When three members of the Denver Public Schools Board of Education issued a press release last week asking District officials to respond to questions about interest rate swaps entered into in 2008, the point wasn't to politicize the issue. The point was that all three school board members worried that the deal, designed to support requirements associated with the District's teacher retirement system, was costing schools millions of dollars.
All three board members signing the press release had asked for more information about the transactions and received nothing in return from the District's superintendent, Tom Boasberg, or his predecessor, Michael Bennet. One member, Jeannie Kaplan, says she's been asking for information for 18 months, in Board executive sessions, at Board meetings, and via e-mails to Boasberg and Bennet.
Boasberg claims he never received any such request. You be the judge.
"I'll take responsibility for having voted for the 2008 bonds. I should have understood them better," Kaplan told me last week. "I just want to know where we are now, and no one will answer that question."
Kaplan is pretty generous here. Michael Bennet oversaw a multibillion dollar merger and acquisitions deal while working for billionaire Phillip Anschutz. Bennet's Chief Operating Officer, Tom Boasberg, was Group Vice President for Corporate Development at Level III. I'm not sure what Kaplan was supposed to know that these guys didn't tell her.
For asking her questions about the status of the transactions, the Denver Post wrote the headline, "Kaplan clueless then, now." This headline accompanied a commentary written by Susan Greene on March 16. Greene wrote Kaplan "carped" that all she and the other two Board members were trying to do was "get the facts."
Wouldn't you want to know the facts in Kaplan's shoes? Wouldn't you be interested in the long-term fiscal viability of the District? I know I would.Based on the offering document for the 2008 retirement system bonds, the $750 million raised by the effort was to be used for the following purposes:
- $314,929,662 to refinance debt being carried by DPS at an 8.5% interest rate
- $397,800,000 to fully fund the teacher's pension fund
- $37,270,318 for fees, escrow accounts, and the like
It's also interesting to wonder this: would the school board have approved the transaction had its members been told that DPS would lose $1.3 million in the 1st month of the deal? How about, based on interest rate trends and economic conditions related to the housing market, DPS was likely to lose money for the next 2 to 5 years? Bennet and Boasberg should have known both of these facts based on interest rates and the structure of the deal they had just arranged.
But the Board of Ed wasn't told either of these risks. What Bennet and Boasberg told Board members was that the deal would save the District $20 million per year and that money could be put back into the classroom. Bennet said the same thing to A Plus Denver a month later, while he was losing $1.3 million in the deal's 1st month.
Boasberg keeps saying it now.
To head off what the Denver Post called a "flap" after the press release was issued, Boasberg gave Board members a spreadsheet last Monday night during a school board working session. This spreadsheet reportedly answered questions asked by Boasberg's three "disgruntled" bosses. (Boasberg's words, not mine.)
Upon receipt, Board member Andrea Merida said to Boasberg, "We'll have to get back to about this. Your numbers aren't the same as ours."
Boasberg's spreadsheet does not include costs associated with DPS' interest rate swaps. It doesn't include the costs of the short-term purchase agreement executed by DPS when it couldn't sell its bonds. It doesn't include all the fees associated with just getting the deal off the ground.
Worst of all, the spreadsheet is predicated on DPS having refinanced $750 million dollars from an 8.5% interest rate to a 4.859% interest rate. Of course, we know that only $315 million in debt was actually refinanced, not $750 million.
Using the numbers Boasberg did provide in the spreadsheet, DPS has spent $55,950,147 to date on the 2008 transactions. The District has not saved $18 million, as Boasberg reported on AM 760 here in Denver last Friday.
This $56 million does not include what could be as much as $100 million in losses associated with interest rate swaps ($48 million), fees ($37 million reported in the bond offering document plus an estimated $18 million sent to the short-term purchase agreement party), or sundries associated with this, that, and the other thing.
Boasberg's response to these issues? "No, we refinanced $750 million."
That's what he told Kaplan and Merida after the March 18 school board meeting when asked about the discrepancy.
When Michael Bennet was hired as DPS superintendent, everyone said it was because Denver's schools needed Bennet's solid business experience and perspective. Bennet brought in a whole team of people from business. They sat in their offices counting beans, creating strategies, spinning news. Meanwhile, the CEO and his COO were playing poker with the public's money against the likes of JPMorgan.
Boasberg and Bennet are just like most other CEOs in America. It's not about what's good for the company or its customers, in this case the kids, teachers, and taxpayers of Denver. It's about making your money and moving on. If you're lucky, you get to play a few games along the way.
But then the accountants start asking for a reckoning. Now, for Tom Boasberg, it's about saving your own skin ... or the skin of your one-time boss who's now the junior senator from Colorado.