancing the bond currently financing the impacted project. Reasons why a waiver may be approved include but are not limited to:
- Prior to July 1 of the aid year in which the interest rate would be reduced, bonds cannot be refinanced or advance refunded and retain their tax-exempt status due to restrictions in state or federal law or prior refundings;
- If refinanced prior to July 1 of the aid year in which the interest rate would be reduced, refundings would not meet the savings requirements in local finance law sections 90 or 90.1;
- If refinanced prior to July 1 of the aid year in which the interest rate would be reduced, a district would exceed its constitutional debt limit as a result of refinancing.
WAIVER APPLICATION & APPROVAL VIA THE
STATE AID MANAGEMENT SYSTEM (SAMS)
The waiver application is incorporated into the State Aid Management System (SAMS) and can be accessed from the list of Form FB schedules. It appears on the FB menu as Interest Rate Reduction Waiver Application Form. The application form in each year’s SAMS release will display the projects eligible for rate reduction in the following aid year. For example, the IRRWA Form in 2017-18 SAMS displays each district’s projects that are subject to interest rate reductions to be implemented starting with 2018-19 aid.
When completing SAMS Form FB each year, all districts should open the IRRWA Form to see if there are any projects subject to the interest rate reduction in the following aid year. Districts with any amortizations displayed on the application form must complete the schedule as part of their regular SAMS Form FB submission. A response to the question “Are you applying for a waiver for this project?” must be provided for every project listed, even if the answer is “No.”
Building Aid projections on published computer runs will be inaccurate for assumed amortizations that would be eligible for a waiver, but for which no waiver application is submitted. Projected Building Aid for these projects will be based on reduced interest rates; therefore, it is vitally important to properly apply for waivers to ensure accurate aid estimates.
SAMS WAIVER APPLICATION / APPROVAL PROCESS
- Each of the district’s projects listed on the SAMS Form FB IRRWA Form includes an estimate of the one-year Building Aid impact if a waiver is not approved, and an estimate of the total Building Aid impact over the remaining life of the assumed amortization if a waiver is not approved.1
- All required fields for all listed projects must be completed in order to successfully save this form. If the information entered passes programmed validation checks, allowing the district to successfully save the application form, the last column of the form will inform the district if a waiver has been approved.
- Like all data submitted to claim State Aid, the information provided by districts on the IRRWA Form is subject to verification by the State Aid Office. Selected districts will be required to provide supporting documentation to substantiate information reported on the SAMS Waiver Application Form. This information may be requested during the initial fall review of the state aid claim, or via the annual SAMS Claim Verification process, or at another time. Districts are encouraged to review the "Supporting Documentation…" section below and to ensure that adequate documentation is retained at the district.
- If a "Y" displays in the “Waiver Approved” column of the IRRWA Form, the waiver can be considered approved unless supporting documentation is requested by SED and the district cannot substantiate the information provided on the IRRWA form.
- The SAMS IRRWA Form is part of the existing Form FB, similar to other FB schedules. As always, the superintendent must certify Form FB in order to transmit the data to SED. The superintendent’s certification of Form FB will constitute certification of the data provided in the waiver application form; there will be no separate superintendent certification for the waiver application form.
For complete details on the bond and project data included on the Waiver Application Form, please review the 'Explanation of Project and Bond Data’ link at the top of the SAMS IRRWA Form. For instructions on filling out the form, please see the SAMS Help file.
SUPPORTING DOCUMENTATION FOR SAMS WAIVER APPLICATIONS
In the event the district is required to substantiate data on the IRRWA form, the following is considered appropriate supporting material and may be requested by the State Aid Office:
- Copies of refunding reports or pages of official statements indicating bonds which have been refunded and call provisions relating to refunding bonds for bonds which cannot be refunded. In many instances the original bonds will have been refunded one or more times since the original issuance. To clearly indicate that currently outstanding refunding bonds are related to the original retro bonds or prospective project, the following substantiating documentation may be requested by the State Aid Office:
- A copy of the cover page of the original retro bond issuance or the first issuance of bonds official statement associated with a prospective project. If the cover page does not include a schedule of maturities, a copy of a page from the interior of the official statement with a listing of maturities should be included. Example_of_Official_Statement_Cover_with_Schedule_of_Maturities (
728 KB) - A copy of the call provisions (optional redemption provisions) of the original issuance. Example_of_Optional_Redemption_or_Call_Provisions ( 905 KB)
- A copy of the cover page of each refunding bond issuance associated with a retro bond issuance or a prospective project. If the cover page does not include a schedule of maturities, a copy of a page from the interior of the official statement with a listing of maturities should be included. Example_of_Official_Statement_Cover_with_Schedule_of_Maturities ( 728 KB)
- For each refunding bond issuance a copy of the section including the plan of refunding which indicates the bonds that were to be refunded by the issue. In the event the refunded bond maturities are not included in the official statement, a copy of the final numbers from the refunding including a listing of the refunded bonds may be substituted. Example_of_Refunding_Plan_with_Schedule_of_Refunded_Bonds ( 601 KB)
- For each refunding bond issuance a copy of the call provisions (optional redemption provisions)
- A copy of the cover page of the original retro bond issuance or the first issuance of bonds official statement associated with a prospective project. If the cover page does not include a schedule of maturities, a copy of a page from the interior of the official statement with a listing of maturities should be included. Example_of_Official_Statement_Cover_with_Schedule_of_Maturities (
- An estimated Refunding Financial Plan, prepared consistent with the requirements of the Office of the State Comptroller (see http://www.osc.state.ny.us/pension/debt9010.htm) for approval of refundings pursuant to sections 90.00 and 90.10 demonstrating that a refunding of a given series of bonds would not meet the thresholds in local finance law. Estimates of market rates and costs of issuance should be consistent with current market standards and OSC guidelines for approval. Any submission of a Refunding Financial Plan should include a written description of the major assumptions. For example, “The scale used to create this Refunding Financial plan was based on AAA municipal market daily rates from 2/12/13 plus a spread of 30 basis points based on how the districts bonds are anticipated to price” or “The underwriters discount is based on the levels paid in the districts 2012 refinancing”
SED may request additional documentation not listed above, but deemed to be appropriate to complete the waiver application review process.
* Districts can view amortization start year for their amortizations on the Prospective Project Amortization Report embedded in all Building output reports (except NYC).
** Amortizations will not be subject to rate reduction unless the statewide avg. interest rate at the end of the ten-year segment is at least one quarter percent (.25) lower than the amortizations' current interest rate.
*** All 'retro' amortizations started in this year, and all are 1st subject to rate reduction in 2017-18.
**** Approved waivers apply to one ten-year segment; waived amortizations may be subject to rate reduction again in ten years if the amortization has not ended and the .25 difference criteria is met.
Please e-mail OMSSAMS@nysed.gov with questions about the above information.
1 Please note that in 2016-17 and 2017-18 SAMS only, estimated aid impact for projects funded by the Dormitory Authority (DASNY) reflects original interest rates and therefore displays as $0 or close to $0. These aid impact figures are not valid. Beginning with the Form FB IRRWA listing included in 2018-19 SAMS and thereafter, the estimated aid impact of interest rate reduction on DASNY-funded projects will be estimated using the same statewide average interest rate as that applied to the estimates for all other listed projects. (See the fifth bullet of the 'Impact' section above re: the actual reduced rates that will be applied to DASNY-funded projects without approved waivers.)