LOS ANGELES — Nevada officials are working on plans to decentralize the nation's fifth-largest school district that could have repercussions for its outstanding and future bonds.
Analysts are watching to see if advocates of the plan to split up Clark County School District operations follow through on promises to leave the district's extensive bond portfolio unaffected.
"I made it very clear in the first meeting we had that we will do nothing to change the way Clark County School District finances capital projects," said Nevada Senate Majority Leader Michael Roberson, R-Clark County. "Bonds will continue to be issued through the main office."
The goal is to reduce bureaucracy and improve student outcomes in the district, which enrolls more than 320,000 students and has almost $2.9 billion of outstanding debt.
Two state legislative committees are only in the early stages of crafting plans to reorganize the district into smaller precincts, but they are already contemplating the impact on existing bond obligations or future bond sales.
Questions from other legislators to the district's financial officials during the first committee meeting indicate, however, that the issue may not be officially settled.
Roberson acknowledged that it is very early in the process.
Nevada Gov. Brian Sandoval signed Assembly Bill 394 into law on June 4. The bill stipulates that the school district will be reorganized into smaller precincts by August 2018. Lawmakers have until Jan. 1, 2017 to come up with a reorganization plan.
Roberson chairs an advisory committee of state lawmakers. It had its first meeting on Oct. 12. A technical advisory committee, composed of community members, business leaders and lawmakers, will meet for the first time Nov. 10.
So far, the district's bond ratings are weathering any uncertainty around the district reorganization. Moody's Investors Service and Standard & Poor's both affirmed existing ratings of A1 and AA-minus at stable outlooks ahead of the district's plans on Nov. 3 to competitively sell $200 million in new money limited-tax general obligation bonds and $341.8 million of refunding LTGOs. Zions Public Finance is financial advisor.
Moody's, which described the looming reorganization as a credit negative in a June comment piece, confirmed its stable outlook Tuesday because the district's fundamentals are so strong, said analyst William Oh. Tourism is up, Nevada's economy is improving, enrollment is up and the state has increased per-pupil funding, Oh said.
The district has been growing by 3,000 to 4,000 students a year post-recession, according to district officials.
The district plans to sell $500 million in bonds in three sales in fiscal 2015 to fund construction of 14 new schools to deal with overcrowding, said James McIntosh, the district's chief financial officer.
In addition to the school district break-up plan, the governor also signed Roberson-sponsored legislation that gave the school district authority to tax district residents at 55 cents per $100 assessed value for a 10-year period without going to voters. District officials estimate that gives them taxing capacity of $4.1 billion. The district also funds capital projects with revenues from real estate transfer taxes and hotel room taxes.
If reorganization weren't looming, which Oh described like an anchor holding the district back, Moody's would have given the district a positive, rather than a stable outlook, he said.
"The district's debt load is manageable and it has a fairly fast amortization rate with 78% of its debt paid over the next 10 years," said Chris Morgan, an S&P analyst.
S&P analyst Bryan Moore said the tone he sensed from the committee's three-hour Oct. 12 meeting is that the goal is to create instructional precincts for academic accountability, rather than changing the district's financial components.
Both Moore and Oh said they will be monitoring the district over the next three years to see how it plays out.
The question is how investors will view the uncertainty when the bonds sell next week.
McIntosh pointed to the affirmed ratings and stable outlooks in response to a question about anticipated market response to the bond sale.
McIntosh and bond counsel John Swendseid testified at the Oct. 12 meeting against dividing the district's tax revenues among the different precincts or ceding the power to sell bonds to the new precincts.
"We have two issues" with any proposal that would split up bond and taxing authority among smaller districts, McIntosh said. "We have outstanding debt; and the legislature has given us the authority to bond for $4.1 billion over a 10-year period."
Breaking up the school district into truly autonomous parts would create separate problems for the outstanding debt and the district's plans to issue new debt to finance new school construction, McIntosh said.
Splitting the district into smaller school districts could reduce bonding capacity and violate the terms of existing bond contracts for the district's outstanding debt, McIntosh said.
Swendseid painted a picture in his testimony in which bond debt was split between two hypothetical districts – and then later tax revenue declined reducing bond coverage. He said investors who had purchased the bonds backed by tax revenue from the much larger original district would be likely to sue.
As for the future bonds, the smaller districts are not likely to have the same ratings as the existing district, which lowers bond capacity, because interest rates would be higher reducing the amount that could be raised in a bond sale, Swendseid said.
"You wouldn't have as much money to build schools and might have to raise taxes," Swendseid said.
Roberson, said it was too early to tell which way the committee is leaning in terms of the reorganization, except apparently where school district tax revenues and bonds are concerned. He emphasized, however, that the bill speaks to a reorganization of the school district, not a break up or de-consolidation.
"The purpose is to improve educational outcomes," Roberson said. "It is of great concern to many in the community that the bureaucracy of the school district is too big."
A teacher shortage has resulted in 25,000 Clark County students being taught by substitute teachers, rather than full-time licensed teachers, Roberson said. The highest number of vacancies is in schools in high poverty areas, he said.
"Fixing that is my number-one priority," Roberson said.
Though Roberson said he doesn't have a pre-determined vision of what a different structure might be, he opposes changes to capital project financing.
"We have been told it could impact our bond rating and make financing more expensive," Roberson said. "We are not going to do anything that would do that."
Superintendent Pat Skorkowsky proposed a reorganization plan during the first meeting in which the current district office retains control. His plan calls for seven precincts in the regions served by each of the seven school board trustees. The superintendent would have the power to appoint seven sub-superintendents for each precinct.
Assemblyman David Gardner, R-Las Vegas, who authored the bill, said the district, which enrolls more than 70% of Nevada's K-12 students, had just become too large to govern.
Gardner, who sits on the technical advisory committee, is opposed to tax revenues and bond authority being split among precincts.
If the districts were split up, he said, whichever district ended up with the Las Vegas Strip would do well, while poorer areas of the region would suffer.
He pointed to South Jordan in Utah. When a larger district broke up there, South Jordan had to raise taxes, because it lost its biggest tax base.
He envisions seven mostly autonomous regions. Each would have its own governing board with one member from that board on the larger school district board.
"When I talked to parents and teachers – particularly in the outlying areas – I heard they didn't have any say in the process," Gardner said of why he wrote the bill.
