MuniLand – Clark County, NV – A Case Study of Muddling Through

Clark County, NV is home to metropolitan Las Vegas and has muddled through the real estate recession quit well. It maintained its fortress balance sheet even after 5 full years of major economic stress. Its balance sheet ratios actually improved during the real estate recession, with its cash reserves in the governmental funds group increasing to $2.4 billion. Its FY 2013 capitalization ratio, or general fund balance to expense ratio, of 22.8% is robust. Its free cash ratio (cash available to pay principle and interest payments) is strong at 13.2%. These are truly impressive ratios when put in the context of what happened – and is still happening – to the real estate market value in the area. The real estate market value in Clark County peaked at $322 billion in FY 2009. Values have decreased every year since, and in FY 2013 stand at $152 billion. Think about it: real estate values in Clark County are only 47% of what they were in FY 2009. In other words, the taxing capacity or revenue capacity of the County has shrunk by almost half. In contrast, although the Clark County School District is coterminous with the County, it has not fared nearly as well. Since FY 2009, student enrollment has plateaued at 313,000, but GO debt outstanding has grown to $3.2 billion. This is important to note because the overall debt burden has grown without any demand from a growing student population. What is more, the large drop in real estate valuation sapped the district’s once-large cash reserves. In FY 2013, the General Fund balance was only 4.8% of operating expenses, with free cash a meager 1.0%. These ratios are significantly worse than those of the County government. Some the balance sheet difference is the result of the School District’s aggressive debt repayment schedule. The School District’s annual debt service requirement is nearly $500 million annually over the next several years, which is high relative to $1.9 billion in annual General Fund operating expenditures. The distinction between the two credits is critical because both are supported by the same taxable base. Clark County, NV is managing its resources well in a difficult environment and earns a SNW buy rating, while the School District is a sell. Dissecting and analyzing credit is where SNW adds value and protects principle. It pays to know your credits.