DENVER (AP) â€” The Denver school system is reportedly stuck paying millions of dollars in extra interest and fees because of a pension financing deal U.S. Sen. Michael Bennet recommended while he served as schools superintendent.
The New York Times reported Friday that the deal has cost Denver at least an extra $25 million so far, although that amount could decline depending on future market conditions. The school system would like to renegotiate the deal, the Times said, but it would cost $81 million in bank termination fees, which is about 19 percent of the district's $420 million payroll.
Both Bennet and Thomas Boasberg, the current superintendent, disputed the Times report, which came in the closing days of a fierce Democratic primary battle between Bennet and former Colorado House Speaker Andrew Romanoff. Boasberg said the deal has given the district $20 million in net savings, which is less than originally hoped but still enough to avoid teacher layoffs seen elsewhere.
Bennet, at the beginning of a 24-hour campaign sprint across the state, blasted the report at a rally with letter carriers and teachers in Denver.
"The premise (of the report) is wrong. The deal has been very good for DPS," Bennet said.
It wasn't clear what affect the story would have on the contest because Colorado's primary is mostly mail-in, and voters have been returning ballots for the last three weeks.
The financing deal was arranged to cover a $400 million gap in the school system's pension fund. The Denver school board unanimously approved it in 2008.
The complex transaction aimed to save the district millions of dollars in annual debt costs. But, much like an adjustable-rate mortgage, the deal's interest rate was subject to change depending on market conditions, the Times reported.
The district offered pension certificates with a derivative attached, which carried a lower interest rate than a simpler transaction would have at the time. But as the mortgage crisis grew and investors' appetite for debt disappeared, the school system was on the hook to pay more.
School board members told the Times that Bennet and Boasberg persuaded them to approve the plan. The $20 million in savings the pair touted didn't take into account hefty termination fees that come with such complex deals, the Times said.
Boasberg, however, said the $20 million was a net savings that did account for the fees and interest. Had it not been for the economic downturn, he said the district would have saved about $40 million. He declined to say whether the district was actively trying to get out of the deal.
In March, three school board members, including Andrea Merida, a Romanoff supporter, raised questions about the deal after reading about similar deals across the country. At the time, Boasberg told The Denver Post he thought the query was politically motivated.
Merida was paid as a field organizer for Romanoff in May and June but didn't work for the campaign at the time. On Friday, she said neither Romanoff nor her support for him influenced her concern about the deal.
"Our focus has always been, 'Now that we're in the deal, what do we do now?'" said Merida, who joined the board in November 2009.
The Los Angeles City Council told officials to renegotiate such deals in March. Some school districts in Pennsylvania have also unwound such arrangements and the state's auditor general, Jack Wagner, issued a statement in February urging others to join them.
Merida questioned the school board's reliance on advice from one of the banks participating in the deal. She also thinks board members may have relied on Bennet and Boasberg's financial experience rather than seeking outside help.
"I think they thought they were getting two-for-one," she said.
Former school board member Jill Conrad defended the deal she voted for.
"The fact remains that this transaction has positioned DPS, its employees, and most of all its students to be better off in the long run that they would have been if we had not taken action," she said in a written statement.
Henry Roman, head of the Denver Classroom Teacher's Association and a Romanoff supporter, said the consequences of the deal, and whether teachers will lose their jobs as a result, is unclear.
"I think it's something that needs to be investigated and looked at very closely," said Roman, whose union represents about 4,500 teachers. "There's no good information about the cost, the different costs that we will have because of the moving target" of the interest rate, he said.
Denver Mayor John Hickenlooper, a Democrat who appointed Bennet as superintendent and is now running for governor, declined to comment.