It was another routine approval of another typical project by the Pima County Industrial Development Authority.
No, not financing for some new industrial plant near Tucson. No, not money for affordable housing for the working poor.
The Pima County Board of Supervisors gave the authority the go-ahead Tuesday to finance $40 million in projects by Edkey Inc., an operator of charter schools, in Phoenix, Mesa, Show Low and Snowflake.
It may sound unusual that a local industrial development authority would help finance the building of charter schools in Maricopa County and the Mogollon Rim. It isn’t.
In Pima County, that’s pretty much what the IDA does these days.
Since the beginning of 2014, the supervisors have approved around $443 million in bond issues brought for approval by the authority. About 88 percent of that went to charter school projects.
Only two of the 22 charter projects were in Pima County: The Academy del Sol in Star Valley west of Tucson, and the Leman Academy of Excellence in Marana. They were worth $15 million and $20 million respectively.
These facts feel scandalous: Not only is the industrial development authority financing projects outside Pima County, but it’s also focusing almost exclusively on charter schools.
But are they? Well, decide for yourself.
The powers of an industrial development authority come from a 1970s law, explained Michael Slania, the local attorney who runs much of the IDA’s business.
But the laws that at the time favored financing for bigger industrial projects no longer do, he said.
For example: IDAs now can’t handle bond issues in excess of $10 million for manufacturing clients, who are more likely to need financing in the nine figures — $100 million or more. That essentially leaves nonprofit organizations as the IDAs’ potential customer base. So that’s what they do.
While in the early 2000s, housing projects got much of the authority’s attention, that gradually shifted over to charter schools.
For the borrower, the advantage of getting financing through an industrial development authority is simple: The tax-exempt bonds issued carry lower interest rates and therefore lower costs for the borrower.
As charter schools became established and either sought to buy their properties or build new structures, they increasingly turned to IDAs to get the financing. And the Pima County IDA became known as an expert in this area.
I asked Janis Larson, an administrator at the Maricopa County IDA, if Pima County is alone in doing these kinds of deals around the state. She said no, but that the Pima authority seems to occupy a niche.
“I think Pima IDA probably became well-known for doing charter school financing,” she said. “I think it’s the relationships they’ve built.”
Is that a good thing? Well, that probably depends on what you think of Arizona’s charter-school system.
One of the most unusual and controversial aspects of our charter schools is that if they buy property, the land and buildings become property of the charter school, even if it’s a for-profit corporation, even though the money comes from taxpayers.
In 2010, supervisors got concerned when they noticed the IDA financing increasing numbers of charter-school projects not just outside of Pima County, but out of the state.
Authority-funded projects must serve a public purpose in the county, but the only real benefit accruing in Pima County were the fees paid to the attorneys and corporations in Tucson handling the transaction.
The IDA stopped funding out-of-state projects.
Supervisor Ray Carroll assured the public before Tuesday’s vote that deals like the financing for the Edkey Inc. projects are on the up and up.
After Tuesday’s meeting, he explained he had gotten concerned about projects outside the county years ago, dug into the details and emerged satisfied that they don’t hurt the county or taxpayers.
“I was made more comfortable with the fact that this is a two-way street,” he said.
In other words, entities all over the state are financing projects in each others’ backyards, and nobody seems to get hurt.
Certainly the taxpayers don’t. While the IDA is a creation of the county, governed by a board appointed by the supervisors, it is self-funded by fees it charges on the deals it does. No taxpayer money goes in.
The fee structure, of course, creates an incentive for the law firm that has handled the Pima IDA since 1978 — Russo, Russo and Slania — to do more deals.
The firm is paid for its services, and the IDA as an entity receives $3,000 per deal, as well as 1/10 of 1 percent of the principal of each bond issue.
The local nonprofit Community Investment Corp. also plays a role in many of the deals, ensuring that the schools’ disclosure is accurate, Frank Valenzuela, executive director of the corporation, told me.
So charter schools get built around the state, and local professionals get paid to make the financing happen.
It would be nice if the industrial development authority actually developed some industry in Tucson, but that function seems to be history for this 21st century entity with the industrial-age name.
