A school bond election is a bond issue held by a public school district to fund a construction or other capital project. District school boards place these proposals on the ballot for approval or rejection by the general public.
State regulations require ballot propositions to be phrased as specific to the point, therefore school bond issues differ from other regions of the election ballot.
School bond measures are not as well-known as candidate elections or state-wide ballot measures, but they are an important avenue for residents to influence school policy.
Bond issues must be approved by voters in 40 states, and voters in seven additional states can petition to have bond issues placed on the ballot. One of the remaining three states, Indiana, employs the so-called remonstrance-petition process.
How do school bonds get repaid?
You can decide, just like at home, that you need to build a new garage or rebuild the kitchen. The problem is figuring out how to pay for it. You might either pay with cash from your savings or take out a loan.
School districts confront similar challenges and have similar solutions. They may desire a new school or require renovations to an existing structure.
A common option for a school district to borrow money is to issue a bond, which functions similarly to a loan, and ask taxpayers for a Bond Levy, or a tax increase. The extra tax revenue is used to repay lenders or bondholders, as well as to pay interest on the loan.
Most of these levy requests must be approved by the state, especially if the state gives matching funds or contributes. The bond will be sold and administered by a bank or financial institution.
Voters provide their approval for a school district to raise taxes to pay for a loan or a bond.
The bonds, also known as IOUs, are sold by a financial institution and the proceeds are given to the school system.
The bond and interest are paid back to the bondholders by the tax money over a period of years.
What is an educational bond?
Education bonds are money that have been approved by the voters and can only be used for school construction. The money is raised by levying a tax on property owners based on the assessed value of their homes. The local bond is a loan, comparable to a home equity line of credit, but for the school system.
Are school bonds exempt from taxes?
Introduction. Tax-exempt bond financing is increasingly being used by non-profit institutions to support capital renovations and development. Bond financing can be utilized for land purchase, construction, furniture, furnishings, and equipment, as well as many other costs related with a school’s educational, recreational, and charitable goals, including refinancing of capital debt in appropriate circumstances. The low interest rates and attractiveness of the debt to lenders and investors are the main benefits of this type of bond financing. Bond financing may allow a school to begin construction sooner, increase the scope of its initiatives, or redirect its fundraising efforts to other areas. Fundraising can be directed into endowment and other projects, as well as debt reduction, with facilities financed by low-interest, long-term bonds.
The goal of this overview is to provide you a general idea of what this document is about. Under the Internal Revenue Code of 1986, as amended (the “I.R.C.”), tax-exempt bond financing for 501(c)(3) nonprofit educational institutions from pre-kindergarten to university levels (referred to herein as “Schools”) is available. The information presented may be relevant in assessing if bond financing will be accessible in specific circumstances, how the transaction will be organized and carried out, what benefits will be available, and what restrictions will be imposed. Bond Counsel, on the other hand, should be consulted early on to help determine whether a project qualifies and to ensure that the appropriate legal criteria are met.
BOND FINANCING
What is Bond Financing and How Does It Work? Bond financing is provided by a local government organization, usually a development authority, in the form of loans, leases, or installment sales “The Issuer”). The Issuer raises money by selling revenue bonds that are only repaid with money or other security provided by the School, and are never repaid by the Issuer or another governmental unit. State legislation on School Bonds differ, although they are available in the majority of jurisdictions. The interest rate is low because the Issuer’s bonds are eligible to pay tax-exempt interest to investors under the Internal Revenue Code, and the School benefits from the low interest rate. The money collected from the Bonds is either re-loaned to the School by the Issuer or used to acquire facilities that the Issuer will lease or sell to the School. Variable and fixed interest rates, prepayment, and long and short maturities are just a few of the terms that can be used to structure bonds.
What are the advantages of bond financing? Interest on eligible School Bonds is exempt from federal income taxation, alternative minimum taxation, and, in most cases, state income taxation. Borrowing rates on school bonds are significantly lower than those on traditional loans. SEC and blue sky registrations are frequently waived for such Bond issuance. Another benefit of using Bond financing is that public participation in the financing can generate significant community interest in and support for the School.
Bonds are repaid in a variety of ways. Bond financing is often backed exclusively by the School’s credit and any credit enhancements it provides, as well as assets or other security pledged for this purpose by the School. Bank letters of credit or other types of credit are widely used by schools “credit enhancement” such as bond insurance to back Bonds issued for their facilities is a good example. Because investors analyze and rely on the credit enhancer’s financial health rather than the School’s, credit enhancement ensures that the Bonds may be easily sold and achieve the lowest interest rates. However, in order to get this sort of financing, the School’s credit, financial condition, operating history, and fundraising must all meet the credit enhancer’s requirements.
Who is it that buys the bonds? Tax-exempt bonds can be offered publicly or privately. Bonds can be sold to institutional investors, mutual funds, and individuals through an underwriter or placement agent, especially if they are credit improved. Banks may purchase School Bonds and keep them as loans, while the Internal Revenue Service may charge slightly higher rates on bank-held Bonds unless they are resold “As discussed below, “Bank-Qualified.”
What are they? “What are “Bank-Qualified Bonds”? Banks and other financial institutions that hold tax-exempt bonds are generally not eligible for a tax deduction for their related carrying costs “Banks and other financial institutions may find holding tax-exempt Bonds to be relatively unattractive due to the institution’s “cost of funds,” which is determined by the ratio of borrowed funds to equity. Most Issuers, however, who reasonably anticipate issuing no more than $10,000,000 in 501(c)(3) or governmental bonds in any calendar year, may label such Bonds as 501(c)(3) or governmental bonds “Tax-Exempt Obligations That Are Qualified.” As an example, “Banks prefer to keep “Bank-Qualified” bonds since they are only subject to a 20% disallowance of the allocable carrying cost. Obligations of the Issuer and any subordinate businesses, as well as some obligations of superior entities, must be aggregated to determine compliance with the $10,000,000 threshold. It’s worth noting that an Issuer’s Bank-Qualified Bonds may affect the superior entities’ capacity to issue Bank-Qualified obligations.
Who is eligible for School Bond Financing? So long as the school is a qualifying 501(c)(3) organization, private colleges and universities, secondary schools, elementary and primary schools, and even preschool programs can use bond funding. Another type of tax-exempt bond financing that public schools can use is described in our article “This Overview is not included in the “Overview of Governmental Financing.”
WHEN A PROJECT IS FINANCEABLE
What can be financed? Most school buildings, such as classrooms, libraries, laboratories, auditoriums, buses, vans, computers, technology, recreational facilities, and administrative facilities, can be funded with School Bonds. Chapels and private sport luxury boxes are not eligible for Bond financing. A maximum of 5% of the profits of such Bonds may be utilized for property that passes both of the “private business tests” outlined below. In many circumstances, outstanding conventional debt or loans can be refinanced using School Bonds if the debtor paid financeable fees and Bond Counsel is satisfied with the documentary record.
Religious Observances Chapels and other facilities used for religious activities may not be Bond-financed. Under the right circumstances, facilities for religiously sponsored or oriented schools may be Bond-financed; nonetheless, bond counsel will carefully assess the circumstances before issuing a legal opinion.
Private Business Examinations Although this is rarely a concern for nonprofit schools, if more than 5% of the proceeds are put to “private business use” directly or indirectly, and if payment of more than 5% of the Bonds is directly or indirectly secured by or to be derived from property put to “private business use,” the Bond will be disqualified for tax exemption (or payments with respect to such property). “Private business usage” refers to the School’s use of funds that would otherwise be considered “unrelated taxable business income,” as well as use by others in any nongovernmental trade or company. In layman’s terms, while property financed with School Bonds may be used for exempt purposes by the School, the general public, or governmental units, difficulties occur when the property is utilized for non-exempt purposes by other people or companies, or by the School itself. Leases, operating contracts, and other similar usage arrangements impacting funded property are of particular relevance. If the private loan financing requirement is met, a School Bond will likewise be rejected for tax exemption. If the smaller of 5% of Bond proceeds or $5,000,000 is used directly or indirectly to make or fund loans to people other than governmental units, the private loan financing test is met. Bond Counsel should review any private business or loan difficulties in light of precise requirements.
It is necessary to document the intention to finance costs. To be financed using tax-exempt School Bonds, facility expenses must be paid prior to the Bond issue and a “official intent” to finance those costs must be stated no later than 60 days after the costs are paid. A resolution of the School’s board of directors indicating such desire is a basic form of such disclosure. An “official intent” must state that the project will be financed, specify the maximum amount of debt that will be covered, and provide a broad description of the project. To assess if a “official intent” is sufficient, bond counsel should be engaged. The Issuer’s “Inducement” (described below under “Procedural Steps”) will also act as an official declaration of intent. Bonds may be issued as late as 3 years after the declaration of official intent and as soon as 18 months after the facilities are completed if a declaration of official intent is made. Adopting a “official intent” has no drawbacks because it just preserves the potential of utilizing Bonds in the future.
BOND ISSUERS
State law applies. Governmental authorities must provide bonds for a school. Almost every state allows bond financing, yet the types of Issuers and projects that can be funded differ. Preliminary studies, direct project expenses, attorneys’ fees and other financing and issuing charges, interest paid during construction, and some reserve monies are frequently included in financeable costs. Several of the Issuers operating in Georgia are described below for illustration reasons.
Authorities in charge of development. Development Authorities, which are established by statute in every Georgia city and county and are active in many, may issue School Bonds if a majority of the Development Authority’s directors determines by resolution that the project will develop and promote trade, commerce, industry, and employment opportunities for the public good and general welfare, as well as promote the state’s general welfare. Georgia has also established a number of regional development authorities.
Authorities in charge of downtown development. Any incorporated municipality in Georgia can create a Downtown Development Authority. A Downtown Development Authority may fund school initiatives that it thinks would benefit the public good for which it was established. Downtown Development Authorities, on the other hand, can only fund projects in designated downtown development districts.
Authorities established under the Constitution. By amending the Georgia Constitution, special authorities with the authority to issue bonds have been established in around two-thirds of Georgia’s counties. In each case, the relevant legislation must be consulted.
ARBITRAGE
Restriction on Arbitrage If bonds are classified as “arbitrage bonds,” they are not eligible for tax exemption. Arbitration regulations are complicated, so we’ll just give you a quick rundown. If more than the lesser of 5% or $100,000 in bond proceeds is reasonably expected to be utilized, or to replace funds used, directly or indirectly to acquire higher yielding investments, the bonds are arbitrage bonds. Bond revenues can include cash pledged to pay Bonds, sinking funds, or other sources from which Bonds are expected to be repaid. The term “investment” covers a wide range of contracts and properties that can be assigned a rate of return. Exceptions are granted for the temporary investment of revenues, such as the temporary placement of funds in a genuinely fide debt payment fund or a fund for proceeds awaiting use. Three years is the temporary time for investing proceeds until their use in the acquisition or building of property. Investment yield restrictions do not apply to amounts in a reasonably required reserve or replacement fund, as long as the reserve or replacement fund does not exceed 10% of the issuance proceeds.
Fundraising and Replacement Funds If Bonds are used to support projects for which other money have been set aside, these monies (as well as other School funds that guarantee Bond repayment or have a sufficient “nexus” to the Bonds) may be subject to arbitrage yield restrictions. This can happen if there will be funding associated with the project. Bond counsel should be engaged as soon as possible to see if such “replacement funds” are established.
Rebate for Arbitrage Even if Bonds follow the above-mentioned arbitrage criteria, arbitrage earnings in excess of the Bonds’ yield must be rebated to the federal government on a regular basis. The rebate requirements demand that computations and filings be done on a regular basis. There are certain exceptions to the rebate requirement, such as “2-year construction,” “18-month construction,” and “6-month construction.” The School’s capacity to comply with the applicable exemption may have an impact on when it wants to finalize the Bond issuance.
Construction Exemption for 2 Years. The construction exemption applies to financings in which at least 75% of the obligations’ “net revenues” will be used for construction, reconstruction, or rehabilitation. If the net proceeds are spent in accordance with the following minimum requirements, the rebate requirement is waived: 10% within six months, 45 percent within one year, 75 percent within 18 months, and 100 percent within two years (except that the two year period may be extended to three years if the requirement would have been met within two years but for a reasonable retainage not exceeding 5 percent required to ensure compliance with the terms of a construction contract). The proceeds of the offering (save for monies placed in a reasonably required reserve fund) plus investment proceeds obtained before the end of the period are referred to as “net proceeds.” If an election is made on the closing date, however, net proceeds exclude interest earnings on any reasonably required reserve fund; however, interest earnings on such a fund will be subject to the rebate requirement beginning on the closing date, rather than at the end of the two-year expenditure period. If the Issuer elects to pay a penalty in lieu of paying the rebate amount on or before the closing date, the rebate requirement is deemed satisfied if the Issuer pays a penalty equal to 1.5 percent of the amount of the net proceeds of the issue that are not spent as required at the close of each six-month period after the closing date.
Exemption for 18 months. If all gross revenues (excluding those placed in a reasonably required reserve fund) are expended in accordance with the following schedule, the rebate obligation is waived: Within 6 months, at least 15%; within 12 months, at least 60%; and within 18 months, at least 100% (with an exception for reasonable retainage spent within 30 months).
Exemption for six months. If all gross proceeds (excluding those held in a reasonably required reserve fund) are spent within six months, the rebate obligation is waived.
Exemptions are limited. The need to rebate arbitrage from investment of a reasonably required reserve fund or arbitrage on a bona fide debt service fund in excess of $100,000 per year is not relieved by compliance with the construction, 18-month, or 6-month exemptions.
OTHER LIMITATIONS
The length of time it takes to pay off a school bond. Federal law limits the average maturity of a School Bond issue to 120 percent of the project’s average reasonably projected economic life. The average economic life must be weighed by taking into consideration the costs of the project’s various components. The economic life of a Bond is calculated from the date it is issued or the date the facilities are put into service, whichever comes first. Midpoint lives for personal property under the former ADR system and guideline lives for buildings under Revenue Procedure 62-21 may be used as safe harbors when determining economic lives. In general, land is not taken into account while calculating the average.
Prohibition on Federal Guarantees. If the payment of principal or interest is directly or indirectly guaranteed in whole or in part by the United States or any of its agencies or instrumentalities, school bonds are not eligible for tax exemption. If 5% or more of the revenues are utilized to make federally guaranteed loans or invest in federally insured deposits or accounts, the bonds will be treated as guaranteed by the federal government. Exceptions are granted to allow proceeds to be invested in US Treasury liabilities, as well as investments of bona fide debt service funds, reasonably required reserve funds, and funds to store proceeds before they are used.
Projects that are purely speculative. In order to comply with many provisions of federal and state law, the specific assets to be financed with a Bond must be determined with reasonable certainty prior to issuance. A bond cannot be issued to fund unspecified projects or contingencies, or in an amount that is significantly greater than that required for the project.
Costs of Issuance A maximum of 2% of the revenues of a School Bond may be utilized to cover expenditures related with the bond’s issuance. Any costs that are not covered by the budget can be covered by other means.
A shift in usage. A change in the use of a facility financed with a School Bond to a use for which such a Bond could not have been issued could result in the Bond’s interest being taxable or have other repercussions.
INDUCEMENT
Resolutions to induce inducing inducing inducing inducing inducing The first step in a School Bond transaction is usually to get an incentive resolution and agreement from the Issuer (the company issuing the bonds) “Induction”). An Issuer’s agreement in principle to issue Bonds for a proposed Project is referred to as this. The Inducement can be used to declare something “In lieu of a School’s board resolution, the “official intent” stated above will be used.
Expiration. An inducement can have an expiration date or not. In any case, a School Bond must be granted within three years of the official intent and eighteen months of the date a Project is purchased or placed in service, whichever comes first.
FORM OF TRANSACTION
General. Because a School Bond transaction involves the employment of an Issuer as an intermediary, it differs from a traditional finance transaction. The precise form to be utilized is determined by the parties’ interests as well as local requirements. The Issuer sells the Bond and uses the profits to fund the Project in any transaction. Loans, leases, and installment sales are the three most typical types of transactions.
Loans. By statute, an Issuer may be allowed to loan revenues from School Bonds to a School for use on a project. When this form is employed, the School enters into a loan agreement with the Issuer and typically provides a note as collateral. The loan agreement and note will be assigned as security for the Bond by the Issuer. In such a sale, the School retains ownership of the project. This is the most basic and widely used configuration.
Leases. The majority of Issuers can, and some must, own the financed project and lease it to the School. When this form is employed, the project site is usually ceded to the Issuer, and the project is built or acquired in the Issuer’s name using the Bond proceeds. The project is then leased to the School, which agrees to pay rents that will be used to pay down the Bond’s principal and interest. As security for the Bond, the Issuer assigns its lease rights. When the Bond is paid, the School usually purchases the project for a small fee.
Sales made in installments. It’s not uncommon to use an installment selling transaction. The Issuer takes title to the project in this transaction, which is analogous to a lease transaction. Rather than leasing the project, the School enters into an installment sale arrangement, agreeing to pay purchase price installments equal to the Bond’s debt service. The School may receive title to the project immediately or when the Bond is paid.
Control of the project by the school. The School is typically responsible for insurance, taxes, and upkeep under any arrangement, loan, lease, or sale, and has design and construction freedom, and may be considered the project “For all intents and purposes, you are the “owner.” The School has essentially the same authority over the project as it would under traditional finance for the period of the loan. Covenants and security mechanisms that are common in traditional lending can also be included in a Bond transaction.
Bonds are eligible for credit. In most cases, neither the Issuer, the local government, nor the state provides any credit for the Bonds, regardless of the transaction’s structure. The bondholders rely on the School’s underlying commitment, as well as any guaranties, mortgages, security instruments, insurance, letters of credit, or other funds or credit enhancements obtained by the School, to pay the Bonds.
“Demand Bonds with Variable Rates” In the Bond market, specialized financing solutions have emerged that offer extremely attractive terms. ‘The’ “The “variable rate demand bond (VRDB)” or “lower floater” type of financing accesses short-term markets for a longer-term stated maturity, but with a “put” option that allows the bondholder to cause the Bond to be repurchased on behalf of the School at regular intervals (typically weekly). owing to the “A variable rate demand Bond with the “put” feature can be sold in the short-term market, which has the lowest interest rates. A remarketing agency can change the interest rate on a Bond like this. A variable rate demand Bond may be kept by a single holder for any length of time and is typically sold at a discount “put” if the holder has other financial obligations or market interest rates have risen to the point that the Bond’s rate is no longer desirable. If a lower floater Bond is “put” due to an upward rate shift, the remarketing agent will set a new, higher rate at which the Bond can be re-placed; if market rates fall below the Bond rate, the agency will reset the rate to the lowest rate that will prevent the Bond from being “put.” Any variable rate demand Bond that is repurchased must have a credit facility from a rated institution available to advance the repurchase price “reintroduce”
PROCEDURAL STEPS
Placement of Bonds. Following the receipt of an inducement and the determination by Bond Counsel that the transaction can be appropriately structured as a School Bond issue, the School will typically place the Bonds through an investment banker or underwriter. Bonds can be placed privately, for example, with an investor group or a financial institution, or sold publicly through a mutual fund. When a bond fund or a public sale is used, disclosure documents are usually prepared. A trustee may be appointed for the issuance depending on the nature and number of bonds.
Documentation required by law. The terms and provisions of the Bond, as well as the supporting paperwork, must be negotiated and agreed upon once the form of Bond sale has been selected. The majority of the transaction’s documentation will be prepared by Bond Counsel. If funds are available, acquisition and building of the Project could begin during this time if a declaration of official intent has been made.
“Hearing on the TEFRA Act. A public hearing is required by federal law “TEFRA” to be held at least 14 days after the community is notified of a proposed School Bond and the type and location of the project in a published notice. Following the public hearing, the Bond must be approved by both the Issuer and an appropriate elected official or legislative body with jurisdiction over the project.
Other Procedures and Validation Prior to the issuance of a Bond, many states need additional procedural requirements. Most Bonds in Georgia, for example, must be judicially validated in a case in which the State, the Issuer, and the School all participate. This proceeding will require the publication of a new public notice. The closing date is influenced by both TEFRA and state procedures.
Report on Information. An information report detailing the School Bond, the Issuer, the School, and the project must be filed with the Internal Revenue Service in conjunction with the transaction’s closure.
LIVING WITH A BOND ISSUE
Following the issuance of Bonds, the School’s obligations are only slightly different from those of a traditional loan. The School’s 501(c)(3) status must be maintained, and the project must not be used by for-profit businesses or operations. If an exemption does not apply, the School must avoid arbitrage activities and pay an arbitrage rebate.
BOND COUNSEL
Bond Counsel should be retained if they have knowledge with municipal bond law. Bond Counsel’s role is to organize and document the transaction, as well as to provide an opinion on the Bond’s validity and tax status. Bond Counsel fees are paid by the School with bond revenues. Other parties may be represented by Bond Counsel, or the School, the Issuer, and the Bond purchaser or underwriter may be represented independently. Smith, Gambrell & Russell, LLP is a Bond Counsel firm that is included in the “Red Book.”
SUMMARY
This letter is intended to give you a quick understanding of school bond financing. Tax-exempt bonds may offer significant benefits, but they are subject to rigorous federal and/or state regulation. This summary can only touch on a few of the most important problems and should not be construed as a comprehensive examination of all legal issues. Instead, this Overview gives some background material that might be used to start a conversation with Bond Counsel.
What kind of bond may a school district issue to fund the construction of a new school?
(A) When a state establishes a nonprofit authority to issue revenue bonds to fund the construction of a school, the local government that uses the school leases the facility from the state. The interest and principal on the bond issue are paid using these lease payments.
Are school bonds tax deductible?
Because school districts pay interest on the initial investment, investors might profit when the district repays them. School bonds have a significant benefit over other forms of bonds in that they are free from federal and, in some cases, state taxes.
What can you do with bond money?
Landlords and tenants are baffled by rental bonds. What exactly is the connection? What is the purpose of it? Who has access to the funds? These are common questions, with the latter frequently triggering argy-bargy. We’ve compiled a list of 10 frequently asked questions about rental bonds (along with an explanation of why it’s our business!).
NOTE: This is merely a summary of information. For particular details on all bond matters, landlords and renters should consult the applicable tenancy laws and residential tenancy authority in their state or territory.
When a tenant signs up for a rental property, he or she is obliged to pay a rental bond (also known as a security deposit). The bond is a type of financial security in the event that the lease agreement is broken, and it is used to cover any liabilities that the tenant may be responsible for at the conclusion of the tenancy, such as property damage, overdue utility consumption charges, or unpaid rent. Before the tenant moves into the rental, the tenant normally pays the bond to the landlord or property manager. It is not to be confused with the weekly rent and should not be considered a ‘upfront’ rental payment. The bond must be in the form of money and must be kept for the duration of the lease.
The bond amount must be indicated in the lease agreement, and the maximum bond amount varies by state, though it is normally equal to four weeks’ rent. The bond amount is sometimes decided by the weekly rent, although it can also vary depending on the type of rental property or the type of lease. Landlords in some countries might ask for additional bonds for things like pets or if the property is equipped.
The bond must be paid by the tenants listed on the lease. In the case of co-tenants, each is liable for paying their portion of the bond. The renter will normally fill out a bond lodgement form and receive a receipt from their landlord or property manager once they have paid the amount. The money in the bond belongs to the tenant(s), and the landlord/property manager can only take money from it if there is a solid reason.
Some governments and territories do not allow bond replacement products (such as bond guarantees or bond loans). A government department may, however, be able to help with bonding.
The landlord or property management is responsible for collecting the bail. They must then file the bond with the appropriate government bond authority within the timeframe specified by law. Fines may be imposed if the bond is not lodged on time.
- Office of Rental Bonds, Australian Capital Territory (lodgement within two weeks for landlords, four weeks for agents)
- Landlord or property manager owns the Northern Territory (receipt must be given to tenant)
- Consumer and Business Services in South Australia (lodgement within two weeks for landlords, four weeks for registered agents)
- Residential Tenancies Bond Authority of Victoria (lodgement within 10 business days)
- Consumer Affairs Bond Administrator in Western Australia (lodgement within 14 days)
Typically, the bond is held in a joint account by the landlord and the tenant. Once the funds are deposited, the authority will issue an official bond number.
In case you didn’t know, tenancy interest is frequently utilized to fund tenant advocacy groups.
If a co-tenant leaves and has paid a portion of the bond, a change of bond arrangement form must be completed to refund the outgoing tenant’s share and deposit the new tenant’s payment. If no new tenants are found, the existing tenant(s) will be responsible for ‘filling up’ the bond.
At the end of the tenancy, the bonds are released. If no money is outstanding for rent, damages, or other fees, the bond is returned to the renter when the property is vacated. A tenant’s bond money may be refunded in full, in part, or not at all.
- leave the house in a nice and clean state (usually the tenant is required to do a professional end of lease clean and provide proof)
An agreement must be reached at the end of the tenancy as to how the bond will be refunded.
Unless the landlord makes a claim against the money, the bond will be fully restored to the tenant at the end of the term.
- Property damage committed by the tenant or their guests (NOTE: landlords cannot claim for fair wear and tear)
- cleaning charges (if the rental was not sufficiently cleaned at the end of the tenancy)
If the landlord (or a property manager working on the landlord’s behalf) and the tenant cannot agree on how the bond should be refunded, they must follow the procedures indicated by the relevant government office and initiate the dispute settlement process.
If tenants break their lease agreement, such as by damaging the property or failing to pay their rent, rental bonds provide some security. The bond acts as a financial safety net, allowing some expenses to be recouped. In many cases, the bond will not be sufficient to pay charges, leaving the landlord with little choice except to foot the fee or pursue the tenants through the courts. The bond is usually insufficient in all but small circumstances, making landlord insurance an important investment.
Although not all states and territories require the collection of a bond, ensuring that you collect the correct amount of bond at the start of a tenancy ensures that your policy responds properly when it comes time to make a claim. Failure to retain a bond might result in your claim being reduced by the bond amount or possibly denied (it is a condition of EBM RentCover policies that a four week bond be collected at the time of signing a new lease agreement).
TIP: At EBM RentCover, we enable our clients to utilize the bond to pay for things like cleaning, trash removal, and reletting fees that aren’t covered by the policy. We may subtract the bond from the final compensation if it is not required for additional losses or clean-up. This is not the case with all landlord insurance companies, so read your PDS to see how the bond is utilised in specific claim scenarios.
We educate clients about the unknown at EBM RentCover and add value by being a knowledgeable voice in times of uncertainty.
*While we took great care to ensure the information above was accurate at the time of publication, changes in circumstances and legislation after the published date may have an impact on the accuracy of this article. We’re here if you need us; if you have any questions, call 1800 661 662.
What role do bonds play in education?
Qualified taxpayers can deduct all or part of the interest earned on eligible savings bonds from their annual gross income under the education savings bond program. When the bonds’ owners utilize both the principle and interest to pay for higher education at approved institutions, either for themselves, their spouses, or their dependents, the bonds become tax-free.
How do school bonds get created?
School bond elections in California are local ballot proposals that urge voters to decide whether the school district supporting the item should be authorized to issue bonds and incur the additional debt that bonds entail.
In California, all public school districts are entitled to put bond measures on the local ballot.
California also has a statewide school construction program called the School Facilities Fund, which is funded by statewide bond votes like Proposition 51 in 2016. A simple majority is required to pass statewide bond proposals.
Local school districts can also issue school building bonds and impose property taxes to pay for them if their voters consent.
Prior to 2001, passing local general obligation bond bills required a two-thirds supermajority vote. More than 40% of local school bond referendums were defeated. California voters approved Proposition 39 in November of 2000. The supermajority required to approve a bond issue ballot question was reduced from 66.67 percent to 55 percent under Proposition 39. Proposition 39 also set limits on the amount of bond that may be issued and contained accountability measures. Since Proposition 39’s adoption, districts have had the option of seeking a two-thirds supermajority approval or complying with extra constraints to meet the 55 percent approval criteria.
What is the procedure for submitting a bond proposal?
When a bond proposal is approved by voters, the school district sells bonds in the permitted amount and utilizes the profits to fund the projects in the plan. Bonds are typically repaid in 20 to 30 years.
Is it possible to pay off student loans with EE bonds?
Series EE savings bonds are among the greatest savings accounts for a grandchild since they are low-risk and guaranteed to double in value in 20 years. Savings bonds can be used for education or to pay off student loans if Mom and Dad keep them safely stashed away for years.
Each year, Series EE bonds pay a tiny, consistent amount of interest. If you’ve received an EE savings bond for education or another future expense, you can use the TreasuryDirect calculator to determine how much it’s worth.
Your EE bonds may be useful in helping you pay for college. You could also explore transferring mature savings bonds to a 529 college savings plan or another vehicle that offers higher yields than the EE series. If you go that way, you won’t lose all of your tax benefits because 529 plans have their own set of benefits.
Interest rate on savings bonds vs. interest rate on student loans
Simply explained, the holder of a Series EE savings bond earns income, but the borrower of a federal or private student loan pays interest.
While Series EE bonds pay 0.10 percent interest, government loans have interest rates ranging from 2.75 percent to 5.30 percent for the 2020-2021 school year, with private loans typically charging much higher rates. That implies that even if you make money on EE bonds, it won’t compare to the amount of interest you’re paying on your student loans.
If you’re thinking about using your savings bonds to pay off student debts, keep in mind that they’ll only cover a portion of the cost. This is due to the fact that the interest rates on government and private loans are substantially higher than the amount you receive on your education EE bonds. You’ll almost certainly be assessed a penalty if you cash in savings bonds that are less than five years old.
According to conventional knowledge, paying off higher-interest loans first and then moving on to lower-interest loans is the ideal strategy. When using savings bonds to pay for college, it’s a good idea to pay off private loans first because they have the highest interest rate. Then, with any bond money left over, you can begin repaying your federal student loans.