DATE: April 22, 1998
TO: Local School District Business Officials
FROM: Ken Cool, Elaine Madigan Mills, and Glenda Rader
SUBJECT: Accounting For Durant Settlement
A sub-committee was appointed by the Michigan School Accounting Manual
Referent Group to discuss and make recommendations on the appropriate financial
accounting for the Durant settlement. The group met on April 1, 1998 at
1:00 p.m., Conference Room 1 of the John Hannah Building. Present were: Valerie
Agolli, Ernest Hodges, Linda Rairigh (all from Treasury), Tim Arter, Dave
Biller, Ken Cool, Bruce Dunn, Ed Gwiazdowski, Fred Hailer, Elaine Madigan Mills,
David Ogg, Ric Peterson, and Glenda Rader.
In summary, the committee considered the following questions and came to
consensus on the respective recommendations. Please be aware that these are
recommendations. Additional information and clarifications will be distributed
to the school districts as they become available.
1a. Within which Fund and Revenue Classification should the
Plaintiffs record the April 15 payment?
Committee Recommendation:
Plaintiff districts should record the payment in the General Fund, under State Unrestricted Revenue, Major Class Code, 311. The payment will be made out of 1997-98 State School Aid Appropriation, under Section 11e.
1b. Within which Fund and Classification should the Bond Proceeds be
recorded ?
Committee Recommendation:
Districts should record the bond proceeds in the Capital Projects Fund under
"Proceeds from the Sale of Bonds," Major Class Code, 591. Use of these funds is
restricted to purposes specified in Section 1351a of the Revised School Code.
The Department of Treasury will further investigate the need to footnote in
financial statements and/or record in the GLTDAG.
1c. Within which Fund and Classification should the debt service on
bonds be recorded ?
Committee Recommendation:
The Debt Service Fund is to be used to record amounts appropriated each year
by the legislature to be used to retire the bonds and pay interest on-behalf of
the districts. It was suggested that these payments should be recorded as State
Revenue on the districts books even though they will not be receiving cash
payments in the Debt Service Fund. The actual journal entries for those payments
has yet to be determined.
1d. Within which fund and classification should the Cash Payments
less than $75,000 be recorded?
Committee Recommendation:
These districts will receive a single lump sum payment on November 15, 1998.
These funds should be recorded in the General Fund as Restricted State School
Aid, Major Class Code, 312. Use of these funds is restricted to purposes
specified in the State School Aid Act, Section 11f (6). Any amount left unspent
at the end of a given fiscal year will be recorded as deferred revenue similar
to other categorical state revenues. Districts should establish a program code
as they would for other restricted revenues. Any amount left unspent at the end
of a given fiscal year will be recorded as deferred revenue similar to other
categorical state revenues.
1e. Within which fund and classification should the cash payments to
be received over ten years be recorded?
Committee Recommendation:
Districts will be receiving 50% of the settlement amount over the next ten
years. These funds should be recorded in the General Fund as Restricted State
School Aid, Major Class Code, 312. Use of these funds is restricted to purposes
specified in the State School Aid Act, Section 11f (6). Districts should
establish a program code as they would for other restricted revenues. Any amount
left unspent at the end of a given fiscal year will be recorded as deferred
revenue similar to other categorical state revenues.
1f. Within which fund and classification should the districts
electing not to bond record their payments?
Committee Recommendation:
Districts who elect not to use the bond option will receive fifteen annual
payments (each at 1/30 of the settlement). The payments should be recorded first
in the Debt Service Fund, as State Restricted Revenue, Major Class Code 312. The
funds must be used first to pay off voter approved debt, second to pay off
limited obligation debt, and the remainder deposited into a sinking fund.
2. Should districts record the revenue to be received over the next
10 years as accrued revenue in Fiscal Year 1997-98?
Committee Recommendation:
Because the legislature will be appropriating the funds annually, the
district should not record the future payments as accrued revenue in the 1997-98
year. The revenue will be recorded as received by or on-behalf of the district.
3. May the money (non-litigants) be spent before it is received in
November?
Committee Recommendation:
Districts should consult legal counsel to insure proper procedures and that
resolutions are filed and other legal requirements are met. In many cases it may
be considered permissible to spend the funds prior to their receipt.
4. Are there arbitrage issues to be considered?
Committee Recommendation:
Districts should consult legal counsel on arbitrage issues related to bond
proceeds.
Again, these are preliminary recommendations. Additional information and clarification will be distributed to the school districts as they become available. If you have questions relating to these or other public school financial accounting issues, you may contact Glenda Rader at (517)335-0524 or E-mail:raderg@michigan.gov
Copyright ©1998 by State of Michigan
Last Updated: 05/18/1999 at 3:00pm