Bennet defends Denver schools’ complex pension deal after report says it’s costing millions

Report: Bennet-backed pension deal costs millions

DENVER — The Denver school system is reportedly stuck paying millions of dollars in extra interest and fees because of a pension financing deal U.S. Sen. Michael Bennet recommended while he served as schools superintendent.

The New York Times reported Friday that the deal has cost Denver at least an extra $25 million so far, although that amount could decline depending on future market conditions. The school system would like to renegotiate the deal, the Times said, but it would cost $81 million in bank termination fees, which is about 19 percent of the district’s $420 million payroll.

Bennet and Thomas Boasberg, who was CEO of Denver schools at the time and is now superintendent, defended the complex deal. They insist it saved the district from having to pay $20 million to cover a pension shortfall, and they say no one could have predicted the turmoil in credit markets that ended up making it so expensive.

Bennet is running for re-election and faces former Colorado House Speaker Andrew Romanoff in Tuesday’s Democratic primary.

In a statement Friday, Bennet said Denver’s pension fund “is in better financial shape than the rest of the state’s pension system. Put simply, we left the district’s pension in better shape than any other district in Colorado.”

A telephone message for Boasberg wasn’t immediately returned.

The financing deal was arranged to cover a $400 million gap in the school system’s pension fund. The Denver school board unanimously approved it.

The deal aimed to save the district millions of dollars in annual debt costs. But, much like an adjustable-rate mortgage, the deal’s interest rate was subject to change depending on market conditions.

The district offered pension certificates with a derivative attached, which carried a lower interest rate than a simpler transaction would have at the time. But as the mortgage crisis grew and investors’ appetite for debt disappeared, the school system was on the hook to pay more.

School board members told the Times that Bennet and Boasberg persuaded them to approve the plan. The $20 million in savings the pair touted didn’t take into account hefty termination fees that come with such complex deals, the Times said.

The Denver school system isn’t the only government entity dealing with fallout from such financing.

The Los Angeles City Council told officials to renegotiate such deals back in March. Some school systems in Pennsylvania have also unwound such arrangements and the state’s auditor general, Jack Wagner, issued a statement in February urging others to join them.