Sent: Friday, February 27, 2009 6:00 AM
Kevin,
A rumor has been circulating in the Westonka Community the school district is seriously considering the sale of OPEB bonds. Aside from the questionable ethics of using this tactic to circumvent the voter-taxpayers living in District 277; who have already given you every funding referendum you have asked for, there is an insanely large number of caveats associated with pursuing this funding vehicle. I have discussed the pros and cons of issuing OPEB bonds with two, separate municipal accountants who have no association with Westonka. The common themes among their feedback were, "doesn't make sense," "high risk," and "terrible timing."
Why am writing? Frankly, I doubt you have done the necessary due diligence required on this complex issue, and suspect you are relying heavily on the information provided by the bond broker who stands to generate an enormous commission by writing this bond issue. Rather than boring you with a lecture, I am attaching a memo from the Minnesota State Auditor, dated 9/2008, which cautions municipalities on this type of funding. The Auditor's office goes as far as labeling OPEB bonds as "arbitrage schemes!" Please read it and if you have the time, also read the articles that are embedded in the memo. At the very least, please think about the passages below which have been excerpted from the memo and those embedded articles.
1. From the article, Wisconsin Schools Flunk ‘Investments 101’
[OPEB bonds and investment schemes are easy to sell to unaware public officials. There is widespread misunderstanding of the nature of the liability and how it must be reported and financed. Uninformed or unsophisticated officials can be led to believe that they are solving a massive long-term financial problem for once and for all, only to find that the nature of retiree medical costs makes it inherently impossible to achieve that level of finality. Likewise, there is an illusion that virtually risk-free or low-risk transactions can be ginned up that will perform financial alchemy and turn the lead of an OPEB liability into the gold of an investment arbitrage profit. Common sense should suggest that's not likely to happen.]
2. From the article, Schools in Risky Business?
[Outstanding OPEB liabilities pose a serious issue for school districts, some more than others, said Todd Berry, president of the Wisconsin Taxpayers Alliance in Madison
Districts should remember when they hear pitches from financial institutions that the businesses stand to gain substantially from fees they charge on the transactions, he said. The Waukesha School District paid nearly $540,000 in fees to Stifel and others for its retiree-related investments, including about three times as much for attorneys hired by the other parties involved than it paid for its own counsel.
"There are various financial institutions that are happy to loan them money to cover their liabilities, and they are recommending borrowing to cover the liability because it's a good business proposition for the financial institutions," Berry
3. From The MN Office of State Auditor [September, 2008]
"Borrowing money to make investments is rarely a good idea. Placing millions of borrowed public dollars at risk in investment schemes is never a good idea. These OPEB arbitrage schemes place government entities at risk to bond holders, regardless of the rate of return or value of the investments made with the bond proceeds. Some school districts have learned this the hard way."
Take care,
Don Mailey
RE/MAX Results
c (952) 212-0968
o (952) 472-0396
No comments:
Post a Comment