Schools chase interest money explanation

At its first meeting of the year on Monday, January 12, the Sisters School Board failed to get a more complete explanation of lower-than-expected interest earnings on the district's high school construction bonds.

Snow was partly to blame.

The Sisters area's better than two-foot snowfall over the Christmas/New Year holidays kept District Facilities Manager Bob Martin so busy with buildings and grounds problems that he was unable to complete a final "spread sheet" of expenditures for the new high school, which opened for classes last September.

That "missing piece" was cited by Superintendent Lynn Baker as a main reason for his own inability to provide a hoped-for report on the issue at the January meeting.

He wanted to put together a full account of how and why the earnings were overestimated and what, if anything, might be done to make up for the loss now. Both Martin and Baker said they would try to prepare reports in time for the next regular board meeting, February 9.

Those reports will also cast light on how some $300,000 in additional spending may have been made on the new Sisters High School. The board acknowledged that the district appears to have overspent its self-imposed budget cap of $21.5 million.

Former Board Member Steve Keeton, a Sisters contractor, addressed the board, saying his information indicated that the district spent about $1 million more on the building project than the $21.5 the board authorized ($20.5 million in bonds plus $1 million in interest earnings).

District Business Manager Diane Shelly offered a qualification of his conclusion, explaining that about half of Keeton's $1 million was "pass through" money, extra spending covered by extra funds, not part of the original budget, that the district had received for specific purposes.

An additional $200,000 has been set aside for the purchase of water rights.

An extended but inconclusive discussion ensued among all five board members, Keeton, administrators, and former Board Chairwoman Heather Wester, who was also in the audience.

The related questions leave unresolved the fate of $900,000 in interest money the board pledged to return to taxpayers through paying down debt.

Board members first learned of the interest problem at their last meeting of 2003 on Monday, December 8. Information presented then indicated that net interest earnings on $20.5 million in high school bonds were about $800,000 short of the anticipated $1.9 million.

That was a shock because after the bond issue was approved by voters in 2001, the board decided to spend $1 million of the interest on the high school building and send the rest back to the voters through a reduction of bond principal.

The interest was expected to come from short-term investments of bond proceeds before the money would be needed to pay contractors. As it turned out, the proceeds were invested in "premium bonds," which bring higher returns than standard bonds but also carry higher than face-value prices.

In the days after the December meeting, it was determined that the interest earnings projection district officials had accepted did not take into account $611,000 in the cost of premiums on the purchased bonds. An additional $180,000 shortfall occurred because some of the investments had to be sold before maturity to pay contractors who got ahead of schedule, thanks to mild winter weather.

If this is correct, two obvious questions arise: Were then-Superintendent Steve Swisher, other administrators, and/or the board remiss in failing to understand that the $1.9 million was not a net figure? And was Seattle Northwest Securities, which helped the district invest its bond proceeds, negligent in failing to correct its client's widely publicized earnings expectation?

Swisher, who retired at the end of the last school year, is serving this year as an interim superintendent in Brookings. He told The Nugget last month that he was "stunned" by the news. He said that he thought the $1.9 million estimate was a net figure. And he noted that a representative of Seattle Northwest "...sat in front of the board (in October, 2001) and went through the whole deal with all of us and gave the numbers..."

After last month's meeting, Board Chairman Glen Lasken, a Sisters attorney, expressed hope that Seattle Northwest might help the district refinance its construction bonds to achieve savings that would make up for at least part of the unrealized interest.

But during the most recent board meeting, Lasken said it appeared that there would be no "pot of gold" from that source, adding that "with that disappointing news, we do intend to see what our legal options will be."