73 The Alabama Lawyer 46 (2012). Fundamental School Finance Reform Comes to Alabama.

• Author: By Frank D. McPhillips and Heyward C. Hosch, HI

Alabama Bar Journal

2012.

73 The Alabama Lawyer 46 (2012).

Fundamental School Finance Reform Comes to Alabama

Fundamental School Finance Reform Comes to Alabama By Frank D. McPhillips and Heyward C. Hosch, HI On August 1, 2011, Act No. 2011-631

became law in Alabama, marking the first comprehensive reform, since 1959, of the Depression-era laws governing pubhc school finance. This effort attempted to modernize and streamline the process by which local school boards gain access to the capital markets and strengthen the credit of school boards to lower their costs of borrowing.

Almost immediately, the positive effects of the new law were felt by local school boards throughout the state. In the month of August alone, one small county school board was upgraded from A- to A by Standard and Poor's and another small county school board received a commitment for bond insurance for the first time-both as a result of the new law. In an era when public resources supporting education are continually stretched and proration is a constant threat, this is indeed welcomed news.

The new law has had another important salutary effect: strengthening State Department of Education oversight over local school boards. The new law explicitly requires state approval of all forms of local school indebtedness, regardless of the plan of financing which the school board may choose to undertake. As will be described in more detail below, the necessity of state approval of all forms of local school indebtedness is consistent with the state's overall responsibility for K-12 education.

This article addresses many highlights of this important legislation. The purpose of this article is not to summarize or analyze every aspect of Act No. 2011-631. For a thorough understanding of this new law, readers are advised to read the Act itself, which is available onHne at the Alabama Secretary of State's website {http://arc-sos.state.al.us/CGI/actnum-bermbr input).

Sale of Warrants

Prior to enactment of Act No. 2011-631, Alabama law required school boards to sell their warrants as follows:

* Select a date 30 to 60 days in advance; * Publish a notice in the local weekly newspaper; and * Hope that a bank or other financial institution would submit a reasonable bid on the prescribed date.

Enormous volatility in the capital markets since 2008 has rendered this procedure increasingly obsolete. Often, a school board has gone to the trouble and expense of advertising for bids, but missed an ideal marketing opportunity while waiting for the bid date. As a result, the board was left empty-handed when it failed to...