This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.

BONDS AND NOTES -- Proceeds (use of excess)

MUNICIPAL FUNDS -- Appropriations and Expenditures (use of excess bond proceeds)

LOCAL FINANCE LAW, §165.00: A school district which has excess proceeds of outstanding bonds issued for a completed capital project must retain these proceeds for the payment of principal and interest on the bonds, irrespective of whether the bonds have a "call" provision. These excess proceeds may not be used for any other school district purpose.

You ask whether excess proceeds of outstanding bonds issued by a school district for a capital project which has been completed may be used for any lawful school district purpose, in lieu of using the proceeds to pay principal and interest on the bonds, if the bonds do not have a "call" provision.

Local Finance Law, §165.00 governs the deposit and use of proceeds from the sale of bonds issued by a school district. Paragraph a of section 165.00 provides that, generally, the proceeds from the sale of bonds must be deposited and secured in a special account, may not be commingled with other funds of the school district, and must be expended only for the object and purpose for which the obligations were issued. That paragraph further provides that, if any portion of the proceeds are not expended for the object or purpose for which the obligations were issued, those proceeds must be applied only to the payment of the principal and interest on the obligations.

Although section 165.00 provides several exceptions to certain of the requirements of paragraph a (see Local Finance Law, §165.00[a][1-3][b]), there is no exception in section 165.00 to the requirement that bond proceeds which are not expended for the object or purpose for which the bonds were issued must be used to pay debt service on the bonds (cf. Local Finance Law, §165.00[a][3], relative to use of excess proceeds remaining after the payment of principal and interest on the bonds under certain circumstances). Moreover, by its express terms, this requirement is applicable to excess proceeds of all bond issues, irrespective of whether the bonds have "call" provisions. In the case of non-callable bonds, the proceeds would be retained to pay annual installments of debt service on the bonds.

Accordingly, a school district which has excess proceeds of outstanding bonds issued for a completed capital project must retain these proceeds for the payment of principal and interest on the bonds, irrespective of whether the bonds have a "call" provision. These excess proceeds may not be used for any other school district purpose.

May 17, 1995
John M. Donoghue, Esq., Attorney at Law
Pine Bush Central School District