The Bethlehem Area School District plans to take out $69.5 million in bonds to pay off earlier bond issues and end two swap agreements.
As a taxpayer, I am concerned. The district got into trouble with interest rate “swaps” a long time ago. That mistake was costly to the taxpayers.
A swap is typically an exchange of rates: one side pays a fixed rate, the other pays a floating rate. Basically, it’s a bet on which rate will be higher. The two parties settle the net difference periodically.
When rates move against one of the two parties, the costs can soar.
Swaps vary in their riskiness, and there are very good reasons for using swaps, but I know one thing: when the Bethlehem Area School District and JPMorgan are holding opposite sides of a bet, I’m going with JPMorgan.
Under these two swaps, the district pays a fixed rate and receives a variable rate.
The BASD was advised in this process by Public Financial Management, or PFM, the firm that advises lots of governments on debt.
The district and several governments ran into trouble with swaps back around 20 years ago.
I played a minor role in reporting that issue for Bloomberg News. My two colleagues, Bill Selway and Martin Braun, did a great story that won a 2009 Gerald Loeb Award. That is the Holy Grail of business-reporting awards.
Those two did the real work. My role consisted of going to government buildings and getting yelled at. I don’t mean to brag, but I am quite good at this. I have lots of practice.
A local media outlet ran our story, fine; then their own stories, fine, and then started taking credit for “breaking” a story that they had not.
That is not fine.
That’s journalism for you. Following a story is one thing, but taking credit for having it first is a little bit of a stretch. There is a word for it … I just can’t think of it right now.
Now, the district plans to take out $69.5 million in bonds to “refund,” that is pay off, earlier debt. That too is fine, if rates have moved down, take advantage of it.
The district also plans to pay as much as $500,000 to terminate the swaps. This requires some explanation from them. What was the cost? Did the district come out ahead, even or behind?
The Bethlehem Area School Board will meet Aug. 26 at 7 p.m. at East Hills Middle School. I’d like to hear an explanation of this. The issue was discussed at an Aug. 12 meeting, before I was writing this blog. I’ll check for any records of that.
As a resident and taxpayer, I ask this of the district: stick with fixed-rate debt. If it ventures beyond that, have a good explanation.
According to the agreement (see link below) the $69.5 million will be in fixed-rate debt.
Link to bond question:
Bethlehem Area School District site:
Lehigh Valley News Briefs 