Types of Bonds: General Obligation Bonds

January 5, 2015 by Enzo Incandela, Associate | James M. Snyder, Partner
There are a number of different forms of bonds/debt that a school district may issue to meet its financing needs. Types of Obligations that a school district may issue include general obligation bonds (i.e. building bonds, life safety bonds or funding bonds), alternate revenue source bonds, debt certificates/installment contracts, leases, tax anticipation warrants, tax anticipation notes and revenue anticipation notes. Refunding bonds have been issued more frequently in recent years due to the lower interest rate environment.

A. General Obligation Bonds. General obligation bonds or “G.O.’s” are debt issued by a school district representing its full faith and credit and backed by its ad valorem taxing power. A general obligation can be issued for any lawful purpose for which ad valorem taxes may be levied subject to constitutional, statutory, or other limitations (such as debt limitations discussed further below) and pursuant to proper constitutional, statutory, or other procedures. The School Code of the State of Illinois, as amended (the “Code”) contains the guidelines for bond issuance by school districts.
Generally, the Code limits the amount of bonds that a school district may issue for a particular purpose. The Code also establishes the debt limit, or maximum amount of money a school district can borrow. For elementary and high school districts, the debt limit is 6.9% of the equalized assessed valuation of the district and for unit school districts, the debt limit is 13.8% of the equalized assessed valuation of the district. There are exceptions to the debt limit as outlined in the Code. For instance, if either (i) student enrollment increases or is projected to increase to certain levels and the majority of the electors approve the bond issue or (ii) a school board determines that additional facilities are required to provide a quality educational program and two-thirds of the electors approve the bond issue, a school districts debt limit can increase to 15%. The Code also allows for situations in which the debt limit can exceed 6.9%, 13.8%, or 15%. Bonds, as well as installment contracts, leases, debt certificates, judgments, tax anticipation notes, and teachers’ orders, are among the borrowing options which count against a school district’s debt limit. Generally, however, alternate bonds do not count against the debt limit.

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