Leader Blues

Friday, April 17, 2009

EDITORIAL >> District seeks a ‘liar loan’

If the state Board of Education were a subprime lender, then Pulaski County Special School District’s slapdash application to float an $81 million bond would be the equivalent of a “stated income loan.” The money would be used to build a new high school in Maumelle and a new Sylvan Hills middle school.

The state board voted the application down 3-4 Monday, but it’s scary that it even got that close, no more documentation — no better repayment plan — than the district presented.

A stated income loan — in case you’ve missed the national mortgage scandal — is a mortgage where the lender does not verify the borrower’s income. These loans are sometimes called “liar loans,” and result in people getting mortgages they can’t afford to pay off, then losing their homes to foreclosure.

Liar loans from subprime lenders contributed to the collapse of housing prices, thousands of foreclosures, the collapse of mega banks and the economic crisis that now grips the world.

What we don’t want to see is the financial collapse of PCSSD if it gets a loan it can’t afford.

If PCSSD defaulted on the $5 million-a-year payments, the institution that bought the bond could get payment directly from the state Department of Education. The state would deduct that money from its annual state minimum foundation aid to the schools, according to one expert in the field of school finance.

The district could find itself right back in fiscal distress, where its every move would again be scrutinized by the state.
In the current economic environment, it is unlikely that any financial institution would buy PCSSD’s $81 million second-lien bond without due diligence — a thorough inspection.

If the board has a firm grasp on its projected revenues and expenses, it hasn’t shared them publicly.

The process — like many other issues the board has faced since Tim Clark became board president — has been conducted largely behind closed doors, in improper executive sessions. Even some board members say they are kept in the dark — but that’s an editorial for another day.

Former Superintendent James Sharpe and former CFO Larry O’Briant, both of whom “resigned” in March, warned the board that the district might not be able to make its $5 million annual payment after the first couple of years.

Some members of the PCSSD school board, most notably Clark of Maumelle and Charlie Wood of Sherwood, are doing all in their power to build the new schools, which had been promised and on the 10-year master-facilities plan for several years.

In the process, Clark has alienated at least two other board members—Shana Chaplin, who represents the Robinson High School zone, and Danny Gililland, who represents a part of Jacksonville.

In a special board meeting last Saturday, Chaplin accused Clark of being secretive, high-handed and making decisions and authorizations that actually require approval of the board, not of the board president alone.

Clark responded by accusing Chaplin of similar measures, then got so loud and aggressive-sounding that Chaplin’s face turned ashen and she refused to leave the boardroom Saturday night until Clark was off the premises. She finally left with a security guard as an escort.

“Mr. Clark is holed up in Mr. McGill’s office,” Gililland said Tuesday morning, referring to interim Superintendent Robert McGill, but that Gillilland and the other board members were out in the cold.

To get permission to float the bond and to convince lenders that they can repay it, the board must show it can deal with the likely loss of $20 million a year in deseg funds from the state as well as the loss of about 6,000 students to a likely Jacksonville school district—that’s a loss of about $36 million a year in state minimum foundation aid.

Those are just two of the larger current revenue sources that could dry up five to seven years into the 27-year bond payment schedule.

There will be reduction in some costs when the district is released from the desegregation agreement and again when it is no longer responsible for all 34 school buildings it currently has spread across the county or for the cost of transporting

Jacksonville students to school.

If the district can afford the $81 million bond, we’re in favor of it.

But to paraphrase the character played by Cuba Gooding Jr. in the movie “Jerry McGuire,” “Show us the money.”