May 24, 1999

FOR RELEASE: IMMEDIATELY

SCHOOL FACILITIES BOND ACT

          I commend the State General Assembly for their passage of the School Facilities Bond Act. This Act authorizes the issuance of up to $750 million in general obligation bonds and provides bond proceeds for educational facilities in school districts. The Bond Act stipulates that the first tax-exempt bonds may be issued after January 1, 2000 in an amount not to exceed $250 million. All bonds must be issued by July 1, 2003 with maturity dates of not more than thirty years. By allocating funds to each school district, we will be able to improve education for all children in the state. Hopefully, many of the existing 4000 portable classrooms will be replaced with permanent structures.

          The State Board of Education is required to report annually to me and the other members of the State Budget and Control Board on the status of the projects. The report will include the amount needed for allocation to the school districts in the next fiscal year, a time schedule for spending the funds locally on the projects, a list of the principal and interest payments for all school facilities bonds, and the total amount of all school facilities bonds issued.

          Within the same Bill, the General Assembly also authorized $300 million for other worthwhile capital improvement projects. Among those projects are improvements at the State technical schools and universities such as the University of South Carolina, Clemson University and Lander University; and the purchase and maintenance of new school buses.

          My office prepares the State’s Comprehensive Annual Financial Report that is audited by the State Auditor and Deloitte & Touche LLP, an independent Big Five accounting firm. As a result of that process in the most recent audit, the State’s debt service margin at June 30, 1998, for general obligation bonds, excluding institution and highway bonds, was certified at approximately $94 million. (The debt service margin is similar to the amount of discretionary money that a family has available to assume additional debt.) This meant that new bonds could be issued, provided the additional annual principal and interest debt service payments did not exceed $94 million. While the new School Facilities Bonds have not gone to market, we anticipate that the principal and interest payments on the bonds will be substantially less than the maximum allowed by the debt service margin.

          While I fully support the School Facilities Bond Act, I must say that approvals for large capital improvement bond issues should not occur on a frequent basis. While the State may have additional borrowing capacity, no entity – public or private – should borrow to their maximum limit. To do so places a future financial burden on the same citizens that we are trying to help today. In the event that the General Assembly decides in a future year to revisit the need for improved school facilities in the districts, I recommend that consideration be given to creating an Education Construction Bank that would issue revenue bonds for school construction. Such revenue bonds would not impact the State's debt service margin.