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Sisters, Oregon
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The contents of the on-line edition of The Nugget represent a selection among the stories that appear in the weekly print edition.

District investigates interest error
By Don Robinson

Sisters school officials are scrambling to find the full answer to an embarrassing question: Why is the district winding up with nearly $800,000 less than it expected in interest on the invested proceeds from bonds used to build the new high school?

Part of the answer seems clear: About $180,000 of the shortfall stemmed from the sale of some investments before maturity to pay contractors who got ahead of schedule because of mild winter weather.

Another $610,926.87 represented the premiums paid for premium bonds the district bought to obtain higher returns. That cost should have been deducted from the $1.9 million in estimated interest earnings to show net revenue. It wasn't. Why not?

School Board Member Jeff Smith said at last week's board meeting when the problem first surfaced, "We need to determine who knew what when."

Superintendent Lynn Baker, who has been with the district only since July, said last week that he hopes to have a comprehensive explana- tion ready for the board at its scheduled January 12 meeting.

"From what I can tell so far there was...very, very poor communication where neither the board nor the administration realized that our expected interest of $1.9 million really was never a correct figure," Baker said last week.

In December 2001, the board voted to spend $1 million of the anticipated interest on the new high school and give the rest back to taxpayers by using it to pay down bond principal.

"Everybody was working with that $1.9 million figure from the get-go," Baker said. "I know the board is very concerned and wants to honor that commitment to taxpayers so we're looking in that direction also."

Both he and Board Chairman Glen Lasken indicated that Seattle Northwest Securities, which helped the district invest its money, is working on a possible refinance of the high school bonds that might lower taxpayer costs and help offset the $611,000 loss in expected interest earnings.

"So with that in mind," Lasken said, "Lynn and I have talked about the legal option and agree that it's worth our while to hold off at least for a week or two...and give Seattle Northwest an opportunity to make it right on their own without the threat of legal action hanging over their heads...I think it's in everyone's interest to give Seattle Northwest an opportunity to try to set things right on their own before getting formal legal action involved."

Board Member Eric Dolson said the $1.9 million interest estimate apparently originated at a school board meeting on October 8, 2001. Minutes of the meeting say that Dave Sloop, with the Portland office of Seattle Northwest Securities, attended and "shared a brief overview" of the district's investment of bond proceeds.

The minutes say that then-Superintendent Steve Swisher said that after everything is taken into account, "This leaves about $1.9 million available for projects or other disposition."

Later in the same meeting, according to the minutes, "Steve Keeton moved and Heather Wester seconded the board return the interest earned on the bond to the voters. The board deliberated long and hard about the issues at hand," with the motion ultimately failing, opposed by Smith, Lasken and Bill Reed.

The question of how to use $1.9 million in anticipated bond interest earnings became a matter of widespread community debate that was not resolved until a compromise returning approximately half of the anticipated interest to taxpayers was approved at the board's meeting of December 10, 2001.

Swisher retired from his Sisters post at the end of the 2002-03 school year. Contacted in Brookings, where he is now serving a one-year term as interim school superintendent, he said he was shocked when his successor, Baker, called after last week's board meeting to ask him about the issue.

He said he thought all along that the $1.9 million in interest was a firm figure that might even go higher.

"Gosh, when I walked out the door (at retirement) I thought we were going to push close to two-point-one million dollars in interest... I'm feeling badly that when our investment banker sat in front of the board and had the whole discussion with me and everything else that somehow we missed a salient fact," Swisher said.

Did anyone ever suggest that bond premium costs needed to be subtracted to produce a net earnings estimate?

"I thought that was exactly what our investment banker was doing for us, was giving us a net figure," Swisher said. So the recent news was a surprise to him? "Holy smokes, when Lynn called me I was stunned. Yeah."

Swisher added: "The investment banker sat in front of the board and went through the whole deal with all of us and gave the numbers and...I think we all had that impression (that the district could count on $1.9 million in interest). But once again, when something like that happens everybody goes back and says, 'Geez, what did I miss?' And I'm doing the same thing. Well, how did I miss that?"

Swisher did say there may be a "silver lining" if the securities firm can work out a refinance of the high school bonds, maybe including a fee waiver, that might produce even greater savings than the missing interest money would have provided.

For her part, School Business Manager Diane Shelly said last week that she now believes the problem arose not because the investment bankers made an error but because there was poor communication between them and the district.

She said district officials apparently didn't understand that a "cash flow" figure in the investment firm's presentation needed to be depreciated by the amount of bond premiums to show net earnings.

"And of course, the people at Seattle Northwest deal with that kind of data every day and I guess it didn't occur to them that we wouldn't understand that that (the $1.9 million cash flow) was not going to be our bottom-line interest figure," she said.

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