Saturday, August 1, 2015

Auditor: Millions in Philly school savings 'mere illusion'

No one is being held responsible for a multi-million-dollar loss that enriched Wall Street banks at taxpayers' - and schools' - expense

Auditor: Millions in Philly school savings 'mere illusion'

0 comments

It's bad enough, says PA Auditor General Jack Wagner, that the cash-strapped Philadelphia school district, with mass layoffs looming, had to pay $63 million last fall (on top of previous losses) to buy out interest-rate swap contracts that enriched Wall Street firms at taxpayers' expense.

It's worse, Wagner claims, that the School District says the swaps weren't all that bad. According to the district, swaps saved the district $28 million below what fixed-rate debt would have cost without swaps over the years, and the swaps and the bonds they were supposed to insure have been replaced with cheap variable-rate debt, at a 2010-12 savings of $25 million, and an ultimate saving estimated at north of $50 million.

That second saving "is a mere illusion" because it is likely to be at least partly wiped out by rising interest rates, Wagner says in a letter accompanying his report.

School District business manager Michael Masch rejects that claim. He says the $25 million represents net present value savings to the cost of the refinanced debt, and that  savings could rise, if interest rates stay low. He also blames Wagner for posting his report without giving the district the usual courtesy of time for a full review and reply.

I asked Masch if he could tell me who convinced Philadelphia to buy those swaps, and who, in addition to the Wall Street banks, made money selling them to the city? He said those 10-year-old records are hard to find, especially in the middle of a school funding cuts that could result in massive layoffs.

I asked Wagner who's to blame for the swaps, which, after all, pre-date Masch and school board boss Arlene Ackerman. He hasn't gotten back to me yet. So for now, this looks like the current politicians blaming the former politicians, and no one having to take responsibilty for convincing the School District to waste millions it can't afford.

0 comments
We encourage respectful comments but reserve the right to delete anything that doesn't contribute to an engaging dialogue.
Help us moderate this thread by flagging comments that violate our guidelines.

Comment policy:

Philly.com comments are intended to be civil, friendly conversations. Please treat other participants with respect and in a way that you would want to be treated. You are responsible for what you say. And please, stay on topic. If you see an objectionable post, please report it to us using the "Report Abuse" option.

Please note that comments are monitored by Philly.com staff. We reserve the right at all times to remove any information or materials that are unlawful, threatening, abusive, libelous, defamatory, obscene, vulgar, pornographic, profane, indecent or otherwise objectionable. Personal attacks, especially on other participants, are not permitted. We reserve the right to permanently block any user who violates these terms and conditions.

Additionally comments that are long, have multiple paragraph breaks, include code, or include hyperlinks may not be posted.

Read 0 comments
 
comments powered by Disqus
About this blog

PhillyDeals posts drafts, transcripts and updates of Joseph N. DiStefano's columns and stories about Philly-area business, which he's been writing since 1989.

DiStefano studied economics, history and a little engineering at Penn and taught writing at St. Joseph's. He has written thousands of columns and articles for the Inquirer, Bloomberg and other media, wrote the book Comcasted, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com, distefano251@gmail.com, 215.854.5194 or 302.652.2004.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
Also on Philly.com:
letter icon Newsletter