Revenue bonds versus General Obligation bonds

Yavapai Community College employs two primary methods to secure additional funding for major capital projects.

The first method involves the issuance of General Obligation (GO) bonds, a traditional avenue that necessitates a county-wide campaign to explain the necessity for such funds to Yavapai County voters. This approach mandates a transparent explanation of why substantial investments are directed toward certain areas within the County, potentially at the expense of others.

Approval or rejection of the GO bond request occurs through a county-wide election. While this route offers the potential of providing substantial funds for a variety of capital projects, there’s always the risk of taxpayers withholding approval.

The last time the Community College sought a GO bond was in 1999.  That was for $69.5 million.   The pros and cons of expending that much money for a bond to support capital construction and renovation was discussed and eventually approved in a County-wide election. 

The 1999 bond contained provisions for capital projects at the Sedona Center and the Verde Valley Campus, while a majority of the bond issue went to the Prescott side of Mingus Mountain.  It is noteworthy that this bond was fully paid off by taxpayers via a secondary property tax in 2022.

The second method, known as the “revenue bond” approach, allows the College to avoid much public discourse, if any, when targeting revenue bonds for specific renovation or construction projects. This process requires only three votes from the District Governing Board for approval, sidestepping the need for public explanation and validation. While advantageous for the College’s executives due to its ease of implementation, this method is subject to oversight solely by the District Governing Board, with minimal public awareness or input.

A revenue bond issue needs only three votes of the five member District Governing Board. Practically, because most of the major projects needed for capital funding support are on the west side of the County, the three member-majority representing the  west side of the county have little difficulty in approving a revenue bond issue.   

Difference in payment:  Revenue bonds, unlike GO bonds, are repaid from sources such as tuition, fees, rentals, and other charges, rather than directly from taxpayer funds. GO bonds are paid through a secondary property tax.

However, the repayment method associated with Revenue bonds indirectly impacts County taxpayers. It occurs because of the potential revenue reallocation of sources of revenue within the College’s budget. This shift may necessitate compensatory measures, such as increasing the county-wide tax rate, subject to approval by the District Governing Board major of three, without formal public recourse.

Currently, the Community College is considering issuing a $14 million revenue bond to finance anticipated 2024-2025 capital expenditures. It is also considering extending the payoff period of existing revenue bonds. The decision to extend the payoff period would prolong the financial obligation, but give the Community College additional cash. 

It is noteworthy that the current revenue bonds were anticipated to be paid off within the next four years.

It is also noteworthy that there’s a proposal to raise the property tax rate incrementally by a cumulative total of 4%, signaling potential future implications for County taxpayers.

SUMMARY: Yavapai Community College’s methods for raising money for major capital projects:

1. General Obligation (GO) Bonds:
   • The traditional approach involves issuing GO bonds.
   • However, there are specific requirements for doing so along with practical considerations:
   • A county-wide campaign of sorts is necessary to explain the need for funds to voters across Yavapai County.
   • Community College executives must justify why funds are allocated heavily to one part of the county, potentially affecting another part.
   • Voters then approve or reject the bond request in a county-wide election.
   • The last GO bond sought by the Community College was in 1999, totaling $69.5 million.
   • Despite risks, it was eventually approved in a county-wide election.
   • Notably, the 1999 bond funded capital projects at the Sedona Center and the Verde Valley Campus, with a majority going to the Prescott side of Mingus Mountain. Taxpayers fully paid off this bond via a secondary property tax in 2022.
2. Revenue Bonds:
   • The “revenue bond” approach allows pinpointing specific renovation or construction needs.
   • Approval requires only three votes from the District Governing Board.
   • Unlike GO bonds, there’s no need to explain to the public or hold a public vote.
   • This process  currently appears favored by Yavapai Community College executives for obtaining capital dollars.
   • The only check on revenue bond issuance is the five-member District Governing Board because it requires only three members to approve the issuance.
   • The only check on increasing the tax rate to make up for money now going to pay off the revenue bonds from non-tax sources is the District Governing Board.  It takes only a majority to approve a tax rate hike.

Follows on the heels of a 5% tax rate increase approved by District Governing Board in May 2023

Yavapai Community College Vice President of Finance and Administrative Services announced at the November 26 District Governing Board meeting that the administration will ask for a two percent tax rate increase in 2024. The increase is needed, according to Dr. Ewell, to help provide funds for an estimated $3.36 million in additional revenue. If approved, the tax rate increase will add about one-third of the additional revenue the College says it needs.

If approved in May 2024, this will result in a total increase of seven percent in local property tax rates over two years that is associated directly with the College. This past May, the District Governing Board approved a 5% property tax rate increase. The administration also announced that it was seeking approval for a five percent tuition increase.

Vote was 4-1 with only public opposition coming from four residents from the Verde Valley; Verde Valley Third District Representative joins West County in approving the measure

The Yavapai Community College District Governing Board raised the County primary property tax rate by 5% at its meeting on Tuesday, May 16, 2023. Despite the proposed tax increase, public interest in the meeting was minimal, with only four residents from the Verde Valley expressing concerns.

The only Board member dissenting from the increase was Mr. Chris Kuknyo, the Board Secretary, and District 4 representative. He did not explain his vote.

Board members essentially justified their vote for the increase by citing inflation and the fact that the property tax rate had not been raised by the Community College for the past four years. Their rationale primarily revolved around these factors.

Unlike school districts, community colleges in Arizona possess a distinctive authority granted by state law to independently raise the property tax rate through the District Governing Board without requiring public election approval. It takes only a majority of the five member Board to approve an increase.

College says it needs about  $2.5 Million in new Primary County Property Taxes for it 2023-2024 budget and will not invade any of the millions in its cash reserves

The upcoming meeting of the Yavapai Community College District Governing Board on May 16 on the Prescott Campus is expected to result in the approval of a 5% county-wide tax rate increase. With a majority of the five-person Board living on the west side of the County,  the decision seems all but certain.

A further indication of the likelihood of the tax rate being approved is the lack of any serious opposition coming from Board members in previous meetings where the increase was proposed by the administration. Based on this lack of serious opposition, it appears that the Board is in agreement with the need for a tax rate increase to support the College’s initiatives.

Moreover, sparse public attendance at past rate hearings suggest that the public may not be particularly interested in the matter, making it likely that only a handful of taxpayers will appear at the May 16 public tax hearing and  voice opposition to the increase.

At prior meetings, the Community College justification for a tax rate increase has rested on arguments about inflation and the fact that it has not requested an increase in the past four years. The College argues that these justifications support its view that it is making a responsible decision to maintain its funding levels and continue providing quality education to its students.

In addition to the proposed tax rate increase, the Board will be tasked with approving over $18 million in new permanent construction, which is set to exclusively benefit the west side of the County. The largest allocation of funds, around $15.3 million, will be spent over a three-year period to renovate Building 19 on the Prescott Campus. Another portion of the funds, amounting to $3 million or more, will be allocated to build a small faculty village consisting of ten homes just outside Prescott Valley. These proposed projects represent a significant additional investment in the College’s infrastructure on the west side of Yavapai County.

The Administration has also indicated it is reluctant to invade millions of dollars it is holding in its reserve accounts as this may affect future capital construction plans.

Yavapai Community College officially announces intent to seek primary property tax rate increase for all County residents

Yavapai Community College has notified taxpayers that it will seek approval from the five member Yavapai Community College District Governing Board to increase County residents primary property tax rate by 5% at its May 16 meeting.   The tax rate can be increased by a simple majority vote of the five member Yavapai Community College District Governing Board.

The following is the tax rate increase notice the College sent to local newspapers:

In compliance with section 15-1461.01, Arizona Revised Statutes, Yavapai Community College District is notifying its property taxpayers of Yavapai Community College District’s intention to raise its primary property taxes over last year’s level.

The Yavapai Community College District is proposing an increase in primary property taxes of $2,553,300 or 5%.

All interested citizens are invited to attend the public hearing on the tax increase that is scheduled to be held on Tuesday, May 16, at 1 p.m. at the Yavapai College Prescott Campus – Community Room 19-147, 1100 E. Sheldon Street, Prescott.

As an example, the proposed tax increase will cause Yavapai Community College District’s primary property taxes on a $100,000 home to increase from $143.66 (total taxes that would be owed without the proposed tax increase) to $150.84 (total proposed taxes including the tax increase).

This proposed increase is exclusive of increased primary property taxes received from new construction.

The increase is also exclusive of any changes that may occur from property tax levies for voter approved bonded indebtedness or budget and tax overrides.

Yavapai College operates six campuses and centers throughout Yavapai County and offers over 100 degrees and certificates, a baccalaureate degree, student and community services, and cultural events and activities.

Information provided by Yavapai College.  https://www.yc.edu/v6/district-governing-board/members.html (Link to Governing Board Members web page is https://www.yc.edu/v6/district-governing-board/members.html)

With 85 open acres on the Verde Campus, the issue is whether it could lease a portion of that land to a private company for a  vineyard or other purposes and the company need not pay taxes

Last week, the Arizona attorney general sued Arizona State University(ASU) in Arizona Tax Court over a real estate deal approved by the Regents who oversee ASU. 

He claims that it is illegal for ASU to allow for-profit companies to build on university-owned land, which is tax-exempt. ASU is essentially renting out its tax-exempt status to private businesses, Brnovich said. He seeks to force an unbuilt Omni Hotel to pay taxes.

The lawsuit is important to the Verde Campus in Clarkdale because it has somewhere around 85 acres of vacant land.  In the future, that land might be built on in partnership with the College and a private company. Will the private company have to pay taxes?  This lawsuit should answer that question.