HF 2268

as introduced - 90th Legislature (2017 - 2018) Posted on 03/08/2017 11:34am

A bill for an act
relating to education finance; providing for charter school facilities; authorizing
appropriation bonds; establishing charter school facilities authority; amending
Minnesota Statutes 2016, sections 124E.13, subdivision 3, by adding subdivisions;
124E.22; proposing coding for new law in Minnesota Statutes, chapters 16A; 124E;
repealing Minnesota Statutes 2016, section 124E.26.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

new text begin [16A.966] CHARTER FACILITIES APPROPRIATION BONDS.
new text end

new text begin Subdivision 1. new text end

new text begin Definitions. new text end

new text begin (a) The definitions in this subdivision and in chapter 124E
apply to this section.
new text end

new text begin (b) "Appropriation bond" means a bond, note, or other similar instrument of the state
payable during a biennium from one or more of the following sources:
new text end

new text begin (1) money appropriated by law from the general fund in any biennium for debt service
due:
new text end

new text begin (i) as the portion of facilities aid under section 124E.22 calculated to pay the obligations
described in subdivision 2, paragraph (b); or
new text end

new text begin (ii) as the portion of long-term maintenance revenue under section 123B.595 calculated
to pay the obligations described in subdivision 2, paragraph (b);
new text end

new text begin (2) proceeds of the sale of obligations described in subdivision 2, paragraph (b);
new text end

new text begin (3) payments received for that purpose under agreements and ancillary arrangements
described in subdivision 2, paragraph (d); and
new text end

new text begin (4) investment earnings on amounts in clauses (1) to (3).
new text end

new text begin (c) "Debt service" means the amount payable in any biennium of principal, premium, if
any, and interest on appropriation bonds.
new text end

new text begin Subd. 2. new text end

new text begin Authorization to issue appropriation bonds. new text end

new text begin (a) Subject to the limitations of
this subdivision, the commissioner may sell and issue appropriation bonds of the state under
this section for public purposes as provided by law, including, in particular, the financing
of all or a portion of the acquisition, construction, improving, and equipping of charter
school facilities authorized by the Charter School Facilities Authority under section 124E.30.
Proceeds of the appropriation bonds must be credited to a special appropriation charter
facilities bond proceeds fund in the state treasury. Net income from investment of the
proceeds, as estimated by the commissioner, must be credited to the special appropriation
charter facilities bond proceeds fund.
new text end

new text begin (b) The commissioner of management and budget shall sell and issue bonds of the state
in an amount up to $....... plus the amount necessary to pay the costs of issuing the bonds
in the manner, upon the terms, and with the effect prescribed in this section. As the total
outstanding amount of appropriation bonds under this section is reduced by payments
required under section 124E.22, the commissioner may sell and issue additional bonds of
the state in an amount up to the difference between $....... and the total outstanding amount
of appropriation bonds under this section.
new text end

new text begin (c) Appropriation bonds may be issued from time to time in one or more series on the
terms and conditions the commissioner determines to be in the best interests of the state,
but the term on any series of appropriation bonds may not exceed 30 years. The appropriation
bonds of each issue and series thereof shall be dated and bear interest, and may be includable
in or excludable from the gross income of the owners for federal income tax purposes.
new text end

new text begin (d) At the time of, or in anticipation of, issuing the appropriation bonds, and at any time
thereafter, so long as the appropriation bonds are outstanding, the commissioner may enter
into agreements and ancillary arrangements relating to the appropriation bonds, including
but not limited to trust indentures, grant agreements, lease or use agreements, operating
agreements, management agreements, liquidity facilities, remarketing or dealer agreements,
letter of credit agreements, insurance policies, guaranty agreements, reimbursement
agreements, indexing agreements, or interest exchange agreements. Any payments made
or received according to the agreement or ancillary arrangement shall be made from or
deposited as provided in the agreement or ancillary arrangement. The determination of the
commissioner included in an interest exchange agreement that the agreement relates to an
appropriation bond shall be conclusive.
new text end

new text begin (e) The commissioner may enter into written agreements or contracts relating to the
continuing disclosure of information necessary to comply with, or facilitate the issuance
of, appropriation bonds in accordance with federal securities laws, rules, and regulations,
including Securities and Exchange Commission rules and regulations in Code of Federal
Regulations, title 17, section 240.15c 2-12. An agreement may be in the form of covenants
with purchasers and holders of appropriation bonds set forth in the order or resolution
authorizing the issuance of the appropriation bonds, or a separate document authorized by
the order or resolution.
new text end

new text begin (f) The appropriation bonds are not subject to chapter 16C.
new text end

new text begin Subd. 3. new text end

new text begin Form; procedure. new text end

new text begin (a) Appropriation bonds may be issued in the form of bonds,
notes, or other similar instruments, and in the manner provided in section 16A.672. In the
event that any provision of section 16A.672 conflicts with this section, this section shall
control.
new text end

new text begin (b) Every appropriation bond shall include a conspicuous statement of the limitation
established in subdivision 6.
new text end

new text begin (c) Appropriation bonds may be sold at either public or private sale upon such terms as
the commissioner shall determine are not inconsistent with this section and may be sold at
any price or percentage of par value. Any bid received may be rejected.
new text end

new text begin (d) Appropriation bonds must bear interest at a fixed or variable rate.
new text end

new text begin (e) Notwithstanding any other law, appropriation bonds issued under this section shall
be fully negotiable.
new text end

new text begin Subd. 4. new text end

new text begin Refunding bonds. new text end

new text begin The commissioner from time to time may issue appropriation
bonds for the purpose of refunding any appropriation bonds then outstanding, including the
payment of any redemption premiums on the bonds, any interest accrued or to accrue to the
redemption date, and costs related to the issuance and sale of the refunding bonds. The
proceeds of any refunding bonds may, in the discretion of the commissioner, be applied to
the purchase or payment at maturity of the appropriation bonds to be refunded, to the
redemption of the outstanding appropriation bonds on any redemption date, or to pay interest
on the refunding bonds and may, pending application, be placed in escrow to be applied to
the purchase, payment, retirement, or redemption. Any escrowed proceeds, pending such
use, may be invested and reinvested in obligations that are authorized investments under
section 11A.24. The income earned or realized on the investment may also be applied to
the payment of the appropriation bonds to be refunded or interest or premiums on the
refunded appropriation bonds, or to pay interest on the refunding bonds. After the terms of
the escrow have been fully satisfied, any balance of the proceeds and any investment income
may be returned to the general fund or, if applicable, the special appropriation charter
facilities bond proceeds fund for use in any lawful manner. All refunding bonds issued
under this subdivision must be prepared, executed, delivered, and secured by appropriations
in the same manner as the appropriation bonds to be refunded.
new text end

new text begin Subd. 5. new text end

new text begin Appropriation bonds as legal investments. new text end

new text begin Any of the following entities may
legally invest any sinking funds, money, or other funds belonging to them or under their
control in any appropriation bonds issued under this section:
new text end

new text begin (1) the state, the investment board, public officers, municipal corporations, political
subdivisions, and public bodies;
new text end

new text begin (2) banks and bankers, savings and loan associations, credit unions, trust companies,
savings banks and institutions, investment companies, insurance companies, insurance
associations, and other persons carrying on a banking or insurance business; and
new text end

new text begin (3) personal representatives, guardians, trustees, and other fiduciaries.
new text end

new text begin Subd. 6. new text end

new text begin No full faith and credit; state not required to make appropriations. new text end

new text begin The
appropriation bonds are not public debt of the state, and the full faith, credit, and taxing
powers of the state are not pledged to the payment of the appropriation bonds or to any
payment that the state agrees to make under this section. Appropriation bonds shall not be
obligations paid directly, in whole or in part, from a tax of statewide application on any
class of property, income, transaction, or privilege. Appropriation bonds shall be payable
in each fiscal year only from amounts that the legislature may appropriate for debt service
for any fiscal year as a portion of charter school facilities aid under section 124E.22 and
long-term maintenance revenue under section 123B.595, provided that nothing in this section
shall be construed to require the state to appropriate funds sufficient to make debt service
payments with respect to the appropriation bonds in any fiscal year. Appropriation bonds
shall be canceled and shall no longer be outstanding on the earlier of: (1) the first day of a
fiscal year for which the legislature shall not have appropriated amounts sufficient for debt
service based on both the prior and current February forecast under section 16A.103; or (2)
the date of final payment of the principal of and interest on the appropriation bonds.
new text end

new text begin Subd. 7. new text end

new text begin Appropriation of proceeds. new text end

new text begin The proceeds of appropriation bonds and interest
credited to the special appropriation charter facilities bond proceeds fund are appropriated
to the commissioner for payment of capital expenses including capitalized interest, debt
service on outstanding indebtedness of the state, and for the operating and capital reserves
of the authority, each as permitted by state and federal law, and nonsalary expenses incurred
in conjunction with the sale of the appropriation bonds, and such proceeds may be granted,
loaned, or otherwise provided to the authority for the public purpose provided by subdivision
2, paragraph (a).
new text end

new text begin Subd. 8. new text end

new text begin Appropriation for debt service and other purposes. new text end

new text begin The amount needed to
pay principal and interest on appropriation bonds issued under this section is appropriated
as a portion of charter school facilities aid under section 124E.22 and long-term maintenance
revenue under section 123B.595 each fiscal year from the general fund to the commissioner
of education for transfer to the commissioner of management and budget, subject to repeal,
unallotment under section 16A.152, or cancellation, otherwise pursuant to subdivision 6,
for deposit into the bond payments account established for such purpose in the special
appropriation charter facilities bond proceeds fund.
new text end

new text begin Subd. 9. new text end

new text begin Waiver of immunity. new text end

new text begin The waiver of immunity by the state provided for by
section 3.751, subdivision 1, shall be applicable to the appropriation bonds and any ancillary
contracts to which the commissioner is a party.
new text end

Sec. 2.

Minnesota Statutes 2016, section 124E.13, subdivision 3, is amended to read:

Subd. 3.

Affiliated nonprofit building corporation.

(a) An affiliated nonprofit building
corporation may purchase, expand, or renovate an existing facility to serve as a school or
may construct a new school facility. A charter school may organize an affiliated nonprofit
building corporation if the charter school:

(1) has operated for at least six consecutive years;

(2) as of June 30, has a net positive unreserved general fund balance in the preceding
three fiscal years;

(3) has long-range strategic and financial plans that include enrollment projections for
at least five years;

(4) completes a feasibility study of facility options that outlines the benefits and costs
of each option; and

(5) has a plan that describes project parameters and budget.

(b) An affiliated nonprofit building corporation under this subdivision must:

(1) be incorporated under section 317A;

(2) comply with applicable Internal Revenue Service regulations, including regulations
for "supporting organizations" as defined by the Internal Revenue Service;

(3) post on the school Web site the name, mailing address, bylaws, minutes of board
meetings, and names of the current board of directors of the affiliated nonprofit building
corporation;

(4) submit to the commissioner a copy of its annual audit by December 31 of each year;
and

(5) comply with government data practices law under chapter 13.

(c) An affiliated nonprofit building corporation must not serve as the leasing agent for
property or facilities it does not own. A charter school that leases a facility from an affiliated
nonprofit building corporation that does not own the leased facility is ineligible to receive
charter school lease aid. The state is immune from liability resulting from a contract between
a charter school and an affiliated nonprofit building corporation.

(d) The board of directors of the charter school must ensure the affiliated nonprofit
building corporation complies with all applicable legal requirements. The charter school's
authorizer must oversee the efforts of the board of directors of the charter school to ensure
legal compliance of the affiliated building corporation. A school's board of directors that
fails to ensure the affiliated nonprofit building corporation's compliance violates its
responsibilities and an authorizer must consider that failure when evaluating the charter
school.

new text begin (e) An affiliated nonprofit building corporation created before May 31, 2019, may
continue to exist until any charter school facility bonds issued before May 31, 2019, are
renegotiated, refunded, or redeemed. Upon any of those bonds being renegotiated, refunded,
or redeemed, the facility must be transferred to the direct ownership of the school nonprofit
corporation. A school renegotiating or refunding a facility owned by an affiliated building
company may seek financing through the Charter School Facilities Authority or from sources
other than the authority. Affiliated nonprofit building corporations formed by charter schools
after May 31, 2019, are ineligible to receive public funds.
new text end

Sec. 3.

Minnesota Statutes 2016, section 124E.13, is amended by adding a subdivision to
read:

new text begin Subd. 5. new text end

new text begin Direct ownership of facilities. new text end

new text begin (a) A charter school must be qualified under
section 124E.30, subdivision 5, as determined by the Charter School Facilities Authority,
to directly purchase, purchase and renovate, or construct a facility, regardless of the source
of the funding used for the purchase or construction.
new text end

new text begin (b) A charter school that directly owns a facility without outstanding bonds issued through
the Charter School Facilities Authority may finance facility projects that do not meet the
threshold specified in section 123B.71, subdivision 8, from sources other than the authority,
as long as they do not have other bonds through the authority.
new text end

new text begin (c) In the event of a closure of a charter school, a facility owned directly by a charter,
after satisfaction of creditors, is an asset of the state.
new text end

Sec. 4.

Minnesota Statutes 2016, section 124E.13, is amended by adding a subdivision to
read:

new text begin Subd. 6. new text end

new text begin Charter school authority and responsibilities. new text end

new text begin (a) The board of a qualified
charter school, by a two-thirds majority, may vote to acquire school facilities financed with
the proceeds of bonds issued by the Charter School Facilities Authority in the manner and
subject to the limitations set forth in section 16A.966 in anticipation of the receipt of facilities
aid under section 124E.22 and long-term facilities maintenance revenue under section
123B.595.
new text end

new text begin (b) A qualified charter school must provide the Charter School Facilities Authority with
a mortgage on the facility that may be assigned to a trustee for the benefit of the bondholders.
new text end

new text begin (c) A charter school board must notify the Charter School Facilities Authority and the
commissioner if the board intends to sell a property being financed by the bonds issued by
the Charter School Facilities Authority. Sales subject to this provision must be made at no
less than the appraised market value.
new text end

Sec. 5.

Minnesota Statutes 2016, section 124E.22, is amended to read:

124E.22 deleted text begin BUILDING LEASE deleted text end new text begin FACILITIES new text end AID.

new text begin Subdivision 1. new text end

new text begin Facilities aid. new text end

new text begin (a) A charter school's facilities aid equals the greater of
the aids calculated under paragraph (b) or (c).
new text end

deleted text begin (a) When a charter school finds it economically advantageous to rent or lease a building
or land for any instructional purpose and it determines that the total operating capital revenue
under section 126C.10, subdivision 13, is insufficient for this purpose, it may apply to the
commissioner for building lease aid. deleted text end new text begin (b) A charter school is eligible for lease aid to either
rent or lease a building for any instructional purpose. The amount of annual building lease
aid for a charter school shall not exceed the lesser of 90 percent of the approved cost or the
product of the pupil units served for the current school year times $1,314. new text end The commissioner
must review and either approve or deny a lease aid application using the following criteria:

(1) the reasonableness of the price based on current market values;

(2) the extent to which the lease conforms to applicable state laws and rules; and

(3) the appropriateness of the proposed lease in the context of the space needs and
financial circumstances of the charter school. The commissioner must approve aid only for
a facility lease that has (i) a sum certain annual cost and (ii) a closure clause to relieve the
charter school of its lease obligations at the time the charter contract is terminated or not
renewed. The closure clause under item (ii) must not be constructed or construed to relieve
the charter school of its lease obligations in effect before the charter contract is terminated
or not renewed. new text begin Triple net leases entered into after June 20, 2018, are not eligible for lease
aid.
new text end

new text begin (c) A qualified charter school that is required to make loan payments to be applied to
principal or interest payments on an outstanding debt obligation issued by the Charter School
Facilities Authority or a charter school that takes ownership of a building from an affiliated
building company is eligible for loan aid in an amount equal to the amount needed to meet
the principal and interest payment on the obligations minus the charter school's long-term
maintenance revenue under section 123B.595. A charter school that is financed through
bonds issued by the Charter School Facilities Authority need only apply for loan aid in the
first year the bonds are issued, or in any first year after the school refinances bonds or takes
on additional bonds for a facility project. Eligibility shall be ongoing until the bonds debt
is retired and the school is eligible for facilities preservation aid under subdivision 2.
new text end

new text begin (d) Notwithstanding paragraph (a), an online charter school's facilities aid equals the
greater of the aids calculated under paragraph (b) or (c) plus costs for electronic hardware
provided for student use for online learning for students who are off campus more than 40
percent of the academic year.
new text end

deleted text begin (b) deleted text end new text begin (e) new text end A charter school must not use the building lease aid it receives for custodial,
maintenance service, utility, or other operating costs.

deleted text begin (c) The amount of annual building lease aid for a charter school shall not exceed the
lesser of (1) 90 percent of the approved cost or (2) the product of the pupil units served for
the current school year times $1,314.
deleted text end

new text begin Subd. 2. new text end

new text begin Facilities preservation aid. new text end

new text begin A charter school is eligible for facilities preservation
aid if the school has satisfied all of its debt obligations from the Charter School Facilities
Authority and owns its facility directly. A charter school's facilities preservation aid equals
0.4 times the average annual facilities aid under subdivision 1, paragraph (c), received by
the charter school during the fiscal years the charter school was repaying debt obligations
to the Charter School Facilities Authority.
new text end

new text begin Subd. 3. new text end

new text begin Long-term facilities maintenance aid restrictions. new text end

new text begin (a) Notwithstanding section
123B.595, subdivision 10, a charter school receiving loan aid under subdivision 1, paragraph
(c), must reserve long-term facilities maintenance aid under section 123B.595 for repayment
of debt obligations issued by the Charter School Facilities Authority.
new text end

new text begin (b) Notwithstanding section 123B.595, subdivision 10, a charter school that has satisfied
all of its debt obligations and owns the facility directly must reserve long-term facilities
maintenance aid under section 123B.595 for deferred capital and maintenance expenditures
associated with the facility owned by the charter school.
new text end

Sec. 6.

new text begin [124E.30] CHARTER SCHOOL FACILITIES AUTHORITY.
new text end

new text begin Subdivision 1. new text end

new text begin Creation; membership; administration. new text end

new text begin (a) A state agency known as
the Charter School Facilities Authority is created. The Charter School Facilities Authority
shall consist of seven members:
new text end

new text begin (1) five of which are appointed under paragraph (b) by the governor with the advice and
consent of the senate;
new text end

new text begin (2) the commissioner of management and budget or the commissioner's designee; and
new text end

new text begin (3) an expert in education finance from the Department of Education designated by the
commissioner of education.
new text end

new text begin (b) All members to be appointed by the governor shall be residents of the state. At least
two members shall reside outside of the metropolitan area as defined in section 473.121,
subdivision 2. At least one of the members shall have skill, knowledge, and experience in
the field of state bonding or finance; at least one of the members shall have skill, knowledge,
and experience in the building construction field; and at least one member shall be a
representative of the Minnesota Association of Charter Schools. With the exception of the
representative of the Minnesota Association of Charter Schools, each appointed member
of the authority shall be independent and not affiliated with a charter school, a charter school
management organization, or any entity working or contracting with a charter school.
new text end

new text begin Subd. 2. new text end

new text begin Term; compensation; removal. new text end

new text begin The membership terms, compensation, removal
of members, and filling of vacancies for board members other than the commissioner of
management and budget and the commissioner of education shall be provided in section
15.0575. The commissioner of management and budget, or the commissioner's designee,
shall convene the first meeting of the authority no later than September 15, 2018. The
authority shall elect a chair at its first meeting and shall determine a rotation for the chair.
new text end

new text begin Subd. 3. new text end

new text begin Purpose. new text end

new text begin The authority shall provide an efficient and cost-effective method of
financing charter school facilities in this state through the sale and issuance of state revenue
bonds, in anticipation of the collection of facilities aid, for a qualified charter school, to
finance, in whole or in part, the cost of acquisition, acquisition and renovation, or construction
of a charter school building.
new text end

new text begin Subd. 4. new text end

new text begin Duties; applications; fees. new text end

new text begin The authority shall review applications from charter
schools to be determined to be qualified schools for the purchase and renovation of an
existing facility or to develop and construct a new facility. The authority shall review
applications for issuance of bonds under section 16A.966 for specific projects. The authority
may charge a charter school an application or administrative fee. The authority shall adopt
policies and procedures necessary to fulfill its responsibilities. The application deadlines
and any fees shall be determined by the authority. The authority may hire or contract for
services.
new text end

new text begin Subd. 5. new text end

new text begin Eligibility for qualified status. new text end

new text begin (a) The authority shall determine which charter
schools are in a financial and operational position to purchase, purchase and renovate an
existing facility, or construct a new facility.
new text end

new text begin (b) The authority shall approve a charter school to purchase, purchase and renovate, or
construct a school facility and finance that school facility through the issuance of bonds.
The authority shall only approve the sale of bonds on behalf of charter schools that are
issued through the authority.
new text end

new text begin (c) A charter school approved by the authority is a "qualified" school. A charter school
is prohibited from using the term qualified as defined in this subdivision in educational
promotional materials or advertising. A charter school may use the term qualified for the
purposes of issuing bonds through the authority.
new text end

new text begin Subd. 6. new text end

new text begin Criteria for qualified status. new text end

new text begin A charter school that has been enrolling students
for five or more years may seek qualified status from the authority to purchase, purchase
and renovate an existing building, or construct a new facility. The charter school must submit
to the authority the following information:
new text end

new text begin (1) documentation of the charter school's contract history and current status with the
school's authorizer and a letter indicating support from the authorizer for the proposed
facility project;
new text end

new text begin (2) documentation of the school's academic and nonacademic student performance record
in relation to the goals agreed upon in its charter contracts over the preceding five years;
new text end

new text begin (3) financial statements for the preceding five fiscal years, a current year budget, and
fund balance of the school at the time of the application;
new text end

new text begin (4) a third-party review of the school's operating finances;
new text end

new text begin (5) long-range strategic plan and five-year financial projections for the school;
new text end

new text begin (6) an analysis prepared by an independent third party of school finances and the five-year
financial projections;
new text end

new text begin (7) a statement of the need for the purchase or purchase and renovation of the proposed
facility, including the physical space needs of the school, other facility options examined,
zoning and e-rating eligibility, and an appraisal of the proposed facility;
new text end

new text begin (8) documentation of a positive review and comment from the commissioner of education
for projects that are subject to section 123B.71; and
new text end

new text begin (9) a statement adopted by the charter school board of directors acknowledging that any
sale of the facility before the bonds are fully paid must be reviewed by the authority to
assure the property is sold for no less than the appraised value. In the event that the school
closes, the building and any assets revert to the state after satisfaction of creditors.
new text end

new text begin Subd. 7. new text end

new text begin Determination. new text end

new text begin The authority may request additional information of the charter
school to make its determination. The authority must use the criteria submitted as required
by subdivision 6 and any additional information the authority receives to determine whether
to qualify a school and allow a charter school to purchase, purchase and renovate, or construct
a new facility and use debt financing to pay for the costs of the school facility.
new text end

new text begin The authority must notify the charter schools of its determination within 45 business
days after the application deadline. The decision of the authority is final. A charter school
may reapply for future consideration.
new text end

Sec. 7. new text begin REPEALER.
new text end

new text begin Minnesota Statutes 2016, section 124E.26, new text end new text begin is repealed.
new text end

APPENDIX

Repealed Minnesota Statutes: 17-2745

124E.26 USE OF STATE MONEY.

A charter school may not use state money to purchase land or buildings. The charter school may own land and buildings if obtained through nonstate sources.