1. Local Agency Bonds

2. Issuing a Bond
The municipality decides they need an influx of cash and a bond issue is how they decide to get it.
Working with their financial advisor the bond issue process begins
It is a good idea to determine everyone’s roll as you move forward; what account will the money be deposited in? Who gets any interest revenue? Who will pay the bond payments? They are all good things to know if more than one fund or office is involved.
Some things to be aware of BEFORE the bond principal amount is determined…..

3. Work with your DSAE and SALT.
Municipalities have the option of advancing their allotment funds up to the value of 5 years allotment or $4,000,000 ~ which ever is less. This is interest free.
Work with your DSAE and SALT.
Are there other funding sources you are not aware of?
If you use your allotment to make bond payments how will that effect your future allotment funds?
What if the ability to advance is removed in the future?
Know the legal limit you can bond for

4. MN Statute
State Aid Rule Subp. 11
Maximum Annual Payment
“…The total maximum annual repayment of funds loaned from the transportation revolving loan fund plus state-aid bond funds that may be paid with state-aid funds is limited to 90 percent of the amount of the county's or urban municipality's last annual construction allotment preceding the bond issue. …” Mn Rule Subp. 11
Calculate this:
Determine the average annual principal and interest payment over the life of the bond.
Determine 90% of the last CONSTRUCTION allotment issued to your city. This will usually be the current year’s unless you issue the bond in early January, then it would be the previous years.
If the payments are less than 90% of the allotment AND this is the only bond you have you have passed the test.
If you have more than one bond or you have a TRLF loan, you must determine the annual average payment for each debt, add them together and see if you still meet the 90% test.
If you do your principal amount is within the legal limit, if not you will have to reduce your principal amount OR fund the payments with a local revenue source.

5. The Bond is Issued
The net proceeds from the issue are deposited in the city’s account.
The city government must issue a resolution, auditor’s certificate, or what ever official document type used stating: “…the governing body of the municipality shall irrevocably pledge and appropriate to the sinking fund from which the obligations are payable, an amount of the moneys allotted or to be allotted to the municipality from its account in the municipal state-aid street fund sufficient to pay the principal of and the interest on the obligations as they respectively come due…” MS
This document essentially authorizes State Aid to release the annual bond payments to you from your available annual allotment, rather than requiring a project and a payment request.
By the same rules and statutes the principal payment must be paid from the construction account and the interest payment must be made from the maintenance account.

6. STATE AID MUST RECEIVE
Within 30 days of the bond issue the bond company or the city must provide State Aid Finance with:
A copy of the city’s authorizing document
A copy of the complete amortization schedule
We have received the entire bond issue document, but we do not need it.

7. What State Aid Tracks
The amortization schedule is entered into our system tracking the amount of “Unpaid Principal” and the current amount of interest and principal due annually
The full amount of the bond principal to be paid from the city’s construction account is documented as the “Unapplied Bond Amount”. This is the amount that is yet to be applied to a State Aid eligible construction project.

8. Bond Payment Due
State Aid maintains a record of the original amortization schedule for the bond providing the annual payments due.
The city must verify each payment as it comes due and state the funds are being used for annual bond payments.
The “Affidavit of Annual Bond Payment Request” must be completed and submitted to State Aid Finance about 30 days prior to the payment due date, this allows processing time. Affidavits received too far in advance (more than 90 days) will be returned.
The affidavit can be ed to John Fox at

10. Bond Set Aside - Construction
In January when the new allotment is determined the new year is “rolled over”. In this process the following happens:
Construction
Any advance of construction funds from the previous year is repaid first.
Second from the remaining balance, if there is any, the bond principal due in the current year is “set aside” from the available allotment balance and held until it is needed.
If there are insufficient funds to make the bond principal payment funds are advanced from the future year’s allotment. This is only done if the city is eligible to receive an allotment in the coming year.
This advance is considered part of the advance limit stated earlier. It also requires the city to submit an advance resolution if they want to spend any additional construction funds.
When the Affidavit is received your payment is released.

11. Bond Set Aside – Maintenance
As part of the same new year “roll-over” process both of the interest payments due are “set aside” from the available maintenance balance.
If there are insufficient funds to make the bond interest payments the amount available is “set aside” and the interest payment will be paid short, leaving the unpaid balance due the responsibility of the city.
If maintenance funds become available the next year a written request can be submitted and the unpaid portion from the previous year can be released.
Maintenance funds are NOT advanced.
When the affidavit is received, generally two times a year for interest payments, the set aside funds will be released.

12. Apply Bond Funds
Bond funds can be spent on anything that your State Aid Construction Allotment can be spent on.
To be paid from State Aid funds there must be a project number, and all the normal processes of creating a project are followed.
When submitting a payment request use the line “State Aid Bonds Applied” and enter the entire amount you want funded from your bond.
Other Costs can also be funded by bond funds. If using bond funds for engineering, right-of-way, or force account work enter “State Aid Bond” in the funding column.
No money will be paid to the city at this time it, you will use the bond proceeds to make your payment.
Costs are applied to the oldest bond first.

14. The bond principal is 100% repaid
The bond remains a liability to the city on the city’s State Aid records until both:
The bond principal is 100% repaid
The bond principal is 100% applied to projects
If the city repays any portion of the bond with local funds that amount does not need to be “applied”, but State Aid must be notified to make the adjustment.
It is HIGHLY recommended that you apply your bond principal BEFORE issuing another bond to be repaid from State Aid allotments.
Find your bond balances on our webpage: PW: reports1
Unpaid Principal & Payment Schedule: SAAS Report Bond Loan Schedule
Current Principal & Interest Due: SAAS Report Bond Principal & Interest Due for 20XX
Projects Bonds are Applied to: SAAS Report Bond Applied Projects

15. Refunding a Bond
Over the life of a bond the interest rate or the need to reorganize debt may cause the city to refund the bond.
The process is essentially the same as an initial bond issue.
The same 90% test you calculated for the original issue must be met by the refunding issue.
Within 30 days of the new bond issue the bond company or the city must provide State Aid with the new amortization schedule and another authorizing resolution or auditor’s certificate.

16. When State Aid gets the information for the new bond.
The old bond principal and interest schedule is removed and the new schedule is entered. Essentially paying off the original bond when the new schedule begins.
The “unpaid” bond principal is adjusted to correctly reflect the portion paid on the original bond and the portion that is to be paid on the new bond.
If the “unapplied” bond principal is less than the principal paid on the original bond, a balance “to be applied” will remain on the original bond. As you apply bonds to your projects the older bond will be applied first.
The unapplied bond principal will generally increase because of the added refunding costs. So, if you had applied 100% of your original bond, be aware that there may be a new “unapplied” balance that must be applied to a project.

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