School bond fees draw fire

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 taxpayers a few dollars and make the bonds easier to pass.

Now the state Endowment Board has decided to start charging fees to participating school districts – up to $1,000 for an application fee, plus up to 5 basis points, which amounts to about $15,000 in fees 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 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 made unprecedented cuts in state funding for schools this year. Passing school bonds – voter-approved loans paid back through increased property taxes – is how Idahoans pay for construction of new school buildings.

The school bond guarantee program was passed in the wake of a statewide lawsuit over inadequate school funding. 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 permanent endowment fund.

Three measures protect the fund in case a school district defaults. First, the state could intercept 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. The fee “just doesn’t seem like it fits the intent of the original law,” she said.

Larry Johnson, manager of investments for the state endowment fund, said it’s a matter 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 the potential impact of 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 fee at $100 and 2 basis points. Two Southern Idaho school districts already have been charged those fees.

But then the board decided to raise the fee. Wayne Hammon, Gov. Butch Otter’s budget director, said his office hasn’t yet approved that change, and if it doesn’t, the Legislature may consider only the lower fee.

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