Schools face new financial crunch

Terry Webster

Wednesday, Nov. 15, 2000 | 11:19 a.m.

The latest financial blow to the Clark County School District involves a potential increase in bond interest rates.

School officials are trying to find $13.3 million in the $1.1 billion 2000-2001 budget to pay for an arbitration settlement with teachers and rising fuel and utility costs.

Dipping into the district's fund balance -- a reserve account used for unexpected expenses -- is one way to help offset the $13.3 million deficit.

But that approach concerns school officials and bond rating firms.

If reserve funds decline, the district may face higher bond interest rates.

"The result would be taxpayers having to pay more for interest, which means fewer dollars for school costs," Walt Rulffes, the district's chief financial officer, said.

The district, the nation's sixth largest and fastest growing, has a 10-year capital projects program totaling around $3.7 billion, which extends through 2008. The district builds about one new school a month.

"If interest rates go up, it's very doubtful it would impact the construction of new schools," Rulffes said. "But it could affect renovations a little bit."

During recent conference calls with bond rating firms, questions were raised about the district's fund balance, budget stabilization fund and general fund budget.

In a Nov. 6 memo to the School Board, Rulffes said that the district's current rating by Moody's Investor Service was based on the expectation that reserve funds will be replenished.

Arbitration settlements and unfunded mandates are hindering the district's plan to beef up reserve funds.

"We believe the unrestricted fund balance should be at 2 percent," Rulffes said. "Right now we are a little above 1 percent. Our goal is to restore it to 2 percent, but that is probably going to take another two to three years."

In his memo, Rulffes also said that Standard & Poor's said the district's outlook is negative, due to operating deficits and declining general fund reserves.

"They have cautioned us that the rating could go down," Superintendent Carlos Garcia said.

If those trends are not reversed, it could lead to a rating downgrade, the memo says. And lower ratings mean interest rates can rise.

"With a bond sale proposed for early spring 2001, it is clear that the district's budget situation may very well have an impact on future bond ratings, which affects the interest rate received on the bonds," said Rulffes.

The district currently holds an Aa3 rating from Moody's and an A+ rating from Standard & Poor's. Both are considered by financial experts to be high ratings, entitling the district to advantageous interest rates. Moody's rating scale ranges from a high of Aaa to a low of C. Standard & Poor's ratings extend from a high of AAA to a low of D.

School district financial difficulties are not new to Garcia, who says he faced them as an administrator in California. Garcia was superintendent of the Fresno Unified School District before coming to Clark County in July.

California's school district funding crunch came in the early '90s but has since improved, Garcia said.

In Nevada, a lack of sufficient state funding is continuing to plague the district, he added.

"We rank 37th in the country in per-pupil expenditures," Garcia said. "We're about $1,000 below the national average. It's inevitable that it's going to have an impact on what we are able to do."

Meanwhile, school officials are facing difficult budgeting decisions. The $13.3 million that must go toward teachers compensation and utility costs must be generated through cuts in other areas of the budget.

"We're looking at transportation issues and everything," Garcia said. "Right now we are going through all programs, and we're looking at things we may not need to offer anymore. Every division has been told to look at everything."

School Board members have expressed concerns about any cuts into programs. But the district's budget department gave the board a list of more than 40 programs and services totaling $46 million.

In early December, school officials will hold a workshop to determine where the budget transfers will come from.

Despite all of that, the district's finances have seen worse times, according to Rulffes.

"We're still in better financial shape than we were in 1992," he said. "But we don't want to go back there again."