Letter to the Editor:
Today, February 15, 2011, the School Board is paying $700,000 to holders of the High School Bonds.
So, why pay bondholders today? The bonds were issued too early and the School Board promised to pay today.
Wait, it gets worse! An additional $4,400,000 of tax-free interest is being paid to bondholders too.
Superintendent Allison used to say, “Do the math!”
$700,000 + $4,400,000 equals $5,100,000 of squandered money because the bond was issued on October 21, 2009.
The next time you see a School Board Member, an Administrator, or a Finance Team Member thank them for saying:
“So long $5,100,000.”
That is enough money to buy 25 houses for $200,000 each.
John Ewing
30 comments:
Way to go, School Board, Administration, and Finance Team! Fiscal responsibility at its finest.
Elaine Gillen
1) the District financial advisor provided incorrect information about State Reimbursement from January 2009 through October 2009 when the premature issuance of $69 million in par value bonds occured. The SB and public had been told by the "experts" that the rate would be 15%; then, without public announcement or notice other than a fine-print footnote change in a financial schedule, the rate was dropped to 7.99%, a multimillion dollar difference...the District finance director/business manager said nothing; and,
2) the bonds were issued in October 2009 when interest rates were at record lows; however, the rates one year later in October 2010 were the same as a year earlier; and,
3) one of the District arguments for the premature issuance of bonds had to do with a requirement for a first principal payment of $700,000 by Feb. 2011....this necessary to allow the $700,000 to qualify for debt limit calculations....which made absolutely no sense since a bond resolution passed by the SB specified that the initial bond issue could occur anytime prior to 12/31/2010 ! The District financial experts apparently did not know, or want known, that bonds & debt amortization could be scheduled so that bonds could have been issued in say October 2010 at similar low rates as in 2009, with an initial bond redeemption principal payment of $700,000 to occur in Feb. 2011; and,
4) this mismanagement is costing Lebo taxpayers $4,400,000 in bond interest expense that was totally unnecessary; and,
5) was very likely intentionally orchestrated to effect a situation where the issuance of bonds would create an opinion or attitude by SB and public that the proposed project and project schedule was by then irrevocable...
"the bonds have already been issued, we have to go ahead"...and silence the naysayers.
Bill Lewis
Dave....the District maintains a Capital Projects Fund, which is a Fund separate and distinct from the General Fund for ongoing operational revenues and expenditures requiring an annual budget. The Capital Projects Fund is the repository of funds to pay for capital projects and capital expenditures. This Fund, from 2006 to the time of the 2009 bond issue had more than enough funds to pay for all costs that had been associated with the HS project to and following the bond issue. The District did not need the bond funds to pay the bills !
Bill Lewis
Dave, in order to get the facts a lawyer needs to ask the right question.
The right question is, "How much did we accumulate in the Capital Projects Fund in addition to the $75,000,000 we borrowed?"
John Ewing
By this time the bids should be complete, let us see the actual costs and specifics for the project!
After all Mr. Franklin, as you say we've spent $5 million to date. Aren't you the least bit curious what we spent it on?
Didn't Ed Kubit say some time ago the architects were proceeding as planned even while the zoning and commissioner meetings were being held.
What is the hold up now?
Giffen Good
All well and good Dave, we paid the architects, construction managers and financial people, but for what?
$5 million plus is a helluva a lot of money for a paper building.
Giffen Good
Dave Franklin,
$5,100,000 is the same as 10 Sable buyouts. You wrote a long letter to the Post-Gazette objecting to that buyout as a waste of money. Now you are defending a school board that wasted 10 times what you objected to in 2004.
I’m sorry, Dave, you make no sense with your defense of this $5,100,000 waste of interest and bond payments that have nothing to do with the $5,453,000 we spent on fees for the job.
As a lawyer who writes contracts you should know the difference between interest and, bond payments versus architect and construction manager fees.
Well, Mr. Franklin, we can see that the High School Expenses did not come from the Bond Issue. That is progress.
If you look at the November 15, 2010, School Board Agenda you will find a transfer of $5,492,840 to the Capital Projects Fund. The money came from the Designated Funds Balance. Principle and interest payments on bond issues are not part of the Designated Funds Balance so we had funds other than the Bond Funds to pay the bills for the architect, construction manager, etc.
The $5,100,000 was squandered by a School Board that gambled public monies on higher interest rates when they did not need to do so. The Financial Advisor told them they did not need to issue the bonds in October 2009.
Gambling with $5,100,000 of public money is just not what I expect from our elected School Board.
They have not lived up to their own policy of “SAFEGUARDING DISTRICT ASSETS.”
Neither do I expect a Financial Advisor, a Business Manager, or a Plan-Con Consultant to give a Board a reimbursement figure that is about double what the real number really is. Nor do I expect the Pennsylvania Department of Education to have to make the correct calculations for those three parties on the Plan-Con Documents.
When a Board behaves like this it suggests we need NEW Board Members, better Staff and better Advisors.
Here's the thing I don't understand. Let's say, for the sake of discussion, that the school board did borrow for the high-school project "too early," and, as a result, we, the taxpayers, have had to make debt-service payments before the borrowed funds were actually needed. But, since we started making debt-service payments early, won't we also pay off the bonds early, too?
For example, if I buy a car today and pay for it by taking out a 4-year loan, I'll start making payments next month, and 48 months later I'll be debt free. But now let's say I'm planning to buy the car next year, but I take out the loan today. Yes, I must make my first 12 payments before I need the borrowed funds, but those payments aren't money down the drain. They do pay down my debt, right?
Thus, the additional cost (or savings) of the early loan isn't determined by when I start making payments but by the difference in the net present values of the two options' cash flows. In the case where interest rates are unchanging, both options cost me exactly the same, right?
So, getting back to the high-school bonds, what I want to know is this: If you calculate the net present value of all our projected debt service payments (less any interest income from the borrowed funds) what is difference between borrowing "too early" and "just right." It's not the sum of the early debt-service payments, is it? It's the difference in the net present values of the "too early" and the "just right" cash flows, isn't it?
So, what is that difference? And isn't it this difference (if substantive) that we should actually be asking the school board to justify?
Cheers,
Tom
Dave,
I do not have a current $ balance of the Capital Projects Fund as the monthly financial statements are not released to the public or posted on the District website.
The last figure I recall seeing from an Audit & Finance Committee meeting was something over $7 million...that was a number of months ago. I believe the SB approved a $5 million additional infusion into the Fund a couple of months ago from cumulative General Fund surpluses. I believe the bond proceeds have also been assigned to the Fund, or will be.
Bill Lewis
Dave,
In answer to your question on interest rates....no, there was no guarantee on interest rates and never would be....individual bond rate schedules and TIC are never known for sure until the bonds are competitively bid and awarded.
You can do the math, but please tell me at what TIC premium would the bonds have had to have been issued in say by Oct. 2010 so that the increased interest cost by Feb. 2011 would equal or exceed the $4.4 million excess interest cost taxpayers are now being forced to swallow ?
Of course thats a trick question.. sophistry..but the type of financial flim flam we have received from the District from day one. But one thing is true that you should be aware of...the 2009 bonds were classified as *premium bonds* because they were priced at a premium over par value because the interest rates were set at premiums over market rates. The District told the public that the bonds were issued at an interest rate of only 3.59%, which was absolutely not true !
The true interest cost (TIC) of the issue was 4.1% I believe. The 3.59% was termed by the financial advisor to be the "arbitrage yield" rate which was immediately and mistakenly claimed by the District to be THE interest rate for the entire issue over the full lives or terms of the bonds....arbitrage yield is more commonly known as the yield-to-call rate and defines the effective interest rate on an entire bond issue only if ALL the bonds were to be called on the earliest call date...in this case 3.59% would apply only if all bonds were to be called in 10 years (2019)...and is not a rate that is normally used or referred to. The interest rates for almost all bonds maturing beyond 2019 were at 5%. When this was called to the attention of the Superintendent publicly and privately, he steadfastly refused to acknowledge the Districts misrepresentation.
I enjoy your questions of me because they are good and usually bring to mind related misdeeds by the District.
Bill Lewis
Dave
While it is true that we would have borrowed the money anyway, it's important to understand that you want to borrow that money as close to the first payment date as possible. The farther away from that payment date you get, the more interest you pay on the bond.
The Board at the time decided to take advantage of low interest rates...rates that didn't move much for almost 8 months after the floating of the bonds.
Because of the fear generated about rising rates, we ended up paying more interest cost than needed.
The recent bond payment is not a $5 million mistake (there were two other instances where combined they were about $10 million mistakes) since at some point we would have repaid the principal on the loan anyway. But much of the interest paid in this payment could have been avoided if the bonds were floated later.
James
Total money available to the District in Capital Projects and in Fund Balance is just short of $10 million.
The money has been borrowed and now is running through the SB's fingers like water, so lets move on, please!
Over at Fakelebo, A Carrie Conboy writes: "Thank God we finally made a smart decision!! GET OVER the sour grapes people...the high school is in terrible shape. Do you want to wait until it starts falling down on the kids?"
I agree with her in part, the high school is in terrible shape and it should have never been allowed to deteriorate to such a state. but waiting for it to fall down REALLY? Lets look at some facts.
Building B, the oldest wing of the project is estimated at $148/sq ft to bring up to "21st century" ed. standards.
Bldgs. DEF, the current gyms etc, which they are converting from gyms to grand central station, is estimated at $151/sq. ft. This is the wing with those terrible leaky roofs, that Mr. Celli now says are good for 10 more years.
New Bldg G. is est. at $219/s. ft. The bridge that will get us from the old buildings that had 3 gyms, to the new gyms, of which there might only be 2 cost a whopping $354/sq. ft.
So, the old falling down buildings cost approx. $150/sq ft. to renovate while the new ones with less cost well over $220/sq ft.
So, we've spent $5+ million to date and nobody wants to see hard plans?
I have a pig in poke I'll sell you too!
Giffen Good
So, we've spent $5+ million to date and nobody wants to see hard plans?
Let me rephrase my last submission.
We've spent $5.45 million to date and are paying interest on $67 million and no one knows EXACTLY what the money is going for!
While we're here, don't forget to throw in the $100,000+ for the DeJong sessions, the $250,000 for the failed pool plan on the Horsman ballfield and the $20,000 or so on plans for the shared muni/school district pool at the ice complex.
Might even throw in the Sable buyout since we don't know that perhaps she opposed the new building project and that was the secret reason for dismissing her.
Caveat Emptor!
Giffen Good
Mr. Good, either people don't want to think about it or they don't care. What else could it be?
We should demand Ewing and Lewis' level of effort and attention to detail from our elected officials and the School District professionals. David Huston
Mr. Huston, I think we have demanded! Mr. Taylor and the CAC certainly did. 4,000 petition signers did. The zoning board did their share as well as the judge that upheld their decision.
But, as long as you have residents that think the building is about to fall down, willing to pay nearly a million dollars for a bridge to cross that busy expressway we call Horsman Drive to get students to gym class you're deluding yourself.
Lewis/Ewing scrutiny isn't going to happen any time soon.
Giffen Good
We're making progress here. Dave Franklin, John Ewing and John Kendrick removed or asked to have comments removed. I have been getting a lot of heat about it. Thanks, guys.
Elaine
I am very happy about everyone backing down with the personal hits. I know each person and there is a serious misperception regarding their character. None should be compromisied!! Good choice, Elaine.
MKluck
Matt, it was Dave that took the first step and removed his comments. Then John and John came around. Thank goodness!! Probably the blog traffic will go down, but that is OK with me. I just wish this all happened earlier so I wouldn't have been attacked at the Republican Committee meeting like I was last night by a certain individual.
Elaine
John Kendrick did not comment on this thread.
Dear Elaine,
You provide a service that is worthwhile for debate and consideration by all who read your blog. Those who consider the opinions expressed as biased; too bad!! Keep doing what you are trying to accomplish and God bless you for the fortitude you exude regardless of the consequences. There comes a time to characterize the debate and that time has not yet been approached.
Best regards to all of you who pursue the right to express your feelings freely without compromise. There is no winner in the first ammendment because every individual wins in this instance. You need to stand by your principles regardless...
Best to all,
Matt Kluck
Elaine,,
Perhaps I gave your blog a little more impetus. I hope so because there are many good, concerned people who read and deliver messages on your blog as well as Tom Moertel's.
MKluck
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