Bond rating service issues warning about CCSD breakup

Moody’s Investors Services hasn’t downgraded the Clark County School District’s construction bond rating — yet.

But the credit rating firm late Monday issued a report warning a bill Nevada Gov. Brian Sandoval recently signed that could lead to the breakup of the nation’s fifth-largest public school system “poses uncertainty” and “a credit negative” to the district’s ability to repay debt.

Assembly Bill 394, which goes into effect July 1, requires a committee to develop and implement a plan to break the district into an unspecified number of local precincts by the 2018-19 school year.

“Because the details of the reorganization and its implementation have yet to be developed,” Moody’s wrote in its report, “we are uncertain how it would impact the credit quality of the district’s outstanding debt and future borrowings post-reorganization.

“This uncertainty is a credit negative,” it reads.

District officials said the report does not immediately threaten a plan to issue about $500 million in debt later this year to pay for new schools and repair or replacement of aging infrastructure.

Ultimately, the district will seek to secure as much as $4 billion in debt to help relieve crowded classrooms.

The passage of AB394 will require the district to disclose the upcoming reorganization — despite a lack of details about the plan — each time it issues new construction bonds.

Those vague disclosures could drive a downgrade of the district’s credit rating, which have historically remained in the high-quality category, said Jim McIntosh, chief financial officer for the district. In turn, a downgrade could impact the interest rate and price of construction bonds, potentially lowering the total amount that the district can spend on capital projects, McIntosh said.

Additionally, “if you break the district into several different precincts, who gets priority to issue debt when they have a capital need?” he asked last week. “Which precinct makes the final decision?

“If one precinct wants to replace an old school but Henderson says it grows a lot and needs more money, who takes priority and who ultimately decides and who pays it back?”

The Moody’s report notes that the firm expects the district to pay its existing debt from taxes generated from its current tax base and other pledged revenues, including real estate transfer taxes and hotel room taxes.

“However, the structure by which revenues will flow to pay debt service is uncertain,” the report adds.

“It is unclear what impact, if any, the new legislation will have on the district’s near-term capital and financing plans.”

At a meeting on Monday, members of the Clark County School Board voiced their concern over the potential impact of a breakup.

President Linda Young, who said she “adamantly opposed” the idea, worried about the division of the “haves and haves not” if low-income and minority students get packed into underfinanced precincts.

“We’re concerned that this takes us back to Plessy v. Ferguson, separate but equal,” Young said, referencing a U.S. Supreme Court ruling in 1896 that upheld the constitutionality of racial segregation in schools and other public facilities.

“I’m pretty angry about some of (AB394), quite frankly,” she added. “I don’t see any good coming out of it.”

With implementation of the reorganization set for 2018, Trustee Chris Garvey also wondered what disclosures the district must send to parents who want to know whether their current school zones will remain the same in the future.

Trustee Carolyn Edwards, citing other unknowns in the bill, urged the district and her fellow board members to proceed “cautiously” on any new construction plans.

“I’m concerned about all the unanswered questions,” she said. “I think the angst that will exist among investors will be huge, as is evidenced by Moody’s actions (and) they won’t be the only ones to do that.”

Contact Neal Morton at nmorton@reviewjournal.com or 702-383-0279. Find him on Twitter: @nealtmorton.