Taxpayers will pay for KUSD investment loss

KINGMAN - Taxpayers in Kingman Unified School District will be feeling the pinch this year. Mohave County revealed on Sept. 18 that a $5 million Lehman Brothers bond held in the county's investment pool for school, fire and other political districts is now worth about $850,000. Lehman Brothers went bankrupt in 2008.

The loss in value caught Kingman Unified School District Budget Director Wanda Hubbard by surprise.

KUSD was notified by the Treasurer's Office in January that nearly $1 million of the district's bonds was invested in that Lehman Brothers' bond. The district will get one-fifth, or approximately $170,000, of that $850,000. The rest of the loss will be paid by taxpayers through an increase in the district's bond levy, Hubbard said.

When the district sells a bond, the money from the bond is invested until the district needs the funds, Hubbard explained. The interest collected during that time period is used to pay back the bonds.

When KUSD was notified about the Lehman Brothers bond, the district's bond agent told the school to write off the loss against the interest the school would make that year, she said.

That meant the district had $1 million less to pay back the bonds, Hubbard said. Which requires the school district to increase the bond levy in order to cover the loss. The school district has no control over how the funds from the bonds are invested, KUSD Assistant Superintendent Betsy Parker told the school board in January. The County Treasurer's Office disburses to the district funds it collects from the bonds, the state and taxpayers.

The Treasurer's Office also controls where the funds in the county investment pool are invested.

"It won't have a huge effect on our operating budget," Hubbard said, because bond money isn't used for operating expenses. It is only used for capital improvements, such as the new schools.

"Unfortunately, we will see it on our tax bills," she said.

According to the Arizona Auditor General's audit of the County Treasurer's Office, a political subdivision, such as KUSD, can request to invest its funds in an individual account.

Hubbard said the district was unaware it could do that and may look into it in the future.

The district also plans to request a detailed analysis of future investments of its funds by the Treasurer's Office.