Community College uses variety of bonds to finance capital projects; student tuition helps with payment of Pleadged Revenue Obligation bonds and Revenue Bonds

Many Verde Valley residents are confused over how the Community College raises money for projects by selling bonds.  At the February Governing Board meeting, Vice President Clint Ewell outlined  the different bonds the College now uses.  He said there are three types of bonds.  They are:  General Obligation bonds, Pledged Revenue Obligation bonds, and Revenue bonds.

The General Obligation bonds are approved by voters and used for capital projects.  The last time voters in Yavapai County approved General Obligation bonds was in the year 2000 when they approved issuance of $69.5 million dollars in bonds for the Community College. 

Rather than seek voter approval for bonds to support a capital project, College administrators with Governing Board approval can issue “Pledged Revenue Obligation bonds. In the annual financial report issued in June, 2014 the College explained that it used this process in April 2011 when the Community College  District issued $14,000,000 of pledged revenue obligations. The $14,000,000 was used to prepay a capital lease and $9,435,487 was used to construct the Prescott Chiller Water Plant and Clarkdale Central Plant.  According to the June, 2014 Community College Financial Report, “Pledged revenue obligations and revenue bonds are repaid from tuition, fees, rentals, and other charges to students, faculty, and others.”

When it came to financing most of the $7 million dollars to renovate two of the student residence halls on the Prescott campus, the Administration with agreement of the Governing Board issued $5 million dollars in Revenue bonds to pay for construction.  This process also avoided asking for voter approval of the project.  According to the June, 2014 Community College Financial Report, “revenue bonds are repaid from tuition, fees, rentals, and other charges to students, faculty, and others.”   

The Chair of the Governing Board theorized that this process seemed like a fair one when it came to the student residence halls.  Under this theory, the user pays for the construction.  The problem is that the user don’t pay enough  in annual annual rental fees to cover the principal and interest.  Therefore, the facilities must be subsidized at least in part by student tuition.  The result is that thousands of students who pay tuition never use the residence halls but  nevertheless pay for their construction.

 In a statement in the June, 2014 Financial Report, the Community College stated the following:   “Annual principal and interest payments on the pledged revenue obligations and bonds are expected to require less than 17.2% of tuition, fees,  dormitory rentals, and bookstore income. In the current year, total revenues of $10,751,131 were pledged to cover the principal and interest paid of $1,846,981.”  [Video to follow when available.]