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New Idaho school bond fees draw fire

Tue., Aug. 18, 2009, 5:40 p.m.

BOISE - For nearly a decade, Idaho has offered to guarantee bonds issued by its local school districts to win them a better interest rate, save local property taxpayers a few dollars and make the bonds easier to pass.

Now, the state Endowment Board has decided to start charging fees to school districts that participate in the program - up to $1,000 for an application fee, plus up to 5 basis points, which adds up to about $15,000 for a typical $20 million bond issue.

State Superintendent of Schools Tom Luna is vehemently opposed to the new fees, and says he’ll fight to reverse them in the upcoming 2010 legislative session. “We’ve never had a school district default on a bond, so the risk to the endowment is zero - and the timing is terrible,” Luna said. “Our schools are feeling financial stress that they’ve never had before, and this will just add to the burden.”

Idaho this year cut state funding for public schools below the previous year’s level for the first time ever. Passing school bonds - big, voter-approved loans paid back through increased property taxes - is how Idahoans fund construction of new school buildings.

The school bond guarantee program was passed in the wake of a statewide lawsuit over inadequate school funding. It’s evolved over the years to include two tiers. School districts that seek the guarantees can get the best-possible bond rating - AAA - for up to $20 million of their bond issue, thanks to backing from the state’s public school endowment fund.

But before that fund would be tapped in any default, there are three previous protections: First, the state could intercept any state funds headed for the school district and divert them to pay the bonds; then, the state’s sales tax revenue would be tapped; and if that, too, failed to pay the debt, an emergency property tax levy would be imposed on school district patrons. Only after all three steps had been taken could the endowment fund step in.

Those three backups alone qualify any remaining portion of a school district’s bond issue for a slightly lesser guarantee: They give it the state’s bond rating of AA-2, a step down from the top AAA rating.

“It was an attempt to help the school districts access the capital markets via the state’s credit rating,” said state Treasurer Ron Crane, whose office administers the program. “It’s absolutely a great program.”

Karen Echeverria, executive director of the Idaho School Boards Association, testified against the new fee before the Endowment Board, as did a member of Crane’s staff.

“From our perspective, the bond guarantee was put into place to assist school districts,” Echeverria said, “and so to turn around and then charge them so you can do that just doesn’t seem like it fits the intent of the original law.”

Echeverria said her group likely will testify against the new fee when it comes up for review by the Legislature.

Larry Johnson, manager of investments for the state endowment fund, said, “This is really an issue of fiduciary fairness.”

Any fees paid would go back into the school endowment fund, he said, where they’d eventually benefit all school districts, “not just those having to borrow.” Johnson said the endowment board has a legal responsibility to act only in the best interest of the fund; the fees would cover potential costs for not making other investments with the guarantee money.

He said a AAA rating can save a school district between $60,000 and $150,000 in interest on a $20 million, 15-year bond issue, compared to a AA rating. That’s equal to between 20 and 50 basis points.

Initially, the Endowment Board set the fees at $100 for an application fee and 2 basis points. Two southern Idaho school districts, Marsing and Snake River, already have been charged those fees.

But then the board decided to amend the fees to allow them to rise to the higher level.

Johnson on Tuesday told the state Land Board, on which Luna serves, that the Endowment Board has statutory authority to set fees by rule, and they stay in effect unless the Legislature rejects them.

But Wayne Hammon, Gov. Butch Otter’s budget chief, said the state Division of Financial Management also must sign off before rules take effect. His office signed off on the temporary rule for the lower fee. But, he said, “They haven’t made a case to any of us as to why $1,000 and 5 points is better than $100 and 2 points.”

Unlike most states, Idaho requires all administrative rules approved by state agencies to be reviewed by the Legislature, which can vote to reject them at its next regular session.

“It’s one thing if the Legislature votes on something, but it’s another thing if a state agency just makes up a rule,” Hammon said, “but they have the same practical effect. So we are very careful with them.”

Luna said, “It’s hard enough to pass school bonds already. … Education dollars are precious, and we’ve got to protect every one of them. We will oppose it strongly in the Legislature.”

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