NYT Provides More Fodder For Romanoff Attack Ads

In the midst of a heated Democratic Senate primary battle between appointed Sen. Michael Bennet and former Colorado House Speaker Andrew Romanoff, the New York Times drops a potential land mine today. As part of a series of articles ironically titled “Payback Time,” the Times details how Bennet, then superintendent of the Colorado school system, persuaded members of the Denver Board of Education to accept a risky form of refinancing for its $400 million pension shortfall:

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.

The Denver schools essentially made the same choice some homeowners make: opting for a variable-rate mortgage that offered lower monthly payments, with the risk that they could rise, instead of a conventional, fixed-rate mortgage that offered larger, but unchanging, monthly payments.

Since it struck the deal, the school system has paid $115 million in interest and other fees, at least $25 million more than it originally anticipated.

To avoid mounting expenses, the Denver schools are looking to renegotiate the deal. But to unwind it all, the schools would have to pay the banks $81 million in termination fees, or about 19 percent of its $420 million payroll.

Bennet, along with Thomas Boasberg, then the school system’s chief operating officer, stand by the deal, saying it saved the district $20 million in cuts that would have gone to cover the pension shortfall. As for the credit crunch that elevated the deal’s projected long term costs, no one could have predicted that, they claim.

Because the deal was structured over a period of thirty years, the jury is still out on whether it will ultimately benefit the school system or not. Termination fees associated with refinancing the debt could end up swallowing greater and greater sums of money, or interest rates could fall and annual costs associated with the deal could go down.

What’s clear is that with less than four days until the August 10 primary, the Times’s piece will act as fodder for Romanoff’s harsh, and sometimes misleading, attack ads against Bennet that accuse him of “Wall Street greed.” In the country’s current economic climate, it’s a line of attack that’s gained Romanoff traction among many liberals and party Democrats and allowed him to catch up in the polls. Whether today’s story will push him past the post on Tuesday remains to be seen.