UPDATE: Former DPS board member Jill Conrad offers a point-by-point response, calling into question key findings, and pointing out “at least 18 factual errors in the article.” Must-read.
There’s not a politically savvy person in this country who will tell you this is a good story for Democratic Senate candidate Michael Bennet. As the New York Times reported last night:
In the spring of 2008, the Denver public school system needed to plug a $400 million hole in its pension fund. Bankers at JPMorgan Chase offered what seemed to be a perfect solution…
To members of the Denver Board of Education, it sounded ideal. It was complex, involving several different financial institutions and transactions. But Michael F. Bennet, now a United States senator from Colorado who was superintendent of the school system at the time, and Thomas Boasberg, then the system’s chief operating officer, persuaded the seven-person board of the deal’s advantages, according to interviews with its members.
Rather than issue a plain-vanilla bond with a fixed interest rate, Denver followed its bankers’ suggestions and issued so-called pension certificates with a derivative attached; the debt carried a lower rate but it could also fluctuate if economic conditions changed.
And of course, in 2008 economic conditions did change, and these complex financial transactions’ less-attractive contingency terms began to kick in. As the Times explains, this is an issue being faced by many local governments who, faced with unsustainable pension obligations and other debt, entered into these arrangements with Wall Street and are now paying more interest and fees than they would be had they issued more traditional bonds (disputed in DPS’ case here).
Today’s New York Times story appears to be the culmination of a detailed narrative, assembled and long shopped by political opponents of Bennet–with the skill of a Pulitzer Prize-winning financial reporter filling in the Wall Street angle. All of which is entirely fair game: Bennet’s term as superintendent of DPS is rightly subject to scrutiny as he runs for election to the Senate, although there’s an argument that Romanoff’s campaign has done so in inappropriate ways. Supporters of Bennet counter, as they have every time this has come up, that Bennet could not have reasonably predicted the massive economic crisis that occurred in 2008–and if the economy hadn’t tanked, these financial instruments would have remained a good deal for DPS. To the extent that DPS was left with less-attractive finances after the global economy ground to a halt, well, there are a lot of people singing that tune today.
But there’s no question that this complex and detailed story leaves Bennet on the defensive. In the absence of an equally detailed response, and certainly when accompanied by a little helpful spin, it paints exactly the picture of Bennet that Andrew Romanoff’s campaign wants. Electorally, however, this story would have been much more advantageous to Romanoff if it had dropped a couple of weeks ago; clearly timed to hit just before the primary, but perhaps not fully taking into account the fact that the election was conducted by mail and many ballots are already in.
More commentary, which unfortunately contained too many factual errors to be promoted, here.