When the Bethlehem Area School District takes one side of a wager, and a Wall Street titan takes the other side, who’s going to win? I know where my money would be.
We’ve been down this interest-rate swap issue before, in 2008.
Ask the district to stop the swaps.
First, an email I sent today to Bethlehem Area School District officials and members of the board of directors:
16 years ago, I helped two of my colleagues at Bloomberg News report on the swaps debacle that this school district and others engaged in.
I am surprised to see it is happening again, presumably based on the advice of consultants who benefit from the district making transactions.
Tonight’s agenda includes an item about paying as much as a half-million dollars to get out of two swaps contracts.
To be fair, I don’t expect most board members to understand swaps or the risks, but let’s put it in the simplest terms:
When the Bethlehem Area School District is on one side of a deal, and JP Morgan is on the other, I’m putting my money on JP Morgan.
I will probably walk down to Sycamore Street tomorrow to pay may school tax bill, and I don’t begrudge that.
If you use that money to educate children, fine. Don’t use taxpayers’ money to gamble.
Thank you
Jeff Ward
BASD resident and property owner
*************
And below, an earlier post about this.
When the Bethlehem Area School District takes one side of a bet, and a Wall Street bank takes the other, who is going to come out ahead?
I thought the district learned its lesson about gambling with taxpayers’ money back in 2008.
The district got caught on the wrong end of interest-rate swaps and had to pay to get out. Two of my colleagues at Bloomberg News exposed these shenanigans and more.
Tonight, while the attention may go to a strike by secretarial workers, the school board is due to vote on buying its way out of two swaps. That may cost as much as $500,000, according to BASD documents.
In these swaps, the school district is paying a fixed rate and receiving a variable rate. The difference is netted out, one side wins, one side loses. When rates move against one party, swaps can get expensive and right quick.
There are some very good reasons for swaps, such as locking in a rate or hedging, but in my ever so humble opinion, taxpayer money should not be gambled on swaps.
The potential swaps payout is part of a $69.5 million bond issue.
From tonight’s agenda:
WHEREAS, the School Board has determined to optionally redeem and refund the
outstanding principal balance of both Notes and all outstanding Authority Bonds, and to terminate the 2021A Swap and the 2021B Swap (collectively, the “Swaps”), as described in a refunding report (the “Refunding Report”) prepared for this School District by Public Financial Management Inc. (the “Financial Advisor”), as financial advisor to this School District, at such time as the “net local effort cost” to terminate both Swaps does not exceed $500,000 (the “Maximum Termination Cost”) ….
And that is it. The district is prepared to pay as much as a half-million dollars to end two swaps.
That could pay for a lot of books.
Tell the school board: NO MORE SWAPS. The board of the Bethlehem Area School District will meet at 7 p.m. tonight at East Hills Middle School.
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