Schools Could Save on Bond Issues

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JEFFERSON CITY - KOMU 8 News reviewed State Auditor Tom Schweich's report on school bond issues Wednesday and found some Mid-Missouri districts have not used a competitive process in issuing bonds that could save taxpayers money.

Schweich analyzed more than 500 bond issues in the state over a four-year period and released his report Tuesday.

Schweich found from 2008-2011 an average of 88 percent of Missouri's local government bond issues were sold through a process known as a "negotiated sale."

In the process, local government entities select an underwriter, who serves as a middleman between them and investors. In a negotiated sale, the underwriter often acts as the financial advisor who helps structure the bond issue.

Schweich said negotiated sales often present a conflict of interest because the underwriter has an incentive to sell the bonds at a high interest rate to attract investors. The school district's interest lies with keeping interest rates low to keep borrowing costs low.

Brent Ghan of the Missouri School Boards Association told KOMU 8 News Wednesday education officials are not finance experts, and often seek the financial advice of underwriters on bond issues.

 Ghan said some districts may be content with their bonding policies.

"It has worked well for them and their local school districts and they really haven't seen the urgency to change their policy on this," Ghan said. "But this audit may be another point where it's being brought to their attention again and they may be reconsidering their policies."

Schweich called for more local government entities to use a competitive bidding process. In a competitive bond sale, underwriters submit sealed bids for the bonds and the firm with the lowest cost bid wins.

Schweich's audit found Missouri local governments could have saved taxpayers $43 million in the four-year period if they would have utilized more competitive bidding.

"Many local government officials lack an understanding of the bond issuance process and expertise to evaluate and negotiate bond pricing proposals," Schweich wrote in his report.

From 2008-2011, Columbia Public Schools used the competitive bidding process four times and used a negotiated sale once. Community Relations Director Michelle Baumstark told KOMU 8 News the negotiated sale was a better deal than a competitive bid when it was used.

Baumstark said because the district has a large and qualified finance staff, it is able to make sound decisions to get the lowest interest rates.

According to Schweich's report, the following Mid-Missouri school districts used a negotiated sale for bond issues from 2008-2011:

- Boonville R-I School District

- Brookfield R-III School District

- Camdenton R-III School District

- Eldon R-I School District

- Hallsville R-IV School District

- Harrisburg R-VIII School District

- Higbee R-VIII School District

- Marceline R-V School District

- Maries County R-I School District

- Moberly School District No. 81

- Moniteau County R-I School District

- Moniteau County R-VI School District of Tipton

- New Bloomfield R-III School District

- North Callaway County R-I School District

- Osage County R-II School District

- Pettis County R-V School District