Types of Bonds: Alternate Revenue Bonds
There are a number of different forms of bonds/debt that a school district may issue to meet its financing needs.
Alternate Revenue Bonds. Alternate revenue bonds or “double-barreled” bonds are essentially revenue bonds issued under the Local Government Debt Reform Act (the “Debt Reform Act”) with the general obligation of the school district serving as backup security for the bonds. School districts are authorized to use any lawfully available revenue source as a pledge of security for the payment of principal and interest on alternate bonds. The intent of the Debt Reform Act is to permit the issuance of the alternate revenue bonds assuming the pledged revenue source is sufficient so that the tax levy relating to the debt service on the alternate bonds does not need to be extended. The coverage requirements provide that the school district must demonstrate that such pledged revenue source be sufficient in each year the bonds remain outstanding to provide not less than 1.25 times (1.10 times if the revenue source is either (i) federal or state funds that the school district has received in some amount during each of the three fiscal years preceding the issuance of the alternate bonds or (ii) revenues to be received from another governmental unit under an intergovernmental cooperation agreement) debt service on all outstanding alternate bonds payable from such revenue source and on the alternate bonds proposed to be issued.
Apart from coverage requirements, alternate bonds are subject to a backdoor referendum. The backdoor referendum gives registered voters the opportunity to petition the school district to submit the question of issuing the alternate bonds to referendum. However, the petition must be submitted within thirty days after publication of the authorizing resolution and be signed by the greater of (i) 7.5% of the registered voters of the district or (ii) the lesser of 200 of the registered voters or 15% of the registered voters.
County School Facility Occupation Taxes. In 2007, the Illinois General Assembly enacted the County School Facility Occupation Tax Law (P.A. 95 0675) (the “School Sales Tax Law”) which authorizes the county board of any county, other than Cook County, to impose a county sales tax to be used exclusively for school facility purposes (the “School Sales Taxes”). “School facility purposes” is defined in the School Sales Tax Law and includes the acquisition, development, construction, reconstruction, rehabilitation, improvement and financing of land, buildings, structures and equipment. The tax may be imposed only in .25% increments and may not exceed 1%. Numerous counties in Illinois have imposed the School Sales Taxes.
A county may impose the Sales Taxes only after the question of imposing the tax has been submitted to the electors of the county at a regular election and approved by a majority of the electors voting on the question. Once implemented, Sales Taxes are collected and distributed by the county to school districts within the county on an enrollment basis. Sales Taxes are a common revenue source that is pledged by school districts when issuing alternate revenue bonds.
No referendum is required for a new or replacement school if financed with alternate revenue bonds with School Sales Taxes as a pledged revenue.