Good News - Real progress in improving
our County schools School
Superintendent, Dr. Rob Britt, gave the
Commission a presentation on the improving
educational achievements of the students in
our County Schools. His teams of
administrators and teachers are producing
impressive results. I will devote a special
report to this good news later this month. (Click here to
see the special report on our County
County adopts a debt policy – but door still
open for bad bond deals
The Blount County
Commission adopted a debt policy. This policy
was supposed to stop the bond abuses that have
cost the County taxpayers millions of dollars.
The new policy fails to achieve this goal.
new policy pretends to forbid the use of
variable rate bonds and interest rate swaps.
But, it includes huge loopholes, which permit
more of these highly questionable transactions.
For example, on page 4, under ‘County Goals’, it
says: ”the target is to have no more than 20%
variable rate debt”. It also says another goal
is to: “reduce interest rate derivatives to
the debt policy contradicts these goals on page
8, in the paragraph titled Variable Rate Debt.
In that paragraph, it says that the goal is to
get variable rate debt to 20%, “excluding
debt which has been converted to synthetic
fixed rate debt”. Most of our debt
purports to be “synthetically fixed rate” today.
Synthetically fixed rate debt requires the use
of derivatives. Using this measure of variable
rate debt, this loophole means that the County
is not committed to reducing its variable rate
debt, and interest rate swaps, at all.
g of the same paragraph on page 8 makes the
situation even worse. It says: “Variable rate
bonds may be used in conjunction with a
financial strategy, which results in
synthetically fixed rate debt”. This allows the
County to issue more of the crazy variable rate
debt and swap transactions that have cost our
effect of these two loopholes is to destroy the
key stated goals of the policy.
is important to understand the term
“synthetically fixed rate” is a Wall Street
term, designed to baffle ordinary mortals with
nonsense. Synthetically fixed rates are not
fixed at all. Unlike real fixed rate
bonds, synthetically fixed rates can vary all
over the map. For example, the “synthetically
fixed” rate on the County’s A-1-A bonds shot up
from 4.37% to 6.59% from 2007 to 2008. The
synthetically fixed rate on the County D-1-B
bonds increased from 4.29% to 6.29%. This
raised the interest cost to the taxpayers by
more than $720,000 per year on these two
issues alone. Synthetically fixed rates
are NOT fixed. The term “synthetically fixed”
rate is a lie, designed by Wall Street bond
salesmen to entrap the gullible and unsuspecting
in bad deals.
Blount County is facing
more than $24 million in swap termination
charges from the synthetically fixed rate deals
we already have. This is nearly double what
these termination charges were last year. I
think the citizens would like to see us get rid
of these variable rate bonds and derivatives at
the earliest possible time.
Unfortunately, the Commission approved
the debt policy with loopholes that permit more
of these bad transactions. I cast the only vote
against this nonsense. Commissioners Murrell and
Harrison were absent.
This policy will continue to make bond salesmen
and investment banks rich with fees, while
creating big problems for the County and its
hard pressed taxpayers.
questionable bond-related transaction approved
The Commission was asked to
approve the purchase of a new letter of credit
from JP Morgan to support one of the County’s
variable rate bonds. The County must purchase
letters of credit to support its variable rate
bonds because its credit rating is not good enough
to offer these bonds directly. The continuing need
to obtain these letters of credit is just one of
the many risks associated with the $100 million
worth of variable rate debt the County still has.
The problem with the
proposed deal, was that no Commissioner could be
sure the County was getting the best deal. This
transaction was not done via competitive
bidding. Finance Director Jennings told us in
the Agenda meeting that he did not negotiate
this deal. He said that bond salesman, Mr. Joe
Ayres, handled the negotiations.
I cannot figure out whose interests Joe Ayres
really represents. Ayres and his wife control a
private company called TN-LOANS. TN-LOANS cut a
deal with the Blount County PBA (the agency that
issues all variable rate bonds for the County),
which was never approved by the Commission.
This deal currently requires the County to pay
TN-LOANS $200,000 per year for a set of
questionable services. I say “currently”,
because this agreement also has an amazing
provision that lets TN-Loans set their own
fee, in their “sole discretion”.
The Commission was asked to believe that Ayres
is negotiating for us in his TN-LOANS
Ayres is also a Managing Director of Morgan
Keegan, an investment bank. Mr. Jennings told us
Morgan Keegan is also involved in this
transaction. Morgan Keegan is a broker. As a
broker, Morgan Keegan may be being paid by JP
Morgan to get the highest price from the County
for the letter of credit. This would clearly be
a conflict of interest. This is why, in the last
Commission meeting, I asked the Mayor to get a
letter from Ayres detailing ALL fees, stated or
hidden, being paid as part of this deal. The
Mayor did not provide this letter.
do we know that we are getting the best deal? It
is as if the County went to buy a used car, and
the salesman tells us he is getting us the
lowest possible price. All the while, he is
being paid a commission for getting the highest
possible price. And, we are being asked to
refused to vote for a deal with all these
unresolved conflicts of interest, and with the
questions about JP Morgan’s credit rating. The
remaining Commissioners who were present voted
for the deal.
officials with no information on
was asked to approved nominations to the
Sheriff’s Merit Review Board.
rule information is supposed to be made
available five days before the meeting, to
permit Commission members to consider and check
the qualifications of candidates for all
positions. The resumes on these individuals were
not placed in the made available until shortly
before the meeting.
on one individual consisted of one sentence. I
don’t know of any business that would hire
someone based on a one-sentence resume. I voted
against this nomination, but the Commission went
ahead and approved the candidate anyway.
can change YOUR government PLEASE come to
the Commission meeting Thursday, March
15th at 7:00pm in Room 430 of the