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.
Lehigh Valley News Briefs 