Colorado Race for U.S. Senate Seat: Bennet’s Boondoggle
August 7, 2010
Yesterday, The New York Times printed a story entitled “Exotic Deals Put Denver Schools in Debt” on its famous front page. The story featured, in a photo as well as in text, Colorado’s sitting junior U.S. senator, Michael Bennet. Bennet has been in a year-long battle to convince Colorado voters he deserves to be re-elected to the seat granted to him in early 2009, when Colorado governor Bill Ritter named him successor to former U.S. senator Ken Salazar, President Obama’s new Secretary of the Interior.
With only days to go to the August 10 primary that would reveal whether Coloradoans agree Bennet deserves to keep his seat, The New York Times’ timing did little to help his cause. Focused on a series of financial transactions with “several different financial institutions” finalized in early 2008 when Bennet was still superintendent of Denver Public Schools, the article detailed how the plan spearheaded by Bennet and DPS COO and current superintendent Thomas Boasberg ultimately lost the struggling district millions of dollars.
Of top concern was the district’s teacher pension fund. At the time, the pension fund suffered from a $400 million shortfall; the district could not afford to pay all its retirees as promised. Under the guidance of Bennet and Boasberg and advising banks that also benefitted from the resultant deal, the school board opted to issue pension certificates with a related derivative and an initially low rate that would fluctuate based on economic conditions. Like so many homeowners who have lost their homes in recent years due to ill-advised variable-rate mortgages with initially low monthly rates, DPS school board members soon realized the errors of their ways. Two years later, DPS payments have already totaled at least $25 million more than “originally anticipated.”
Push Back
Now, current Denver Public Schools board members want to renegotiate the expensive 30-year contract, but such steps require even more millions of unanticipated fees that could amount to nearly 20 percent of the district’s entire payroll.
Sometimes referred to simply as “derivates” or “swaps,” such deals have negatively affected school districts across the country. DPS certainly is not alone. But the costs associated with such deals that never should have been recommended to publicly funded entities in the first place are astounding. The fact that the DPS deal was spearheaded and promoted to the board by Bennet raises a whole series of red flags regarding his right to insist he deserves to be trusted and re-elected by voters, many of whose taxes he’s helped squander.
Delayed Reaction
All of this may be too little too late for the current primary, but many in Denver have been aware of the implications of this deal for some time. In March, The Cherry Creek News reported on this very story, offering local insights not only into rising concerns among DPS board members and staff, but into the highly dismissive and accusatory manner in which The Denver Post had addressed those raising such concerns. Apparently now that The New York Times has trumpeted the story across its front page, The Denver Post has seen fit to respond to it, though its manner and tone remain primarily dismissive and apparently annoyed. If only they’d been more attentive and responsive five months ago when The Cherry Creek News explained in very clear terms: “DPS worked with JP Morgan and Citigroup on fixed-rate bonds, then worked with Morgan and others on a ‘swap,’ betting taxpayer money that interest rates would stay high. Placing the bet earned the banks millions in fees, and when interest rates [sank] to historically low levels, the bankers made more money…. In essence, Bennet bet taxpayer money on the direction of interest rates against big Wall Street banks, and lost.”
I find it very hard to believe that Michael Bennet, a financially savvy individual with years of investment experience as a high-level financial official with the Anschutz Investment Company, could not (as he now insists) have predicted the potential downfall of such a risky venture as selling a publicly funded school board of a struggling district such a widely recognized “exotic” financial instrument. The possibility of the short-term cost of the deal, nearly $10 million already in fees that would not have been associated with a less complex transaction with a fixed rate, surely must have occurred to him. Hadn’t Bears Stearn already collapsed by the time this deal was done? Everyone on Wall Street, including individuals at JPMorgan Chase and Citigroup who were directly involved with DPS, knew what was going on and what was due to happen, which banks would fail and which were so ingrained in Washington that they’d be bailed out. For Bennet to suggest he was completely unaware of the high likelihood this high-risk venture might cost DPS—the district he was leading—dearly borders on blatant deception. Surely he should’ve been (if he was not) aware of the many other school districts across the U.S. that have suffered under similar plans. Surely he was aware of Enron. Then again, at Enron private investors risked private money, even if that money was paid into retirement accounts by hard-working employees. When public institutions’ leaders opt to gamble with taxpayers’ money, yet another ethical line has been crossed. And yet another is crossed when institutions that profit incredibly from such troubling transactions are listed as donors to the political campaigns of the people who helped make the troubling transactions happen.
What Next
Should undecided Colorado Democrats who’ve yet to vote in this week’s primary and have Monday and Tuesday to deliver their ballots take all this late-breaking news into consideration? Since this story broke in The New York Times, national outlets have featured it and taxpayers across the country, some in similar situations, have voiced their opinions. Many seem to agree the DPS board was deceived by the people they trusted to guide them through a critical financial process. As one local taxpayer commented on the The New York Times site:
“As Denver School Superintendent, financial wiz-kid Michael Bennet talked the board into the same kind of financial shenanigans that bankrupted Greece and nearly destroyed our economy. I hope we Coloradans finally see through this slick banker’s bluster and send him packing on August 10th. Of course it will take us much longer than a few days to clean up the financial mess he left.”
While some have suggested the best way to force the privatization of a public school district is to bankrupt it, we won’t go that far. We will, however, vote for Andrew Romanoff.
P.S. Thanks to David Sirota of OpenLeft.com, who provided the link to The Cherry Creek News piece. In his own post on The New York Times article, Sirota states bluntly:
“The issue boils down to this: Either Bennet was embarrassingly incompetent in sending Denver taxpayers and schoolchildren into the jaws of Wall Street’s predatory lenders. If that’s the story, it destroys his argument that his positive ‘real-world experience’ will make him an effective legislator. Or, Bennet was blatantly corrupt, using his position as DPS chief to help pad the profits of his corporate friends at the time—and his future Senate campaign contributors. Either way, this makes the ads of Bennet’s opponent, Andrew Romanoff, look like they hit devastatingly close to home. For months, Romanoff has been focusing attention on how Bennet’s huge corporate campaign contributions influence Bennet’s votes, and how Bennet’s time as a corporate raider raise the ultimate question about Bennet: Which side are you on?”
The Candidates Respond
An e-mail from Michael Bennet’s campaign manager sent the evening of August 6 stated, in part:
“A School Board member who supports our opponent admitted to The Denver Post today that she shopped the story to The New York Times for months. And, when doing so she did not disclose that she was a Romanoff supporter, much less that she and her husband have contributed nearly $10,000 to Andrew Romanoff.
“Today, just days before the primary, the story -- admittedly pushed by a Romanoff ally -- ran on the front page of the New York Times. Today’s article makes false claims about a transaction that happened while Michael Bennet was Superintendent of the Denver Public Schools. They say it has hurt the district’s financial situation and is forcing the District to make cutbacks.
“The truth is that this transaction actually saved DPS millions of dollars. DPS will continue to save money, and has significantly strengthened its pension system. The District will save an estimated $20 million in this year alone. Michael’s work strengthened the teacher pension program so that teachers will no longer lose their pensions when moving between districts -- and the District’s pension plan will be fully funded years before the statewide school pension division.
“This is the bottom line: Because of the work of Michael and a great team, the district is moving forward in these tough times. Other districts are being forced to make deep budget cuts, school closures, and place freezes on hiring new teachers -- while DPS continues to hire teachers and grow stronger.
“I’m beyond disappointed that our kids, and Michael’s work turning around the status quo at the Denver Schools, are being used as political pawns in our opponent’s win at all costs political campaign.”
An e-mail from Andrew Romanoff’s campaign treasurer sent the afternoon of August 6 stated, in part:
“Today’s edition of The New York Times reveals an ‘exotic deal’ that Michael Bennet cut with Wall Street. The deal cost Denver Public Schools $25 million -- and counting -- while making millions for JP Morgan and other Wall Street banks. Sen. Bennet is now one of the top recipients of Wall Street cash in the U.S. Congress.
“The second development will take place this weekend. That’s when the Democratic National Committee (yes, our party) will host round-the-clock phonebanks for our opponent -- in Washington, DC. The national establishment is, in its own words, going ‘all-out’ for Sen. Bennet.
“Wall Street and Washington placed their bets on Sen. Bennet long ago, bankrolling independent expenditures as well as $1.3 million in special-interest contributions to his campaign. Fortunately, their strategy isn’t working; we’re winning.
“At their debate last weekend -- and throughout this campaign -- Sen. Bennet has cited his financial expertise as a key advantage. Andrew doesn’t have enough "real-world" experience, the other camp often says.
“It’s true that Andrew has no experience cutting deals with JP Morgan or gambling with our children’s future. But what Andrew lacks in Wall Street wizardry, he has more than made up for in his commitment to Colorado. Andrew led the fight to make preschool and kindergarten available to 25,000 more children. He spearheaded the largest investment in school construction in state history. And he has done more than anyone in Colorado to reform our constitution and rescue our schools and colleges.”