Date:

To:
 
 

From:

Subject:

January 2003.

Superintendents of Public School Districts (or Official Designee)
District Superintendents (For Information)
New York City Board of Education

Andrea Hyary, Chief Bureau of State Aid

Reimbursement for the approved expenditures for the refinancing of bonds.

 
  1. Overview

    Following is an explanation of reimbursement for expenditures associated with the refunding of bonds based on statutory changes enacted in the Laws of 2002.

    1. Building Aid payable for 2002-03 and thereafter for projects approved before 12/1/01 with outstanding principal as of 7/1/02 ("retro" projects) is based on assumed debt service payments. If the aidable assumed debt service payments on which aid will be based are lower than a district’s actual debt service payments, it may benefit the district to refinance the existing debt so as to better align actual district payments with aidable assumed debt service.

      Under certain conditions, some of the costs associated with refinancing for this purpose are aidable expenditures. Unless otherwise indicated, the information included in this memo pertains to school district refunding bond issues as well as refunding bond issues of the Dormitory Authority of the State of New York (DASNY).

    2. Approved expenditures for the refunding of bonds include:

      • Additional principal (the amount of approved expenses included in the principal of a refunding bond which is necessary to provide for the payment of the principal, redemption premiums and interest due on the refunded obligations of the school district to their stated maturities, or to the call date, whichever is applicable)
      • The costs and expenses incidental to the issuance of refunding bonds
      • The costs of the development of the refunding financial plan and of executing and performing the terms and conditions of the escrow contract
      • All fees and charges of the escrow holders
    3. Eligible costs of refinancing are aidable whether those costs are a) incorporated into the principal of the new refunding bond or b) paid directly by the district as cash outlay. The following criteria must be met in order to receive reimbursement for the refinancing charges and fees described above:

      • The project or projects included in the new issuance must be "retro" projects
      • The refunding bond must be issued on or before 7/1/05
      • The district cannot demonstrate net present value savings (Note: Local Finance Law has been amended to allow refunding under this condition)
      • Aid payable in 2002-03 and/or 2003-04 for approved debt service expenditures is reduced due to the application of assumed amortization to unpaid principal outstanding as of 7/1/02
    4. The main purpose of reimbursement for the costs of refinancing is to minimize the impact on districts due to the application of assumed amortization. Therefore, the statute distinguishes between the "state share" of the costs of refinancing and the "local share" of the costs of refinancing. The state share of costs is reimbursed more generously than the local share, since theoretically districts need only refinance the state share of existing debt in order to better align their payments with assumed aidable debt service payments.

      In order to distinguish between the state and local shares of refinancing costs for purposes of determining the aidable costs associated with each component, a "state share ratio" is calculated. This state share ratio is not the same as and should not be confused with the district’s building aid ratio. (Please see the sample calculation of aid on the costs of refinancing for a mathematical display of the state share ratio calculation and its application.)

      The state share ratio equals the state share of the outstanding principal of the issue to be refunded (outstanding principal X bond percent X aid ratio) divided by the amount of the outstanding principal which will be refunded (all or part of the outstanding principal of the original bond). Based on this calculation, the state share ratio equals 1 if a district refunds only the state share of the outstanding principal. The state share ratio is applied to the variable costs of refinancing and to the additional principal associated with the refinancing, in order to distinguish between the state and local shares of those costs for aid purposes.

    5. If the criteria listed in C. above are met, state aid will reimburse the district:

      • 100% X the base year costs of refinancing that were paid directly by the district as cash outlay, and not included in the principal of the new issue and
      • 100% X the fixed costs of refinancing included in the principal of the new issue (those costs that will not vary by the amount of principal and additional principal being refunded, and which are determined by the commissioner to be reasonable in accordance with guidelines approved by the director of the budget)
      • 100% X the state share of the variable costs of refinancing included in the principal of the new issue (variable costs are those costs that are not fixed and which are determined by the commissioner to be reasonable in accordance with guidelines approved by the director of the budget)
      • 100% X the state share of the additional principal attributable to the refunding of bonds
      • The district’s building aid ratio X the local share of the variable costs of refinancing included in the principal of the new issue
      • Calculated reorganization incentive building aid on the local share of the variable costs of refinancing included in the principal of the new issue that are reorganization incentive eligible

      The costs of refinancing that are incorporated into the principal of the new refunding issue will be amortized according to the same assumed debt service schedule and interest rate that has been applied to the outstanding principal of the original issue to be refunded. For each aid year, a portion of the total refinancing costs – the assumed annual debt service for those costs – will become an aidable debt service expense. The assumed debt service for the aidable costs of refinancing will be displayed on the 2002-03 Building Aid output reports in items 12 through 18.

    6. To receive aid on the costs of refinancing and on the additional principal associated with refinancing, districts must submit form SA132-A which can be found on the homepage of the State Aid Web Site: http://stateaid.nysed.gov. If a single new bond is refunding multiple old bonds, a 132-A must be submitted for each old bond being refunded. The portion of the refunding costs attributable to each old bond must be reported. Districts must use their electronic signature pin and password to access/submit the SA132-A claim form.

    7. Reminder: Electronic submission of a data form via pin/password is considered to contain an electronic signature. A digital or electronic signature holds the same weight as a written signature. That is, an electronic signature functions to ensure that a message is authentic, its integrity has not been compromised, and the sender cannot disavow or repudiate the message after sending it. Use of the digitized signature by designated officials of the school district will be deemed the equivalent to a conventional written signature and will constitute a certification that the information is correct. Districts are advised not to share their pin/password with third parties.

  2. Sample calculation of assumed debt service for the aidable costs of refinancing

    Below is an example of how aidable assumed debt service for the costs of refinancing is calculated. The aidable annual assumed debt service for the costs of refinancing, aggregated to the district level, will appear in Section C of districts’ Building Aid output reports.

    Note: the sample calculation below assumes that one new issue is refunding one old issue. If one new issue is actually refunding multiple old issues, a separate SA132-A form must be submitted for each old issue.

    SAMPLE CALCULATION OF AID ON THE COSTS OF REFINANCING

    Sample Calculation of Aid on The Costs of Refinancing
    District Name: Any District CSD Full Refunding State Share Only
    District Code: 000000 Series 1989A Series 1989A
    A Original Date of Bonds 15-Aug-1989 15-Aug-1989
    B Original Bond Amount 2,141,000.00 2,141,000.00
    C Outstanding Principal as of July 1, 2002 785,000.00 785,000.00
    D Original Bond Amount Refunded 785,000.00 522,424.07
    E New Bond Amount 1,012,000.00 709,000.00
    Fixed Costs
    F Credit Rating 7,186.30 7,226.02
    G Escrow Agent    
    H Other Costs* 2,536.34 2,550.36
    I Total Fixed Costs (F + G + H) 9,722.64 9,776.38
    Variable Costs
    J Underwriters Discount 6,729.80 4,714.85
    K Bond Counsel 21,136.17 21,253.00
    L Financial Consultant 21,136.17 21,253.00
    M Underwriter Counsel  
    N Verification Agent  
    O Bond Insurance 1,415.11 991.40
    P Other Costs* 50,450.02 51,136.90
    Q Total Variable Costs (J + K ++ P) 100,867.27 99,349.15
    R Total Issuance Cost (I + Q) 110,589.91 109,125.53
    Calculation of State Share of Issuance Costs and Additional Principal:
    S Bond Percent 94.937% 94.937%
    T Building Aid Ratio 70.100% 70.100%
    U State Share of Outstanding Principal (C * S * T) 522,424.07 522,424.07
    V Original Bond Amount Refunded (D) 785,000.00 522,424.07
    W State Share Ratio (U / V) 66.5% 100.0%
    X State Share of Variable Costs (Q * W) 67,076.73 99,349.15
    Y State Share of Issuance Costs (I + X) 76,799.37 109,125.53
    Z Additional Principal (E - D - R) 116,410.09 77,450.40
    AA State Share of Additional Principal (Z * W) 77,412.70 77,450.40
    Calculation of 02-03 Aid on the costs of refunding:
    BB Total Costs to be fully reimbursed (Y+AA) 154,212.07 186,575.93
    CC Applicable Interest Rate (4.5% or DASNY rate) 3.197% 3.197%
    DD Remaining Term 7 7
    EE Calculated Assumed Payment 12,381.06 14,979.42
    FF Number of payments in a year 2 2
    GG Aid on Fully Reimbursable Costs (EE * FF) 24,763.00 29,959.00
    HH Local share of variable costs (Q - X) 33,790.54 0.00
    II Calculated Assumed Payment X 2 pmts / yr 5,425.80 0.00
    JJ Aid on Local Share of variable costs (II * S * T) 3,610.92 0.00
    KK Total Aid on Costs of Refunding (GG + JJ) 28,373.92 29,959.00

  3. Questions and Answers (Note: Questions and answers will be added to this section as they arise and are resolved.
    1. Section C above indicates that the refinancing of "retro" borrowings must not show net present value (NPV) savings to be eligible for reimbursement of those costs. Will districts still get aid on the costs of refinancing where there is net present value savings, as they have in the past?

      No. The costs of refinancing retro borrowings will be aided only where NPV savings cannot be demonstrated.

    2. Does the "no NPV savings" rule apply in the aggregate (new issue compared to all old issues) or on a bond by bond basis (each "piece" of new issue compared to the corresponding old issue it is refunding)?

      It applies in the aggregate. The answer to the 132-A question, "Can you demonstrate net present value savings by refunding this bond issue?" should be " No" if there is negative savings in the aggregate; i.e., the NPV savings analysis need not be done separately for each portion of the new issuance as it relates to each refunded bond.

    3. Refinancing arrangements may include "premiums" when investors are willing to pay more for a bond than its face value. Should the premium amount, if any, be reported anywhere on the SA132-A form?

      No. It should not be included in the amount of the new refunding bond or in any other SA132-A item.

    4. When State reimbursement for approved debt service was based on actual debt service expenditures, premiums were deducted from aid in the first year of debt service expense. Will premiums continue to be deducted from Building Aid under the assumed amortization rules?

      No, beginning with 2002-03 aid.

    5. Should the "discount" amount, if any, be included as an "other variable cost" on the 132-A?

      Yes. The district pays a discount when investors are not willing to pay as much for the bond as its face value. In this case, the district must issue additional principal. This portion of additional principal should be reported as an "other variable cost" on the form. In addition, the discount amount should be included in item #6, and the portion of the discount associated with the bond being refunding should be included in item #7.

      1. Are costs associated with restructuring energy performance contracts eligible for aid?
        • Due to the change in the way Building Aid is paid to Districts, many questions have arisen regarding the refinancing of Energy Performance Contracts. The following items may assist you in deciding whether or not to refinance EPC contracts.
        • Energy Performance Contracts cannot exceed 18 years in length.
        • The Energy Performance Contract must be as long as the payback schedule.
        • Costs incurred by districts in restructuring these contracts are not associated with refinancing of school district debt therefore these costs will not be aided under the Building Aid formula.
        • The additional costs attributable to the renegotiation of the contract must be covered by the original savings calculated for the project. If the original savings cannot cover the cost of the renegotiated contracts, the contracts cannot be renegotiated.
        • Facilities Planning will not be reviewing the Energy Performance Contracts a second time on a routine basis. However, like any other Capital Construction Projects, these contracts are subject to future review and audit.
      2. How is a bond issued associated with both EPC and Non-EPC projects reported to State Aid for aid calculation purposes?

      Bond issues associated with both EPC and Non-EPC projects are included in the list of bond issues on the State Aid internet site for entering SA132A refinancing costs. When entering refinancing cost data for these mixed bond issues, districts should only submit the refinancing costs (SA132A, lines 8 through 25) and related data (SAA132A, lines 4 through 7) for the Non-EPC contracts on the SA132A forms via the internet. In addition to the SA132A submission, districts are required to fax documentation to support the allocations used to report the Non-EPC refinancing costs and related data on the SA132A for these mixed bond issues to the State Aid Office @ FAX # (518) 473-9808, Attention: Louise Gallerie.

    6. Are rounding costs associated with refinancing eligible for aid?

      Yes. The cost to the district of having to borrow in $5,000 blocks is an aidable variable cost, and should be entered as an "other variable cost" on the SA132-A.

    7. What is a "slg deficit" and is it an aidable cost of refinancing?

      A slg deficit occurs when additional principal must be added to the amount of the refunding bond because the proceeds from state and local government securities are not sufficient to cover the amount needed for the escrow account. This additional principal is an aidable cost of refinancing. It should be included in #6 on the SA132-A form (total amount of the new refunding bond issue, and in #7 on the SA132-A form (portion of the new issuance refunding the amount in #4 on the form). If it is included in the amounts reported in those items, it will be aided as additional principal as displayed on Line Z of the sample calculation of aid on the costs of refinancing included in this document.

    8. What is the deadline for submission of the SA132-A, and how does the statute of limitations apply to aid on the amortized costs of refinancing?

      Item #5 on the SA132-A is the date of the new refunding bond issue. If this date is between November 1, 2001 and June 30, 2003, the SA132-A(s) (one for each old refunded issue) must be received by SED by 6/30/03 in order for the aidable costs to be included in current year payment of 2002-03 aids. If the forms are received after 6/30/03, the district will begin to receive aid on the amortized costs of refinancing in 2003-04, and the aid on the costs of refinancing associated with the 2002-03 aid year will be paid as a prior year revision when funds are available. The revision will be made after the 2002-03 desk audit is completed. If the forms for refundings between these dates are received after 6/30/04, the district will begin to receive aid on the amortized costs in 2004-05, aid associated with the 2003-04 aid year will be paid as a prior year revision when funds are available and there will be no aid paid for costs associated with the 2002-03 aid year.

    9. For aid on expenses claimed on SA132-A forms submitted between 11/1/01 and 6/30/03, 100% reimbursement for the 2001-02 or 2002-03 costs of refinancing paid as cash outlay (item #25 on the SA132-A) will be paid as part of 2003-04 aid. If the SA132-As are received by 6/30/04, reimbursement for the 2001-02 or 2002-03 costs of refinancing paid as cash outlay (item #25 on the SA132-A) will be paid as a prior year revision to 2003-04 aid. The revision will be done after the completion of the 2003-04 desk audit, and will be paid as funds become available for paying prior year adjustments.

    10. As there are some differences between the form used by DASNY to report issuance costs and the 132-A, how should these districts proceed?

      When refinancing through DASNY, districts are provided with information on the costs of issuance associated with the refunding in a format that is somewhat different than the SA132-A. If your district refinances with DASNY, you should refer to the following guidelines when crosswalking between DASNY’s sources and uses/cost of issuance material and SED’s SA132-A:

      1. SA132-A #8 Credit Rating Fee: Use the sum of the Moody’s, Fitch and S&P fee amounts that appear on DASNY’s list of costs of issuance
      2. SA132-A #9 Escrow Agent Fee: Use "Escrow Agent" amount that appears on DASNY’s list of costs of issuance
      3. SA132-A #10-12 Other fixed costs: Enter "POS/Official Statement" amount that appears on DASNY’s list of costs of issuance
      4. SA132-A #14 Underwriters Discount: Use "Underwriter’s Discount" amount that appears under "Uses" on DASNY’s list of "Sources and Uses of Funds"
      5. SA132-A #15 Bond Counsel Fee: Use "DASNY Bond Counsel" and "SD Bond Counsel" amounts that appear on DASNY’s list of costs of issuance (SED will consider all counsel fees variable, not fixed)
      6. SA132-A #16 Financial Consultant Fee: Use "Financial Advisor" amount that appears on DASNY’s list of costs of issuance (SED will consider all consultant fees variable, not fixed)
      7. SA132-A #17 Underwriter Counsel Fee: Leave this blank for DASNY refundings; the fee is included in the underwriter’s discount reported in #14
      8. SA132-A #18 Verification Agent Fee: : Use "Verification" or "Verification Fee" amount that appears on DASNY’s list of costs of issuance
      9. SA132-A #19: Bond Insurance Premium: Use "Bond Insurance Premium" that appears on DASNY’s list of costs of issuance
      10. SA132-A #20-22: Other Variable Costs: Enter here the amounts of other costs of issuance not yet reported in the above items, that appear on DASNY’s list of costs of issuance including Trustee and Trustee Counsel and structuring fee
    11. How will additional principal be aided if the amount is not specifically reported as a cost on the SA132-A?

      Additional principal should be included in #6 on the SA132-A form (total amount of the new refunding bond issue, and in #7 on the SA132-A form (portion of the new issuance refunding the amount in #4 on the form). Additional principal for aid purposes will be calculated by subtracting reported fixed and variable costs, and the amount of the old bond to be refunded, from the amount of the new bond. Districts will receive 100% reimbursement for the state share of the additional principal. Please see Lines Z and AA on the sample calculation of aid on the costs of refinancing included in this document for a mathematical display.

    12. How and when will 2002-03 aid on the costs of refinancing be paid?

      The calculation of this aid will be included in 2002-03 building aid calculations and will be incorporated into the calculation of 2002-03 general aid for the June or September payment, depending on when SED receives the SA132-A claim form(s). The SA132-A claim form must be received by 6/30/03 to receive 2002-03 aid on the costs of refinancing incurred between 11/1/01 and 6/30/03.

    13. What interest rate will be used to amortize the costs of refinancing and calculate an aidable assumed debt service payment attributable to such costs?

      The preliminary statewide average interest rate for 2002-03 aid (4.5%) will be used, unless DASNY handled the refunding, in which case the DASNY rate will be used.

    14. On the SA132-A claim form, there is only room to enter three "other fixed costs" and three "other variable costs." What if a district has more than three items for one or the other?

      In this case, "other" fixed item amounts can be combined in one item; however, each "other" cost should be described briefly. For example, if the district has other fixed costs A, B, C and D, other fixed costs A ($2000) and B ($1000) can be combined in item #10. The district would briefly describe the two costs items in the text field on the left and enter $3000 on the right. The same reporting procedure would apply to other variable costs, if more than three other variable costs need to be reported. Please do not combine "other fixed" and "other variable" costs in one item.

Last Updated: May 29, 2009