Tongues are wagging over a front-page story by The New York Times on Friday about a complex financial deal the Denver school system made in 2008 with JPMorgan Chase to help take care of its $400 million in unfunded pension liabilities.
The district signed an agreement that created derivative-backed certificates with a promise of lower rates for debt repayment and the potential to earn hundreds of millions more for the district.
That of course, was before the financial markets collapsed.
From The Times’ report:
Since it struck the deal, the school system has paid $115 million in interest and other fees, at least $25 million more than it originally anticipated. To avoid mounting expenses, the Denver schools are looking to renegotiate the deal. But to unwind it all, the schools would have to pay the banks $81 million in termination fees, or about 19 percent of its $420 million payroll.
Michael Bennet, the former superintendent who is now a U.S. senator fighting to keep his appointed seat, and Tom Boasberg, his operations chief who is now Denver’s superintendent, told The Times that the financial deal saved the district $20 million and that it was impossible to predict the meltdown of the market that later led to the higher costs. Both men have extensive financial backgrounds and came to education as nontraditional leaders.
Sen. Bennet told The Colorado Independent that he believes the NYT‘s story is much ado about nothing, and the result of the paper listening to attacks from his challenger in the Democratic primary, Andrew Romanoff, who is a former speaker of the Colorado House.
I know the New York Times is always looking to break a big story, but in this case, they just got it wrong," he wrote to the Independent. "This story has been covered by local reporters who have provided more balanced, fair, and accurate coverage. The New York Times got caught up in a heated political primary where my opponent and his supporters have repeatedly tried to score points at the expense of kids and have once again disregarded the facts.
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Boasberg flew back from a San Francisco vacation after the story hit and told The Denver Post the district is not looking to unwind the deal, but is looking at whether it should be restructured before the potential passage of bills before the state legislature that would limit the district’s ability to do so.
And while the district did not realize any savings from the pension deal last year, Boasberg said he expects savings going forward.
We are saving $1.5 million a month going forward," he told The Post.
And an analysis done in April for Education News Colorado by a veteran financial journalist says both camps are correct: the deal has saved the Denver school district millions in some respects, but is a complex financial trap that could cost it millions more.
Romanoff’s campaign wasted no time, releasing an ad over the weekend attacking Bennet that used the NYT story as its basis:
It remains to be seen what impact, if any, the stories have on Bennet’s chances of winning tomorrow’s much-watched primary.
Romanoff has proven a strong challenger, and the former Denver superintendent called in the big guns this past week, having President Barack Obama address supporters on a tele-townhall.