It appears that the Bennet (and his former chief aide) Boesberg's response to the NY Times article on Exotic Finance Deal for Denver Schools is not holding water. Local Denver newspaper Cherry Creek News publisheda follow up on the finance deal and it appears no one can find any $20M savings but instead the most recent DPS CFO Report shows a $24.9M cost.
Most egregiously, Boasberg claimed that over 100 government entities in Colorado had done similar deals in Colorado over the past decade. While this contains a kernel of truth, the claim is much closer to an outright falsehood. While the base element of the DPS deal is a type of municipal finance tool called certificates of participation (much like taking out a second mortgage or home equity line of credit), the exotic elements of the deal are the fact that DPS entered into an interest rate swap and the exotic market maker/insurance agreement with the Belgian financier Dexia. What makes the deal entirely unusual is the weekly auctions— it makes the entire deal much more volatile, and creates maybe millions in additional fees for the bankers in the transactions.
Our research shows that the total deal is unique in Colorado (in fact, Boasberg and Bennet trumpeted their innovation when selling it). Certificates of Participation are as common as dirt in municipal finance in Colorado. Governments use them instead of other tools like bond issues because they avoid the voter approval element required by the TABOR provisions of the Colorado Constitution. If DPS had only used the common Certificates of Participation financing tool, as had been done by DPS in the past, there would be no Times article, and no basis for criticism.
In March of this year, Bill Ritter praised Colorado State Treasurer Cary Kennedy for avoiding just these types of transactions. Ritter wrote —
But wait, it gets worse. A review of the bond documents from 2008 shows that Denver Public Schools won't pay a dime of principal on the Certificates of Participation until 2018. That's right. Taxpayers won't even begin to pay down the debt for 10 years — we have an interest-only mortgage for a decade (from the original sale of the bonds). The current DPS budget for school year 2010/2011 sets aside $64 million for servicing the debt (and fees). That's a big chunk of money in the DPS budget that get’s Denver’s taxpayers no closer to paying off Bennet and Boasberg’s Wall Street debt.
The State Treasurer manages the state's $6 billion investment portfolio. The last decade has been a heyday for derivatives and other high-risk investment vehicles. Wall Street bankers repeatedly tried to convince Cary to invest public money in these unstable "high-yield" products. She turned them down, and it's made all the difference in protecting the public dollar during this economic crisis. While other states have paid huge termination fees to get out of risky schemes, Cary is protecting Colorado taxpayers' money and maintaining positive earnings for the people of Colorado.
Bennet and Boasberg did not make these same choices. Instead, DPS made a bad bet that is currently costing taxpayers and schoolchildren money.
The second contention made by Boasberg is that a savings of $20 million has been realized by the district on the deal. We can find no evidence of this in any of DPS’ documentation of the 2008 financing deal. What is known is this: David Suppes, DPS’ Chief Operating Officer, provided a spreadsheet to the School Board on April 14 on this year. It is the most thorough accounting of DPS’ costs for the transactions to date. No combination of totals from that spreadsheet can be figured to produce the savings that Boasberg touts. Without an independent financial audit of the full transaction, including interest and all of the fees, paid to consultants, banks, and Belgians, no one knows for sure what this has cost DPS or what might have been "saved.". What is know is, in its last, audited annual financial report, DPS states that $24.9 million has been lost on the deal,
Worse yet, the entire 2008 transaction has a perverse element of kicking the can down the road for DPS, an element that is sure to cost taxpayers money with no gain. The DPS pension finance was cobbled together in anticipation of DPS’ pension fund merging with the state pension fund, called PERA. This merger occurred January 1 of this year. This means DPS now contributes a a percentage of its payroll to the state each year for its teachers retirement.