The Kentucky Legislature recently passed a bill that aims to provide local schools across the state with additional financing options to address the challenges posed by construction inflation and soaring building costs. Sponsored by Rep. Michael Meredith, R-District 19, the bill (HB 727) allows school districts to directly issue general obligation bonds, a significant change from the existing law that required them to go through a separate non-profit entity to issue bonds for capital improvements. The bill passed unanimously in both houses of the Legislature and is now awaiting Gov. Andy Beshear’s signature.
The bill has three key components that will impact how school districts in Kentucky can finance their infrastructure needs. Firstly, it allows Kentucky school districts to issue general obligation bonds directly, removing the need for a finance corporation or a mortgage. Secondly, it permits the districts to sell the bonds directly to banks, providing them with more flexibility in their financing options. Thirdly, the bill extends language from a previous House bill that streamlines the state’s bond approval process for debt issuance, making it easier for school districts to access funding for capital projects.
Supporters of the bill emphasized the importance of modernizing Kentucky’s school finance system to lower borrowing costs for school districts and help them deal with cost overruns and inflationary pressures. Compass Municipal Advisors and Dinsmore & Shohl were specifically mentioned for their assistance and expertise in crafting the bill and addressing concerns along the way. The bill’s passage was praised by Rep. Meredith, who thanked his colleagues in the House and Senate for their support.
Kentucky is home to 171 school districts and 1,477 schools, serving a diverse student population. The state had an estimated population of 4,436,974 as of July 1, 2016, with over 600,000 public school students in the 2020-2021 school year. The additional financing options provided by HB 727 will enable school districts to address critical infrastructure needs and support educational excellence across the state.
Kentucky’s recent upgrade in issuer credit ratings from S&P Global Ratings and Fitch Ratings reflects the state’s commitment to strengthening its budgetary flexibility and long-term financial stability. Moody’s Ratings and Kroll Bond Rating Agency also provide positive assessments of Kentucky’s credit outlook. In 2023, issuers in Kentucky sold $4.3 billion in bonds, with a steady increase in bond volume compared to previous years.
Governor Andy Beshear’s proposed budget for 2024-2026 focused on maintaining the state’s economic rebound and increasing funding for education and infrastructure. The budget included a $400 million increase in education spending, aimed at supporting the SEEK formula for allocating funds to local school districts. Lawmakers approved a $128 billion spending plan that included a nearly 3% increase in funding for school districts, despite calls for higher raises for school employees.
The passage of HB 727 represents a significant step forward in modernizing Kentucky’s school finance system and providing school districts with greater flexibility in addressing their infrastructure needs. By allowing districts to issue general obligation bonds directly, the bill aims to lower borrowing costs, streamline the bond issuance process, and support the long-term financial stability of Kentucky’s education system. As the state continues to make investments in education and infrastructure, the impact of this new legislation will be seen in the improved facilities and educational opportunities available to students across the state.