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May 25, 2013

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Six questions:

Economist is no fan of state’s cash grab

By

John Cole

John Cole

Sun coverage

John Cole, the newest member of the Clark County School Board, knows finance and the art of debt. His knowledge of bonds is coming in handy.

He also knows about a bad economy; he has a master’s in business administration from Eastern Illinois University. After a long career, including a stint as chief financial officer of the Fremont Street Experience, at 51 he is unemployed and living on savings.

In 2009, School Board President Terri Janison named Cole to the district’s bond oversight committee. In January, he was named to replace Janison, who left to work for Gov. Brian Sandoval.

Now, Sandoval wants to use what is known as “debt service reserves” — used to repay bonds for school construction — from Nevada school districts to help balance the state’s deficit-ridden budget.

The move, and the money involved, is in dispute.

But what is clear is that Sandoval cannot balance his budget without doing so. And the price tag for Clark County schools is $300 million.

How much bond money was raised in 1998 for building schools?

It was supposed to be $3.5 billion. But because our real estate values continued to grow, it was ultimately $4.9 billion. In the bond program, our ability to pay grew — because the revenue streams included money from property tax and room tax — and allowed us to issue more bonds.

What are “debt service reserves?” Are they like a piggy bank?

Exactly. If you have a mortgage on your home, it’s like putting money aside because you know you have a big payment in a year.

What’s wrong, in a time of emergency, with taking the money to help balance the state budget?

If the School District does not have the dollars to pay the upcoming payments, property taxes can be increased automatically to help increase the flow of dollars. The tax increase wouldn’t be happening in Carson City, it would be happening in Clark County.

What are your other concerns?

What’s to say the same problem isn’t going to happen again? And then where does the money come from? If the School District can’t make that payment and everyone’s property tax goes up, what have we fixed? And more people could lose their homes because of higher property taxes.

You’ve mentioned debt ratings in the past, what do you mean? (Wall Street rating agencies recently downgraded some School District bonds, but the bonds are still considered safe investments.)

If it ever fell below investment grade, that would not be good. This is not to say the Sandoval plan would do that. But we don’t know at this point. What if you went from Double-A to single-A (investment grade, but nearing junk), you might pay an additional 1 percent on your bonds, let’s say. Pay 1 percent more on $4.9 billion and that’s $49 million annually. That’s $49 million you can’t use to buy school supplies.

What if you restructure the debt?

Those restructured bonds would have a far smaller audience if they were, say, taxable instead of tax-free. Now people who once thought of Nevada and Clark County as safe, they would then say, “Oh my gosh.”

Discussion: 5 comments so far…

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  1. By rickkorbel (rick korbel)
    March 5, 2011
    5:35 a.m.
    Flag

    Sounds to me like the school district was irresponible borrowing too much.

    "It was supposed to be $3.5 billion. But because our real estate values continued to grow, it was ultimately $4.9 billion."

    The school board withdrew every dime available, now we are scrambling to figure out how to pay it back. No different than all the homeowners who pulled every dime out of their homes.

    Now they are demanding higher taxes to support the bigger school system they created.

  2. By mred
    March 5, 2011
    8:59 a.m.
    Flag

    The cash grab is racist. I hope the NAACP and the ACLU sues for underfunding minority dominated schools.

  3. By farkdawg (Tim Farkas)
    March 5, 2011
    11:17 a.m.
    Flag

    1st Grade Teacher is right!

    Tax gold at a higher rate when the price is over $500 per ounce. The cost to extract an ounce continues to go down due to improved technology.

    We only need to change the constitution. I don't know if our electeds have that type of courage.

  4. By architect (Bruce Carper)
    March 5, 2011
    12:01 p.m.
    Flag

    Look at all of the brilliant suggestions for rebuilding a "collapsible, corruptible operating system."

    The only "trickle effect" that I am witnessing is stupidity rolling downhill.

    Higher education has produced little more than higher levels of incoherence...a fear-driven, delusional group of problem creators, not solvers.

    The educational system has produced LOSERS...up & down, top to bottom.

    ...with the obvious exception of Governor Sandbrain...

    ...a true visionary and possible genius. LOL LOL LOL

  5. By revtomperl (Thomas Perl)
    March 5, 2011
    6:45 p.m.
    Flag

    not trickle down - I think stupidity flows up hill as well. get SandyValley out as soon as possible - bring Gibbons back - he is dumber than a bag of marbles and obviously belongs at the top where he can sleep around at the expense of the gamers of Nevada!

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