The Bethlehem Area School District and others were burned on interest-rate swaps back in 2008.
Back then, I had the privilege of helping two of my Bloomberg News colleagues report on the issue. They wrote “Schools Flunk Finance,” an all-encompassing magazine story about the swaps mess.
I thought the district was done with gambling on rates, but Monday’s school board agenda included a vote to pay as much as $500,000 to get out of two swaps.
I’m glad to report that the district’s superintendent and school board president oppose further use of swaps as a finance tool.
“I will never recommend that our board enter a swap agreement,” Superintendent Jack Silva wrote in an email before the meeting Monday.
As of Monday night, School Board President Michael Faccinetto said the BASD has only one swap left, and that the risk the district is not at risk as it was 16 years ago.
“… I am happy to see them gone,” Faccinetto said of the swaps in an email. “It was a product no school district should ever have been involved with.”
In its simplest form, an interest-rate swap is a bet on rates. One side pays a fixed rate, the other pays a floating rate. The difference between the two is netted out, one side wins, the other loses.
There are some good reasons for businesses to engage in swaps. There is no reason for a school district to bet against Wall Street titans.
Putting this into the most simple terms, when the Bethlehem Area School District is on one side of a wager, and a Wall Street titan such as JPMorgan is on the other side, who’s going to win?
I’ll put my money on Wall Street. The house always wins. Don’t listen to the consultants. Just avoid swaps.
My Bethlehem Area School District tax bill is due this week. I will walk down to the Sycamore Street office and pay it.
I support public education. If the money goes toward educating children, great, but I don’t want a penny of it to be put at risk in swaps.
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