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Infrastructure Law and Policy

Michigan House Moves Flint Water Appropriation Bill and Sinking Fund Legislation

Infrastructure Law and Policy

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Michigan House Moves Flint Water Appropriation Bill and Sinking Fund Legislation

The Michigan House Appropriations Committee unanimously reported two bills related to infrastructure today:

SB 136

SB 136, sponsored by Senator Hildenbrand, is a supplemental appropriation that will provide $30M in funding to reimburse Flint residents for the costs of up to 65 percent of their water bills paid between April 2014 and April 2016. Other, non-residential water customers will be reimbursed for up to 20 percent of their bills incurred during the same period.

In his FY 2016-2017 budget announcement last week, Governor Snyder formally requested a supplemental appropriation for FY 2015-2016, which includes the funding contained in SB 136. SB 136, however, had already passed the Senate before the Governor’s budget announcement was made. It remains to be seen when the Legislature will take up legislation containing the rest of the Governor’s supplemental request, which also includes an additional $25M for water-related infrastructure projects in Flint, and a $165M investment in the to-be-created Michigan Infrastructure Fund.

If SB 136 passes the House in its current form, it will bring the total amount of Flint water-related appropriations passed by the Legislature to approximately $71M. The majority of this funding is slated to go towards the provision of social and educational services to Flint residents, but of the money already appropriated, a portion will go towards infrastructure-related expenditures. For example, $2M will go towards water-related infrastructure; $2M is earmarked for the replacement of plumbing fixtures in sensitive facilities such as schools, daycare centers, hospitals, and nursing homes; and $500,000 will be paid to experts to conduct a survey of the City’s water-related infrastructure.

The Governor also announced yesterday that some of the money already appropriated through supplementals will be used to study Flint’s water pipes, and that the State had contracted with Rowe Professional Services, a Flint engineering firm, to begin surveying the City’s network of pipes in order to identify those that currently present the greatest safety risk. Additionally, Governor Snyder noted that the $25M that he requested from the Legislature as part of a supplemental last week can be used to replace pipes in the City.

HB 4388

HB 4388, sponsored by Representative McCready, amends section 1212 of the Revised School Code, 1976 PA 451, MCL 380.1212, to reduce the allowable sinking fund millage rate and duration, and to expand the permissible uses of sinking fund revenues.

Michigan law currently allows school districts to use sinking funds to pay for certain school infrastructure related expenses. Under MCL 380.1212(1), a school district may submit a ballot question to voters proposing to levy a sinking fund tax of up to 5 mills on the state equalized value for a period of up to 20 years. If voters approve the millage, the revenue is placed into a sinking fund, where districts may use it for “the purchase of real estate for sites for, and the construction or repair of, school buildings.” MCL 380.1212(1).

Sinking funds allow districts to make capital upgrades without having to borrow funds or issue bonds to cover the full cost of the project. This option is generally more economical than either borrowing or bonding and, as such, has proven attractive to Michigan school districts. According to the House Fiscal Agency (HFA), 170 of the State’s 545 school districts currently have a sinking fund millage in place, with the average millage rate being 1.355 mills. In total, HFA states that these funds generate approximately $131M in annual revenue.

HB 4388 contains a grandfather clause for any existing sinking fund millage, but for any sinking fund millage passed after the effective date of the legislation, the maximum amount of such a millage would be reduced from 5 mills to 3 mills, and the duration of the levy would not be allowed to exceed 10 years, as opposed to 20 years under current law. More significant from an infrastructure perspective, however, sinking fund revenues would be allowed to be expended on a wider array of uses under the bill. Instead of merely being used for property acquisition, construction, and renovation, HB 4388 would allow school districts to use the funds for security upgrades, including cameras, metal detectors, and other safety devices, as well as on upgrading and implementing educational and instructional technologies.

Finally, under current law, a question on the ballot relating to levying a sinking fund millage must generally use the term “sinking fund.” In submitting a sinking fund millage question to voters, HB 4388 would allow schools to use a different, more descriptive, term to refer to the fund, such as denoting it as a “capital infrastructure fund” or “infrastructure investment fund.”