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Financing group's practices questioned

Financing group's practices questioned

Pima bonding entity enabling several out-of-state projects

  • Updated

The Pima County Industrial Development Authority has been helping build charter schools in Ohio, Nevada and Delaware.

It's pitching in on a new police headquarters and jail in Las Vegas.

And it's refinancing the debt of a private school in Charlotte, N.C.

Since 2008, the authority - primarily tasked with financing local projects - has gone national, enabling $556 million in tax-exempt bond issues for seven out-of-state projects, two of which are still awaiting final approval. Although the practice is legal, the Pima County IDA is the only one of the state's big four - the others being from Maricopa County, Phoenix and Tucson - to finance projects that are strictly out of state.

"Traditionally, the Tucson IDA hasn't done stuff outside the state, or even outside the city," said Ann Morales, an attorney for the Tucson authority.

The practice has raised concerns among county officials, who don't like the look of a county entity spending time or money on projects with remote connections to Southern Arizona. But authority attorney Steven Russo says the projects cost the county nothing, do not make the county liable, don't prevent the IDA from doing local deals, and bring in a little money for the authority and the Community Investment Corp., a local nonprofit lender.

By law, IDAs must show an in-state benefit for out-of-state projects, and Russo points to the fees that the IDA and Community Investment Corp. earns as a local boost.

On Aug. 2, County Manager Chuck Huckelberry told the authority the Pima County's Attorney's Office had questioned the out-of-state projects, and he asked the IDA to stop bringing them to the board while Deputy County Manager Hank Atha investigates their propriety.

While Atha has found nothing fundamentally wrong with the practice, he said, "We're still a little bit skeptical if it wouldn't be better to keep the activity in the state."

Fees come to pima

While state law allows Arizona's IDAs to finance out-of-state deals, traditionally that has been interpreted to mean they could finance projects by Arizona entities that may also have out-of-state operations, said Tom Manos, the executive director of the Maricopa County authority.

That way, he said, a hospital chain, for example, could finance construction projects in Arizona as well as at a facility in California. In fact, in the 1980s, the Pima County IDA financed projects by Tucson Electric Power and Carondelet Health Network with out-of-state components, Russo said. But the more recent cases have no direct Arizona connection.

The IDA does not act as a lender but as a "conduit," allowing a lender to issue tax-free bonds on behalf of the borrower, Russo said. The conduit role earns the IDA fees and brings money to its partner in many projects, the Community Investment Corp.

The IDA receives a $3,000 fee for each successful application, and gets a fee of one-tenth of 1 percent of the principal of each bond issue every year. That money can help the IDA with other programs it runs, such as a nonprofit loan program and a program that helps single-family home buyers, Russo said.

The Community Investment Corp. acts as the administrator of the IDA's charter-school financing projects. For its services the corporation charges a set-up-fee of $1,000 and an annual fee of $8,000 or $12,000, depending on the size of the bond issue. That money can help the corporation's charter-school-finance program and other activities, such as investments in local start-ups, said executive director Frank Valenzuela, also a director of the IDA.

Law firm's role

Russo and his firm have a financial interest in the work of both the Pima County IDA and the Community Investment Corp.: It acts as the attorney for both.

"We make more money if there are more deals done," Russo acknowledged in an interview last week. However, he added, "There's no incentive to push a deal that shouldn't be done."

His firm began representing the Pima County IDA in 1978, when Russo's father, Russell, became its lawyer. Steven Russo has represented the IDA since 1987, though his partner Michael Slania has taken over most of the work, Russo said. IDA work takes up about half of Slania's work time and a quarter of Russo's, said Russo, who is semi-retired.

In 2008, the most recent year for which tax records are available, the Community Investment Corp. paid Russo, Russo & Slania $146,166 for its services.

Their work on out-of-state projects hasn't prevented the Pima County IDA from doing them in-state. So far this year, the IDA has completed eight in-state bond deals, most of them for charter schools, worth $44 million.

Questions raised

While the county administration is questioning the out-of-state projects, three county supervisors interviewed for this story had only guarded critiques. The Board of Supervisors must approve each IDA project.

"My initial question is, why are we investing out of state? Why aren't we investing locally?" said District 3 Supervisor Sharon Bronson.

"It's hard to believe that you can't find projects to invest in in this community," said District 4 Supervisor Ray Carroll.

Russo noted the Pima County IDA has no paid staff - although it does contract for his firm's services - and does not seek out deals. That's unnecessary, he said, because anyone in Southern Arizona who would be looking to do a bond deal, as opposed to a traditional loan, knows the IDA.

"Applicants are aware of who the Pima County Industrial Development Authority is because the bond world is aware who the Pima County IDA is," he said.

That's how Providence Day School, a private school in Charlotte, heard of the Pima County IDA, said Paul Ibsen, the school's assistant headmaster for finance and management. The school's bond underwriter, George K. Baum & Co. in Denver, suggested looking to Tucson to refinance existing debt. Now they're preparing to issue $20 million in bonds.

"You've got a great industrial development authority that works with people in several different states. They are much better to work with than our own folks in North Carolina," Ibsen said. "Pima County's going to make some money, and Raleigh (the state capital of North Carolina) won't."

Contact reporter Tim Steller at 520-807-8427 or at

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