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Small Rural School Districts and Disadvantaged Communities Face Unfair Levies and School Bonds

The Wahkiakum school district in southwest Washington argues that the levying system leaves rural school children with crumbling, outdated buildings. The small community of about 2,000 residents has appealed to the states Supreme Court and is waiting for the attorney general’s office to respond.

In 2012, the state Supreme Court favored the McLeary case, in which Washington state was found to be underfunding K-12 schools. After years of litigation, the state’s highest court ruled that Washington needed to pay nearly $2 billion to fund teacher salaries rather than rely on local levies.

Today, the same argument is applied to school bonds. School bonds provide funding for building new schools, attaining property, and renovating and repairing facilities and systems within buildings. In contrast, levy dollars pay for educational programs and day-to-day operations such as teachers, support staff, classroom supplies, technology, extracurricular activities, transportation, utilities, and insurance. 

Washington School Superintendent of Public Instruction, Chris Reykdal, thinks the way schools are funded needs to change. Bigger, wealthier school districts usually don’t have difficulty in passing a bond vote as school construction bonds in property-rich communities cost minimally on every $1,000 of assessed property value for each taxpayer. However, in rural areas with less valuable property, bonds are much more expensive for individual households, making them harder to pass.

Reykdal further explains that without bond approval, districts can’t qualify for state match funding. Like most other states throughout the U.S., school districts are initially funded by property taxes based on the local tax base. Constituents vote on the applied tax rate, and the money ultimately comes in levies. That money is then supplemented by state aid.

Experts said that property tax has historically been used for school budgets because they are stable and less likely to fluctuate with the economy, unlike other revenue, like income and sales taxes. Additionally, voters usually like holding local control over neighborhood institutions.

Washington is not the only state suffering from an unbalanced levying and construction bonding system. While every state varies within its specific guidelines for school funding, more than half of states have per-pupil funding levels below the national average. Sometimes, even within the same district, students face a disparity.

Luckily, a lot of attention is being drawn to closing America’s education disparity gaps. The Century Foundation (TCF) has created a report that estimates what is needed to provide each child in America the opportunity to succeed.

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At Construction Bonding Specialists, we work with new and experienced contractors to find the most satisfactory bond solutions. As a distinct surety-bond-only agency with decades of bonding experience, we work to discover surety solutions for all types of cases ranging from ordinary to challenging. Call us at 248-349-6227 to learn more.

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/

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The SBA Works to Break Down Barriers as the White House Disperses $60 Billion to States

The Small Business Administration (SBA) is advocating for more small businesses to partner with federal contractors, particularly with the latest advancement to update critical infrastructure throughout the U.S. With the passing of the $1 trillion infrastructure law, the Biden administration made available about $60 billion to the states earlier this month. These funds are earmarked for rebuilding critical infrastructure within all 50 states, including Washington D.C., and Puerto Rico.

The SBA has teamed up with the U.S. Dept. of Transportation to offer additional opportunities and access to capital while removing common obstacles small businesses often face. A new avenue was created for small and disadvantaged businesses to help connect companies with contracting opportunities and be able to access some of these funds. This includes actions such as direct introductions and educating small business owners on how to be competitive in securing contracts.

The much-needed critical infrastructure work ranges from rebuilding roads and bridges to buildings and public transit. SBA administrator Isabel Guzman reports, “That technical assistance is going to give them the how-to in terms of going after, successfully bidding on, and winning contracts in the federal space.”  

In 2021, the U.S. infrastructure was given a C- by the American Society of Civil Engineers (ASCE), which is up from a D+ in 2017. Seventeen categories were assessed in 2021, with grades ranging from a B for railroads to a D- for transit.

Small businesses have a difficult time obtaining federal contracts compared to larger entities, in part due to contract bundling. Bundling occurs when multiple tasks are entered into contracts that balloon, causing the contracts to become so large that small and medium-sized businesses can’t take them on.

Another barrier is the lack of history. If a business cannot prove its historical performance, then they fail to compete, making it much more difficult to secure future jobs. This is what the SBA hopes to assist with; connecting businesses with subcontracting opportunities that, in turn, help build up their portfolio and give them a better edge to go after prime contracts.

“It comes down to expanding the number of opportunities and ensuring that small businesses are entering the contracting space, getting certified, and able to know the how-to’s of who to connect to, how to present yourself, and how to get money,” Guzman says.

The SBA is also assisting small businesses within the transportation sector to get bonds, which guarantee agreements. Most federal contracts require businesses to be bonded. Surety bonds are a type of insurance with a three-party contract in which the surety guarantees a contract’s completion, i.e., with the federal government. If a contractor is unable to complete a project, the responsibility falls on the surety company to find a replacement contractor.

It’s estimated that about sixty-five thousand contracts were received by small businesses in 2021, down by almost 40% over the past decade. While the SBA and the U.S. Dept. of Transportation have not enumerated a goal, this partnership aligns with the current administration’s objective to advance the equity in government procurement. The federal administration has set an 11% federal contracting goal for small, disadvantaged businesses, with an increase to 15% by 2025.

At Construction Bonding Specialists, we work with new and experienced contractors to find the most satisfactory bond solutions. As a distinct surety-bond-only agency with decades of bonding experience, we work to discover surety solutions for all types of cases ranging from ordinary to challenging. Call us at 248-349-6227 to learn more.

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/

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Common Questions & Answers Regarding Surety Bonds and the Prequalification Process

What is a surety bond?

A surety bond is a signed agreement that guarantees compliance, payment, or job performance. Sureties are a type of insurance with a three-party contract in which one party (the surety) guarantees the performance of a second party (the principal) to a third party (the obligee). Surety bonds written for construction projects are called ‘contract surety bonds;’ otherwise, they’re known as commercial surety bonds.

Who is the surety?

A surety is an insurance company or surety company licensed by a state department of insurance that guarantees the performance of a principal. If the principal fails to act as promised, then the surety is liable for losses sustained.  

Who is the principal?

The principal is the person or entity who purchased the bond. In construction, the bond is given to the contractor or subcontractor who undertakes the obligation to perform the job as promised. The surety guarantees the principal’s responsibility.

Who is the obligee?

The obligee is the individual or entity with whom the principal is contracted. In construction, the obligee is the project owner or the primary contractor. Often the obligee is a local, state, or federal government organization.

What documents will I need to get bonded?

  • Completion of a Contractors Questionnaire
  • Fiscal Year End Business Financial Statement for the Contractor and all subsidiaries and affiliates for the last two years
  • Current personal financial statement for all owner(s)
  • Current work on hand schedule
  • Current bank reference letter
  • Resume of all key employees
  • The current insurance certificate naming Construction Bonding Specialists, LLC as a certificate holder

For Bid, Performance, or Payment Bonds – the following items are also required:

  • Contract Bond Request form: Contract Surety
  • A copy of the underlying contract and bond forms for our review

What factors does a surety consider in the underwriting and prequalification process?

Obtaining a construction bond is more like getting bank credit than purchasing insurance. Surety underwriters perform a thorough and detailed process to review and evaluate the financial documents submitted. They also consider factors such as the risk under the specific contract for which the contractor seeks a bond, the contractor’s entire work portfolio, past performance, experience, operational efficiency, managerial skills, business plan, and reputation for integrity. Different sureties will weigh varying factors during the underwriting process, but almost all will consider the following factors:

  • Financial capacity
  • Net worth
  • Cash flow
  • Assets
  • Credit score
  • Work in progress
  • Work history, including expertise and experience
  • The banking relationship
  • The nature of project to be bonded
  • The character of the contractor

BONDS ARE ALL WE DO!

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For more information about our bonds visit our website or call 248-349-6227

At Construction Bonding Specialists, we work with new and experienced contractors to find the most satisfactory bond solutions. As a distinct surety-bond-only agency with decades of bonding experience, we work to discover surety solutions for all types of cases ranging from ordinary to challenging. Call us at 248-349-6227 to learn more.

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/

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Understanding Construction Bond Claims

Experienced contractors generally make a conscious effort to avoid claims situations, while being proactive about understanding the process. Utilizing the perfect surety gives those contractors the knowledge and power they need for their claims team. For any contractor to take on bonded jobs, basic comprehension is essential.  

The three main types of construction bonds are: bid bonds, payment bonds, and performance bonds.

Bid Bonds
These bonds stem from situations when the principal is the successful bidder but cannot enter into the contract or provide final bonds. In bid bonds, the principal and surety are required to pay a specific sum to the obligee. The bond form caps liability at a particular amount (the difference between the principal’s bid and the next highest bidder’s bid) instead of exceeding the penal sum of the bid bond. The responsibility of this task is between the principal and surety. 

Payment Bonds
When the principal fails to pay subcontractors, laborers, and/or suppliers, payment bonds give the surety the right to assert all of the principal and surety’s defenses, which sometimes include limitations on notice and time. Only proper “claimants” can benefit from these bonds, so the principal and surety need to confirm the claimant can pursue the claim. 

Performance Bonds
A performance bond claim arises when the obligee defaults or terminates the principal for non-fulfillment regarding their contractual obligations. Handling a performance bond claim has various levels of importance, including cooperation, agreements, and challenges. One of the most trying decisions is to admit or deny liability. After analyzing contract documents, bond forms, factual issues, and possible defenses, the surety has to eventually decide whether to perform. 

Surety partners will typically work in conjunction with contractors to avoid claims or mitigate the damages. Selecting the ideal surety with a good track record of minimizing legal fees while resolving claims is paramount for any contractor. 

If you are seeking a construction bond, contact the specialists at Construction Bonding today. 

At Construction Bonding Specialists, we work with new and experienced contractors to find the most satisfactory bond solutions. As a distinct surety-bond-only agency with decades of bonding experience, we work to discover surety solutions for all types of cases ranging from ordinary to challenging. Call us at 248-349-6227 to learn more.

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/ 

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Requiring Private Construction Bonds

While public (federal, state, or local agencies) projects are required to provide performance and payment bonds, private construction generally does not require bonds. For privately-owned construction jobs, it is up to the owner to secure a bond. 

While most contractors will work with a surety to provide the bond, some contractors will make it mandatory for the owner to pay for the bond. Depending on the contractor, size, type, and duration of the project, bonds can range in price between one-half to three percent of the contract.

Some of the reasons why private owners elect to secure bonds include: 

  • Lenders: Owners may be required to provide bonds if a lender is financing the job. 
  • Contractors: Sureties will thoroughly screen contractors for proficient operations, management, experience, and financial stability. 
  • Guarantees: Bonded projects are more likely to be completed.
  • Support: If trouble emerges, the surety will intervene and offer support to avoid default. 

Private owners choose to forgo bonds because: 

  • Price: Bonds are expensive, and it can be challenging to justify higher expenses. 
  • Vetting: Financial and other records are generally difficult to obtain, but some contractors provide access to sureties.
  • Contracts: Countless provisions require clear communication between the surety and contractor.

Practically speaking, securing bonds for privately-owned construction jobs depends on the experience of the contractor, size, and nature of the project. Bonding might be justified if the project is big but the contractor is smaller. If the contractor is unfamiliar with the structure or components, a bond might be a good idea. Lastly, if a private construction job does require a bond, it is imperative for the owner to review the form with an attorney to ensure everyone will comply with the stipulations. 

At Construction Bonding Specialists, we work with new and experienced contractors to find the most satisfactory bond solutions. As a distinct surety-bond-only agency with decades of bonding experience, we work to discover surety solutions for all types of cases ranging from ordinary to challenging. Call us at 248-349-6227 to learn more.

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/ 

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MDOT Showcases Roadwork Funded by Whitmer Bonds

Specific sections of roadway are being showcased by the Michigan Department of Transportation by way of signs that say, “Bond Financing at Work,” which alludes to Governor Gretchen Whitmer’s 2020 road bonding plan. 

MDOT spokesman Jeff Cranson said about 15 green signs ($750 each) have been installed throughout the state with plans to install more. One sign, located in a construction area on Interstate 496 in Lansing, is meant to assure “that the work is being done,” according to Cranson. 

“Installing these signs is consistent with MDOT’s objective to be transparent and provide the public with as much information as possible about road projects,” Cranson said.

House Republicans who have opposed Whitmer’s bonding plan added a stipulation to the transportation budget requiring that the signs mention the monetary amount paid by the state in interest and borrowing costs to repay the bonds. 

Currently, the 2022 budget requires construction and borrowing costs to be listed on the signs. MDOT is not complying with the law, so the 2023 budget approved by the House includes provisions for non-compliance. 

Cranson says the addition of words or signs as outlined by the House budget would increase the cost of each sign. 

In 2020, Whitmer suffered from a failed bid to bump up the state’s gas tax by 45 cents a gallon to finance road renovations. In response, she launched her “Rebuilding Michigan Plan,” announcing it during her 2020 State of the State address. The next day, the Michigan State Transportation Commission authorized the department’s use of bonding.

Rough estimates by economists showed that the $3.5 billion program would total approximately $5.2 billion if the state remits annual debt bond service payments of $206.6 million for 25 years. About $529 million of the $1.6 billion issued thus far has already been spent or is spoken for, with an additional $1.9 billion in bonds to be sold in the future. 

At Construction Bonding Specialists, we work with new and experienced contractors to find the most satisfactory bond solutions. As a distinct surety-bond-only agency with decades of bonding experience, we work to discover surety solutions for all types of cases ranging from ordinary to challenging. Call us at 248-349-6227 to learn more.

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/

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