A year after the Arizona Legislature carved out a new niche in public financeon tribal lands, the Ganado Unified School District on the Navajo reservation is goingto market with $15.9 million of impact aid revenue bonds.
The negotiated deal planned for pricing next Wednesday is the latest in a seriesauthorized by the Legislature last year.
"We had to work very closely with the state to get that enabling legislation," said MarkReader, a director at underwriter Stone & Youngberg in Phoenix. "There were a lot ofissues that we had to work out collaboratively."
Because they are backed by federal impact aid, the revenue bonds are comparable to grantanticipation revenue vehicles for highway construction in that they leverage federalfunds based on annual Congressional appropriations. Recipients of such impact aidinclude schools on or near military bases, Indian reservations, or federal land. Localschool districts receive no property tax revenue from military bases, Indianreservations, or federal land and the aid is provided to help offset the costs ofeducating children who live on the bases and reservations.
The Ganado Unified School District receives impact aid of $9 million per year, of whichabout $1.5 million will be pledged to debt service, Reader said.
"Until now, schools on reservations had to simply use the money on a pay-as-you-gobasis," he said.
Although the bonds are not bank-qualified, Reader expects banks to buy a healthy shareof them to satisfy federal requirements for investing in historically underserved areasunder the Community Reinvestment Act.
"We'll market them aggressively," said Reader, who developed the bonding program when heworked at Peacock, Hislop, Staley & Given, the deal's co-manager.
"We were on a higher interest rate last summer, and we were in the mid-4% range, and wehope to be in the mid-3s," he said.
"There's been good acceptance because they've got A-type ratings and they pretty muchtrade a touch lower than a GO, more like an A-rated revenue bond," said Thomas R.Hislop, a partner at Peacock Hislop.
Because the bonds are backed by federal revenue, they carry relatively high underlyingratings of A-plus from Standard & Poor's and A-minus from Fitch Ratings. But like allprevious impact aid issues in Arizona, the Ganado bonds also will carry insurance toearn triple-A ratings. The upcoming bonds are insured by Ambac Assurance Corp.
Moody's Investors Service does not rate the debt.
"The long, relatively stable history of impact aid, strong security provisions, arelatively short bond maturity schedule, and good debt service coverage minimize risksassociated with future federal budget pressures on domestic discretionary programs orprogram rule changes," Fitch analyst Jason F. Dickerson wrote. "District financialflexibility is strong, offsetting concerns about the significant increase in leveragingof impact aid associated with this voter-approved financing."
Ganado USD, which includes 2,000 square miles of Navajo territory bordering New Mexico,enrolls more than 2,000 students, of whom 98% are Native American. While the ArizonaSchool Facilities Board finances classrooms and equipment, the agency does not covercafeterias, athletic facilities, and ancillary construction. Proceeds from the Ganadorevenue bonds will be used to build a natatorium, playing fields, and housing forteachers.
Risks come primarily from the fact that the bonds are dependent on annual appropriationsfor impact aid, which would fall by $170 million under President Bush's proposed budgetfor fiscal 2004. Although school districts serving military bases would be most directlyaffected by the cuts, the National Indian Education Association has joined otherlobbying groups in opposing reductions.
Rep. J.D. Hayworth, R-Ariz., whose district includes the lion's share of the Indianimpact aid regions, co-chairs the House Impact Aid Coalition opposing the cuts, whichwould affect about 1,500 local school districts in the United States.
In Hayworth's district, tribal territory accounts for about half of the land mass.Eligible schools in the Sixth District, including Ganado, will share $98.5 million ofthe $132 million Arizona receives for impact aid in the current federal budget.
