Guest Editorial
BY WILL WREIGHT | AUGUST 4, 2010
Is anybody watching the store?
Can you, the district voter, trust what is printed in the ballot materials provided to you in the CCUSD special elections? Then, why should you?
In late 2000, CCUSD voters approved a $41.6 million bond issue, mainly for construction of new schools within the district. In late 2006, CCUSD issued $15 million in bonds (the last of a series of district bond issuances as part of the 2000 bond authorization) ostensibly to build a new high school.
Though $12 million in new bond funds were available after September 2006, in addition to the $12.5 million in School Facilities Board (SFB) funding in May 2006, CCUSD did not progress toward construction of a new "core" 800-student high school. In the meantime, CCUSD proposed, and the district voters rejected by a 59-41 percent margin in November 2007, a new $123 million bond issue, including funds to build a very large new high school (2,500 students), to replace the existing Cactus Shadows High School (which had completed construction about ten years earlier). Some 16 months after bond and SFB funding was readily available to construct a new "core" high school, the School Facilities Board then withdrew their $12.5 million commitment to CCUSD, and other school districts, if they had not "broken ground" by December 1, 2007. This was due to state budget shortfalls.
Well, four years after the latest bond issuance, CCUSD still has not spent this money and district taxpayers are footing the bill at the rate of $50,000 per month in interest payments. Doesn't this $600,000 in annual interest payments correspond to the salaries of 10-12 new teachers?
Even with possible new funding from the School Facilities Board, CCUSD has discovered that they have insufficient capital to construct a new "core" high school. But state law (ARS 15-941, subsection J) says that the bond money can only be used for new school construction, as described in the bond publicity pamphlet issued to district voters.
Well, what is a school district to do? That's easy, find a cooperative state legislator and change the law!
Thus, as a result of a floor amendment attached to HB 2725 (section 13), applicable Arizona law now reads "... the school district may choose to use the proceeds of any bond authorization … on(or) any necessary capital improvement, provided that the school district's governing board votes to authorize the proposed use of bond proceeds prior to June 30, 2013...." When was the CCUSD knowledgeable about this piece of legislation offered in mid-March 2010? When does the governing board, representatives of district voters, plan to inform CCUSD taxpayers that their many millions in the bank may, or may not, be used for new school construction (per the 2000 ballot language) but may be used for, as yet, undefined capital projects? So much for the promises listed in the official ballot language on bonds approved by the voters in 2000!
Speaking of the lack of communication between CCUSD and the taxpayer, when does the district plan to inform the voters that the $15 million in bonds issued in September 2006 (about 4 years ago) may have violated IRS regulations and may have very interesting tax consequences for the bond investors. Apparently, IRS regulations (26 CFR 1-148-2(E)(2)) require that, for the bond to retain its tax-exempt interest status (an attraction to the potential purchaser of these bonds, given typically low yields), the district must spend at least 85 percent of the bond proceeds on capital projects within three years of bond issuance (for CCUSD, before September 2009).
If the IRS rules that the CCUSD bond interest is now taxable to the investor, it is unknown what action will be taken against CCUSD by bond investors. As an aside, why would an investment bank (who normally arranges the sale of these tax-exempt bonds) be interested in future transactions with CCUSD, in light of possible violations of IRS bond regulations?
CCUSD's governing board was advised by investment bankers, in April 2006, about bond issuance, noting as regards 'left-over' bonds: "the tax challenges associated with that are extremely expensive." In addition, bond counsel mentioned that there are tax penalties if the bond money is not spent within a three-year period. The counsel further noted "if CCUSD decided not to build a new high school, the Securities & Exchange Commission will take a very harsh position … to get audited will cost a minimum of a half-million dollars ..."
Is there a communications gap within CCUSD as well as with the taxpayers? And, using big-city vernacular, is anybody watching the store?