by Scott McClallen
The School Loan Revolving Fund (SLRF) interest rate dropped to 1.19% last week, saving some local school districts about $8 million in interest.
Gov. Gretchen Whitmer signed into law Senate Bill 618 that adjusted the SLRF interest rate.
“Every student, in every district, has a birthright to a phenomenal public education so they can pursue their potential,” Whitmer said in a statement. “With these cost savings, we will have even more resources to invest where they matter most – in our students, teachers, and classrooms. I am proud of the work the Michigan Legislature and I have done to close the funding gap between districts and increase per-pupil funding to its highest amount ever.”
Created in 2005, the SLRF allows schools to tap the fund for debt service payments, paying a 3% interest rate. But a Senate Fiscal Agency (SFA) report says the cost of capital is currently at 1%, so the bill dropped the rate by 1.81 percentage points.
The SFA said: “Districts borrowing from the State would see savings under the bill any time the average cost of funds was less than 3.0%; any time the average cost of funds exceeds 3.0%, the bill would have no net fiscal impact on borrowers since they would have been charged that amount under current law.”
With the lower interest rate, the 124 school districts participating in the program begin saving immediately.
The School Bond Qualification and Loan Program provides a state credit enhancement and loan mechanism for school district bond issues. The State Treasurer must qualify the bonds, and proceeds must fund capital expenditure purposes. The program allows school districts to receive the benefit of the state’s credit rating, which usually results in a lower interest rate and costs and gives districts access to borrow from the SLRF.
A district must levy a minimum of seven debt mills and enter a loan repayment agreement with the state to borrow from the SLRF for debt service.
“This fund is an important tool for school districts,” State Treasurer Rachael Eubanks said in a statement. “Lowering the interest rate means local communities can realize taxpayer savings, or they can direct more property tax dollars to building and improving school facilities rather than paying interest to the State.”
The SLRF rate is calculated quarterly and is based on the program’s cost. Sen. Roger Victory, R-Hudsonville, sponsored the bill.
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Scott McClallen is a staff writer covering Michigan and Minnesota for The Center Square. A graduate of Hillsdale College, his work has appeared on Forbes.com and FEE.org. Previously, he worked as a financial analyst at Pepsi.