Time was, any local conversation invoking names like Bear Stearns & Co., Merrill Lynch, Citigroup, Lehman Bros., Goldman Sachs or Banc of America concerned Wall Street's interest in our most famous street.
As they say, times have changed. Some of the Street's top financial houses recently competed to manage a $60 million bond issuance from one of our most badgered institutions: the Clark County School District. The bonds are part of the $3.5 billion school-construction and campus modernization program approved in 1998. Eleven companies placed bids, with Citigroup Global Markets winning the job.
A Merrill Lynch research report, obtained by the Weekly, revealed the reasons behind the concerted courtship:
• District draws on stable and vibrant Las Vegas economy;
• Strong and expanding tax base, based on sales and property taxes;
• State aid is an important and to date consistently growing source of district revenue;
• Debt burden is fairly low, all debt ratios moderate and retirement schedule fairly rapid, making its extensive capital program manageable;
• Debt service is funded at adequate levels;
• Financial management is sound, though resources remain tight and reserve levels modest to demands of district's extensive operations.
Walt Ruffles, the district's chief financial officer, hadn't seen the report until it was faxed to him. "Many agencies would kill to get this kind of highlight," says Ruffles, sounding as giddy as can be expected from a numbers-cruncher. "This is put out to investors as assurance of the district's strength."
Not quite the feeding frenzy of a Wynn offering, the district bond stimulated unusual competition, Ruffles says. District bond offerings typically run between $400 million to $500 million; the $60 million cap meant more companies could apply.
"There was enough appeal that investors paid a premium, $3.9 million (for the bonds)," Ruffles says. "We have a good bond rating, and the market rate is very low. When this happens, investors are apprehensive. So the firm that sells the bonds pays a higher interest rate on them and the investors pay a higher interest rate for them. It's like points on a house in reverse: You pay points on a mortgage—you pay more money up front to get a lower note. With this, you pay a lower amount on the bond but get higher interest rate."
Education was the central issue of the 2003 legislative session. It inspired lawsuits, generated a constitutionally suspect Supreme Court decision that made us the laughingstock of the Wall Street Journal editorial pages and garnered one-fifth of the contentious $833 million tax increase. Next year's session could be 2003 redux. State superintendents have indicated they'll press to fund InVest, which calls for full-day kindergarten, among other things. A November ballot initiative will ask voters if they want to fund education to the national average; some estimate that'll annually cost $500 million. The coming months will see the district's annual orgy of school openings to house what will soon become the nation's fifth-largest school district. And who knows about possible financial fallout from a second year of No Child Left Behind.
Yet the district isn't crumbling under debt, largely because it'd have a hard time usurping legal strictures. The Debt Management Commission, a group of elected officials from county agencies, must approve all bonds. A state oversight panel also gets to eye them. By law, the district must maintain enough reserve to pay a year's worth of debts (the fund contains $30 million). Our stretch-the-resources-to-the-max growth has had an empowering effect on education: more taxpayers to contribute, underscoring the Merrill Lynch item about a "strong and expanding tax base."
One cause for concern, Ruffles says, is the district's reliance on state aid. It has no choice since the Legislature determines education funding.
"If the state goes south, the district could suffer the consequences because the same economy that impacts the state impacts the district," Ruffles says. "As the state goes, so goes the school district."