advertisement

Stimulus act could lead to more Missouri debt

Monday, June 22, 2009 | 12:01 a.m. CDT

JEFFERSON CITY — Missourians be forewarned: Your government officials may ask you to take on hundreds of millions of dollars of new debt in the coming year.

Prompted by the federal economic stimulus act, local school districts and state government alike are scrambling to take advantage of a short-term offer on low-cost bonds for construction projects.

Missouri legislators have passed a bill that would allow school districts to more easily win approval of bond issues during a special election this November.

And lawmakers could return for a special session themselves later this year to set an election on a construction bond proposal backed by Gov. Jay Nixon.

The federal stimulus act contains a two-pronged incentive to borrow money for buildings.

It allows state and local governments to receive a 35 percent federal subsidy on taxable bonds issued before the end of 2010 for capital projects. It also authorizes interest-free bonds for public school construction projects through 2010.

Missouri's share of the zero-interest bonding authority this year includes $28.2 million for the St. Louis School District, $17.9 million for the Kansas City School District and $141.4 million for schools throughout the rest of the state. An additional share will be available next year.

"People are crawling all over each other to get at it and then, of course, there's only so much available," said Larry Hart, president and CEO of St. Louis-based bond underwriting firm LJ Hart and Co. "It's going to be beneficial to every school that does get access to it, and it should help the local economy."

The state Department of Elementary and Secondary Education, which oversees Missouri's share of the interest-free bonds, received applications from 32 school districts wanting to issue $305.5 million of bonds this year, said Roger Dorson, the department's coordinator of school administrative services.

Because the request is more than twice what is available, Dorson said schools will receive a prorated amount of interest-free bonding authority.

But this year's applicants reflect only a fraction of the interest in the program.

For schools to qualify, local voters must first pass a bond issue. Because the federal stimulus package did not become law until February, it was too late for schools to respond by placing bond measures on the April ballot.

So the first batch of applicants largely consists of school districts whose voters already had authorized traditional bond issues. The interest-free aspect is a bonus for them.

Under the Missouri Constitution, school bond measures require a fourth-sevenths majority during the April municipal election or the state primary or general elections, which are next scheduled for August and November 2010. At any other election, school bonds require a higher two-thirds majority to pass.

But the Legislature has passed a bill creating a unique general election in November 2009 for school bond issues — thus allowing them to pass sooner with the lesser fourth-sevenths majority. That bill is pending before Nixon.

Hart estimates as many as 100 of Missouri's 523 school districts could hold bond elections this November.

At a Missouri School Boards' Association leadership summit in Columbia this month, 82 school officials showed up for a session on the interest-free bonds led by Kansas City-based bond underwriter George K. Baum and Co.

The message: If "they have a construction need that their looking at, then they ought to consider using this avenue — trying to get their hands on as much of this zero-interest money as they possibly can," said Dick Bartow, executive vice president for George K. Baum.

"For school districts, quite frankly, there's probably never been a better time to borrow money," Bartow added.

Nixon expressed much the same sentiment — citing "very low-interest rates" and Missouri's good bond rating — in a letter sent last week to lawmakers urging them to take advantage of the federal bond incentives.

The state doesn't qualify for the interest-free bonds. But it can use the Build America Bonds in which the federal government will pay 35 percent of the costs.

Because the bonds must be issued by the end of 2010, lawmakers may need to meet in a special session later this year in order to set a bond election by early next year.

Some conservative activists, concerned about the nation's debt, are urging state and local officials to be cautious.

While the bonds may seem like a good deal, governments that already are experiencing declining tax revenues will have to find enough money to repay the new debt in coming years.

The scenario is similar to a consumer who is enticed by a 60-month, zero-interest offer to buy a new car, even though there is nothing particularly wrong with the car he or she currently is paying off, said Carl Bearden, a former Republican lawmaker who is the Missouri director of the limited-government group Americans for Prosperity.

"Our perspective is borrowing money, even if you get it at a low rate, during these particular times is not the way to go," Bearden said.

 


Like what you see here? Become a member.


Show Me the Errors (What's this?)

Report corrections or additions here. Leave comments below here.

You must be logged in to participate in the Show Me the Errors contest.


Comments

dennis garwitz June 22, 2009 | 1:07 p.m.

I guess the good people of Missouri do realize that their state has a balanced budget requirement of each Missouri governor however I suppose they figure if they get behind on the school loans....what are the feds gonna do repossess the school? I don't think so.

(Report Comment)
Ayn Rand June 22, 2009 | 3:28 p.m.

The Kansas City School District should be getting zilch. They got $2B+ between 1984 and 2003 via the desegregation case, and their dysfunction shows the fallacy of believing that money cures all.

(Report Comment)

Leave a comment

Speak up and join the conversation! Make sure to follow the guidelines outlined below and register with our site. You must be logged in to comment. (Our full comment policy is here.)

  • Don't use obscene, profane or vulgar language.
  • Don't use language that makes personal attacks on fellow commenters or discriminates based on race, religion, gender or ethnicity.
  • Use your real first and last name when registering on the website. It will be published with every comment. (Read why we ask for that here.)
  • Don’t solicit or promote businesses.

We are not able to monitor every comment that comes through. If you see something objectionable, please click the "Report comment" link.

You must be logged in to comment.

Forget your password?

Don't have an account? Register here.

advertisements