When an Arkansas school district refinances pre-2005 bonds and saves money on debt service, can it move that savings to an unrestricted fund?

Plain-English summary

Cody Hiland, the prosecuting attorney for Faulkner County, asked the AG two questions about school district bond refinancing. The state provides eligible districts Bonded Debt Assistance under Ark. Code Ann. § 6-20-2503 to help pay bonds that were outstanding on January 1, 2005. When a district refinances those pre-2005 bonds at a lower interest rate, state assistance continues, but any debt service savings have to be deposited in a separate fund and used only for specific capital or equipment items. Before issuing the refunding bonds, the district has to certify that it will use the savings that way.

The question was whether a district could reclassify the savings to an unrestricted fund once the refunding had already happened.

The AG's answer was no. The statute uses mandatory language ("shall use the debt service savings, if any") for the specified items. The statute does not allow any other use after the refunding bonds are issued. The savings themselves don't even exist as a quantity until the refunding bonds are issued, and the refunding bonds cannot be issued without the district first delivering the certification promising the restricted use. The statute contains no provision for revoking or changing that certification later.

Because the answer to Question 1 was no, Question 2 (whether reclassification would forfeit any state Bonded Debt Assistance) did not need to be answered. Its premise was not met.

The opinion is short and tight: one statute, one outcome, no real ambiguity. Once a district has gone through the refinancing process and made the certification, the saved money is locked into the specified uses.

Currency note

This opinion was issued in 2015. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What is Bonded Debt Assistance?

It is a state program under § 6-20-2503 that helps eligible school districts pay bonds that were outstanding on January 1, 2005. The state continues paying the assistance even if the district later refinances the pre-2005 bonds, but only if the district commits to using any savings on specific capital or equipment items.

Why is the savings restricted in the first place?

Because the state's contribution toward the original debt was tied to that debt. If a district refinances and saves money, the legislature wanted that saved state money to stay in the school capital and equipment ecosystem rather than freeing up unrestricted general funds at the district's discretion.

Why can't the district just change its mind after the refunding?

Because the statute requires the district to certify, before issuing the refunding bonds, that it will use the savings on the specified items. The statute contains no provision for revoking or changing the certification. The Arkansas Department of Education's Rules Governing Loan and Bond Applications (Rule 13.02) makes the certification a prerequisite to selling the refunding bonds. Once the district has obtained the savings on the strength of that certification, it cannot unilaterally undo it.

What kinds of capital or equipment items qualify?

The opinion does not list the specific items beyond the statutory category. Section 6-20-2503(c)(1)(B)(i) names the categories. A district facing this question in practice would look at that subsection and the ADE rules for the specific eligible expenditures.

What happens if a district uses the savings for non-permitted purposes anyway?

The opinion does not address penalties or enforcement mechanisms. The clear text of the statute makes such use unauthorized, but how the state would respond (e.g., recapture of state assistance, audit findings, ADE enforcement) is not addressed in this opinion.

Background and statutory framework

Section 6-20-2503 sits inside the larger framework of school finance in Title 6, Chapter 20. Subsection (b)(1) provides state assistance for bonds outstanding on January 1, 2005. Subsection (c)(1)(A) makes clear that a post-2005 refunding of those pre-2005 bonds does not end or reduce state assistance. Subsection (c)(1)(B) creates the restricted fund: debt service savings go into a separate fund and are used only for the specified items. Subsection (c)(1)(B)(ii) requires the district to certify the restricted use before issuing the refunding bonds.

The opinion also referred to the Arkansas Department of Education's "Rules Governing Loan and Bond Applications" Rule 13.02 (2012), which requires a district to submit the certification before the refunding bonds are sold.

Citations

• Ark. Code Ann. § 6-20-2503 (Repl. 2013)
• Ark. Code Ann. § 6-20-2503(b)(1)
• Ark. Code Ann. § 6-20-2503(c)(1)(A)
• Ark. Code Ann. § 6-20-2503(c)(1)(B)
• Ark. Code Ann. § 6-20-2503(c)(1)(B)(i)
• Ark. Code Ann. § 6-20-2503(c)(1)(B)(ii)
• Arkansas Department of Education, Rules Governing Loan and Bond Applications, Rule 13.02 (2012)

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

Opinion No. 2015-067
June 25, 2015

The Honorable Cody Hiland
Prosecuting Attorney
Faulkner County Courthouse
Post Office Box 550

STATE OF ARKANSAS
THE ATTORNEY GENERAL
LESLIE RUTLEDGE

Conway, Arkansas 72033-0550

Dear Mr. Hiland:

This is in response to your request for my opinion on your questions about school district bond refinancing:

1. Is it permissible for money saved through a bond refinance to be re-classified to an unrestricted fund?

2. In particular, if said reclassification is permissible, will the school district forfeit any or all Bonded Debt Assistance from the Arkansas Department of Education if it chooses to proceed with the reclassification into an unrestricted fund?

Your request states that the questions relate to Ark. Code Ann. § 6-20-2503. Under that section, and as recognized in your second question, the State provides eligible school districts money to help pay bonds that were outstanding on January 1, 2005. A post-2005 refunding of such pre-2005 debt does not end or reduce state assistance, but debt service savings, if any, are to be deposited in a separate fund and used only for specified capital or equipment items. Before issuing the refunding bonds, the district is to certify that any debt service savings will be so used.

Because your questions relate to this statute, State assistance presumably is being paid to the district with respect to the bonds at issue. Because you refer to a "reclassification" of savings, it is my understanding that the refunding bonds have already been issued and that the district has already certified its undertaking to use the savings in the manner set forth in the statute.

In my opinion, the answer to your first question under the circumstances outlined above is "no." The statute uses clear, mandatory language, providing that a school district that refunds bonds with respect to which State assistance is paid "shall use the debt service savings, if any," on the specified items. The statute does not state or imply that the district can use the savings in any other way once the refunding bonds are issued. Additionally, debt service savings are not realized at all until the refunding bonds are issued and, by the express terms of the statute, the refunding bonds here could not have been issued before the district delivered its certificate stating that it would use the savings only for the specified items. The statute contains no provision for revoking or changing the contents of the certificate.

Because the reclassification is not permissible, the condition of your second question is not met.

Assistant Attorney General J.M. Barker prepared this opinion, which I approve.

Sincerely,

LESLIE RUTLEDGE
Attorney General
LR/JMB:cyh