News and Opinion from Sisters, Oregon
The Sisters School Board moved closer Monday night, February 9, to final answers for two money questions that seemed to come with the winter's snow:
Superintendent Lynn Baker offered a printed response to the first question in a brief, one-page "executive summary." It explained that the district originally sold $20.5 million worth of bonds and then, through Seattle Northwest Securities, invested $18.21 million in federal securities.
"The face amount of the investments was $17.6 million and $610,000 was premium paid to earn a higher rate of interest and offset the extra money spent by buying at a premium. Because there is a premium involved, the $610,000 needed to be subtracted from the cash flow to reflect the actual anticipated income...." the memo stated.
"The $1.9 million (total interest anticipated at the time) was always the cash flow, not the expected earned interest. This was never clearly communicated or explained to the board or district administration. Despite discussion at the October, 2001, school board meeting in which the superintendent stated that the district would have between $1.9 and $2.1 million earned interest, a representative from Seattle Northwest, who was present, did not correct that statement," the memo stated.
"Three investments were sold prior to maturity due to the accelerated construction schedule. Seattle Northwest advised us that we should realize a profit on these sales. We lost money on all three sales totaling $180,000. The actual interest earned on investments was $1.2 million rather than between $1.9 to $2.1 million. This is a major lack of communication and education of the board and district administration by our investment banker.
"Presently, we are working with Seattle Northwest on potential solutions to our dilemma and have engaged legal counsel to investigate any culpability on the part of our advisors."
This prompted a series of questions and comments from Board Member Eric Dolson (publisher of The Nugget).
He argued that Baker's summary placed too much blame for misunderstanding on the investment bankers.
Dolson noted that in the October, 2001, meeting at which then-superintendent Steve Swisher made his $1.9 to $2.1 million estimate, the superintendent was counting several sources of bond-related income, including interest from the state's local government investment pool in which the district was keeping more than $2 million in bond proceeds to cover immediate project needs. The Seattle Northwest representative would not have known exactly what was included in Swisher's figures, Dolson said.
Board Chairman Glen Lasken warned against pursuing this line of argument in public session since the board is engaged in a process that has begun with asking Seattle Northwest for possible remedies and, if that proves fruitless, may lead to litigation. Prominent Bend attorney Neil Bryant has been engaged to offer advice on the issue.
Board Member Bill Reed said he was mainly concerned about "what we're going to do about it" in terms of making good on the promise to the voters.
Lasken responded that the board is not avoiding that issue but rather is going about the process "in a certain order," starting with giving Seattle Northwest "an opportunity to make it right."
On the question of high school costs, District Facilities Manager Bob Martin presented an elaborate spread sheet of expenses for a project that included construction of a new high school and remodeling of the existing high school to convert it to a middle school.
After an extended discussion, again led by Dolson, the board generally agreed that, as Dolson said in reply to a question from audience member Lon Kellstrom, "We budgeted $21.5 million and we spent $21.7 million," about $200,000 over the budget.
But it appears that the overspending will be covered by income not anticipated when the budget was set and will not have to come out of the current general fund.
Dolson said he had "another three dozen questions" but agreed that "we're close to closure and I think we're going to end up where Bob (Martin) says we are."
He agreed to pursue his questions privately and report back to the board later, assuring his colleagues that "no money was missing, no money was stolen or misappropriated.
"We just lost control."
To help prevent similar problems in the future, Board Member Tom Coffield said he would "really like to have the board appoint one of its own members as a financial officer" to go over financial matters with administrators and keep the board more closely informed.
Coffield nominated Dolson to fill the position and the board approved.
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