ELPS BOND Underwriting & Construction Contracts


A bond underwriter is a financial institution that is an intermediary between the bond issuer (ELPS) and the bond buyers. ELPS should select the bond underwriter and the bond structure to minimize the “effective Annual Percentage Rate (APR)”. (See “effective Annual Percentage Rate (APR)” for a simple example of how to convert interest rate and fixed fees into an “effective APR”.) From my recent conversations at a school board meeting, ELPS appears to have already chosen a bond underwriter without going through a competitive process. Without a competitive bidding process, the bond underwriter has no incentive to provide ELPS with the best possible “effective APR”.

The incentives of the underwriter were highlighted in the 2012 pro-bond campaign. The 2nd highest contributor to the pro-bond campaign was the former superintendent of Haslett who was employed as a bond underwriter at Stifel, Nicolaus & Co. (See HERE and And here for documentation.] Clearly, an employee for Stifel, Nicolaus & Co. would not have made a contribution to the pro-bond campaign unless their firm anticipated being ELPS’s bond underwriter. Even more clearly, a bond underwriter trying to maximize profits would not provide the best “effective APR” if they were certain to be ELPS’s bond underwriter. Based on conversations at a recent school board meeting, it is my understanding that Stifel, Nicolaus & Co. will be the bond underwriter if the current bond referendum passes.

Besides the decision on the underwriter, the school district appears to have also decided to use the Michigan’s Revolving Loan Fund and the ELPS website indicates that the district will pay $10 million in interest to the state’s revolving fund. My research into K-12 capital expenditures began as a member of the 2012 Citizen Bond Committee. As a member of that committee, we also discussed the financial incentives of using Michigan’s Revolving Loan Fund and it was clear to me at that time that ELPS should not participate in the revolving loan fund. (Note 1 below.) It remains clear to me that ELPS should not go through Michigan’s Revolving Loan Fund for the current bond. I worry that the main reason ELPS is using the revolving fund is because the board/administration lacks financial expertise and the bond underwriter/lawyers make more by using the revolving fund. I also worry that the relationship between the former superintendent of Haslett and the district administration was/is not transparent.

As with the bond underwriter, the incentives of Clark Construction are evident by being the largest contributor to the 2012 pro-bond campaign. If the construction projects are not put out for competitive bid, Clark clearly has incentive to maximize profits when deciding what to charge ELPS. As a mechanical engineer who worked in the Chicago construction industry in the mid-1980s, the statement by bond advocates that we should pass the $93Million bond and those firms profiting from the construction will give back “whatever money they don’t use” seems absurd to me. Profit maximizing firms do not give money back in the Chicago or in the East Lansing construction industry.

While ELPS has signed a contract with the GMB Architecture and Engineering, it is my hope that ELPS has not signed a contract with Stifel, Nicolaus & Co. for underwriting or Clark for construction.

I believe ELPS not using a competitive bidding process to determine the bond underwriter and construction firm will cost ELPS taxpayers millions.

Mike Conlin

[The information in this post is based on my research and represent my views. They do not necessarily represent the views of MSU.]

Note 1: The incentive to use the revolving loan fund is stronger for those local school districts that have a bond rating lower than the state’s bond rating and that want to delay the repayment. ELPS’s bond rating was better than the state’s bond rating in 2012 and, due to the relatively recent bond rating drop, ELPS (I believe) now has a similar bond rating as the state. By delaying repayment (by allowing the local district to borrow from the state), the revolving loan fund allows a district to keep the millage rate lower in the short run – the cost of that is the $10 million in interest paid to the state and additional fees associated with the revolving fund. For those interested in understanding Michigan’s revolving fund, I found the documentation provided by Michigan’s Department of Treasury (at Click HERE especially the “qualification and loan reports under issuing bonds” link) and the 2012 House Fiscal Report pertaining to Michigan’s school capital expenditure finance (at helpful Link

Please send submissions to Public Response using admin@publicresponse.com.

FREE, Subscribe Here - admin@publicresponse.com
If you no longer wish to receive emails from Public Response, you can unsubscribe here.

Protocol & Disclaimer:
"Work submitted and published in Public Response is the sole responsibility of the work's author(s)." "Any editorial statements made by the editor of Public Response do not necessarily reflect those of the subscribers, list members, or sponsors. Likewise, the assertions and opinions set forth by contributors whose works are published are not endorsed by Public Response."

April 25, 2017