Drains: financing; interest charged for drain projects; limit. Amends sec. 278 of 1956 PA 40 (MCL 280.278).

2025-2026 Regular Session Introduced by Sarah Anthony and 4 co-sponsors

Capped interest on drain tax installments at no more than 1% above the average bond rate and limited to the bond rate, with all payments strictly dedicated to debt service.

REFERRED TO COMMITTEE ON LOCAL GOVERNMENT

#drains:financing #localgovernment:bonds

Summary of SB 1081 (2025-2026) - Michigan

Purpose and intent

SB 1081 seeks to amend Section 278 of the Drain Code of 1956 (as amended by 2016 PA 27) to adjust how interest is calculated on drain bonds or notes and how funds are managed to secure those obligations.

The bill aims to align interest on drain tax installments with bond/note interest and to clarify fund administration related to debt service.

Key provisions and changes

Interest on drain tax installments:

Installments of drain taxes issued to finance drains must bear interest at a rate not more than 1% per year above the average rate of interest on the underlying bonds or notes, from the date of preparing the assessment roll until due.
The interest rate must not exceed the rate payable on the bonds or notes themselves.
The drain bonds/notes may provide for semiannual interest payments if the drain commissioner determines so.

Allocation and use of funds:

The collected installments and interest are to be paid into the county treasury and credited to the drain fund, and used solely for the payment of the bonds or notes as they mature or are subject to mandatory redemption.

Anticipated money for debt service:

Money collected in anticipation of debt service must be deposited by the county treasurer in designated banks, with interest earned belonging to the drain fund.

Bond/notes issuance:

Bonds or notes issued and sold by the drain commissioner must bear interest at a rate not exceeding the rate specified in the revised Municipal Finance Act (1 PA 34), MCL 141.2101 to 141.2821.

Who/what is affected

Drain commissioners issuing bonds or notes to finance drain projects.

County treasurers responsible for collecting drain taxes and managing the drain fund.

Counties administering drain funds and bond debt service.

Property owners subject to drain taxes (as taxpayers paying installments with interest).

Procedural and timeline aspects

Status: Introduced June 25, 2026; referred to the Committee on Local Government.

Effective dates are not specified in the text provided; operative provisions would generally take effect as of enactment or subsequent date defined in the bill or accompanying fiscal notes.

The bill cross-references and requires consistency with the Revised Municipal Finance Act for maximum bond interest rates.

Practical impact and considerations

Financial predictability: By capping the interest rate on drain tax installments to within 1% above the average bond rate (and not exceeding the bond rate), the bill seeks to create predictable debt service costs for drain projects.

Fund management: Strengthens the requirement that all installment payments and interest be funneled into the drain fund, dedicated exclusively to debt service, potentially reducing leakage or misallocation.

Compliance with act: Aligns drain debt instruments with statutory maximums under the Revised Municipal Finance Act.

If you want, I can add a brief comparison to current law as it exists prior to SB 1081 or outline potential fiscal impacts based on typical bond sizes and tax bases.