For more than a year we heard that Denver Public Schools (DPS) would have to close upwards of fifty schools in order to face down financial disaster.

Then, after drama and fanfare, only a handful were marked for closure.

Why? Weren’t the green-eye shades and dragons at the door?

One of DPS’s big money problems is its pension plan, which was sucking millions out of classrooms yearly. DPS, alone among Colorado school districts, goes it alone in pensions, instead of participating in the state PERA plan. Past mismanagement has left the plan a money-sapping mess.

So Michael Bennet, a Washington lawyer who is the DPS superintendent, is taking a big, taxpayer-backed gamble. He is going to bet that DPS pension managers can do well enough in the market to outperform a lower-interest loan. The fancy term for this is interest-rate swap. For many financial players, companies with significant interest rate risk, this is business as usual. For government, especially public pension plans, which are to be managed conservatively, it is not.

READ MORE: Denver Public Schools after Michael Bennet



As anyone who has made (and lost) lots of money playing with options can tell you, there has to be someone else on the other side of the deal. Markets are not like slot machines, where you put in your money and pull the arm, which may come as a surprise to school board members. In fact, on the other side of deal is someone with hundreds of millions of dollars, betting that you are wrong. That all told, when all the risks are considered, they would rather take your sure thing than endure the risks of the market.

They may be right. But don’t tell the cheerleaders in the media or the school board who follow their fair-haired boy.

Let’s look around. We are in the middle of one the biggest oil shocks in history– a sure precursor of recession. The dollar is the sick man of the world’s currency markets. Blue-chip stocks (where Bennet would make all that extra money) are at a historic high, due for a correction (most people call it a crash). The sub-prime mortgage mess threatens to submerge an entire sector of the economy. Is this the best time to take a gamble with other people’s money? Betting that you can outperform your investors by 2% a year, year after year?

Maybe. But not without full disclosure and debate, something this school board is petrified of. Oh yeah. The last time DPS did a complicated financial deal with its pension fund, it screwed up the cost of benefits to the tune of $80 million. That was back in 2001. In fact, the school board never discussed this error in a public meeting, according to David Milstead, the Rocky Mountain News’ esteemed financial (not education reporter or editorial page editor) reporter. That led to a $400 million tax-payer backed hole. So, like so many booze-addled Vegas hounds would say, “Let’s double down!”

Bennet must be in a gambling mood, as this would explain why he is playing fast and loose in politics, getting involved in school board races. The widely read blog ColoradoPols.com reports that Bennet has been backing a slate of candidates including incumbents Theresa Peña and Bruce Hoyt, and windsock Arturo Jimenez. Political donors have been told the same.

Superintendents conventionally stay out of politics. After all, the elected officials, who are actually accountable to the people, hire and fire administrators. But when you have political muscle and influence, you can short circuit democracy and accountability. But it’s still a gamble.

—The Cherry Creek News

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