Members of the New Albany-Plain Local School District's financial review and reporting committee May 14 suggested ways to explain the recent "synthetic refunding" bond refinancing issue to residents.

Members of the New Albany-Plain Local School District's financial review and reporting committee May 14 suggested ways to explain the recent "synthetic refunding" bond refinancing issue to residents.

District Superintendent April Domine said committee members suggested holding a community forum, which the district plans to schedule, and posting a list of "frequently asked questions" on the district website.

"I took the opportunity to educate myself about municipal bond transactions during the period in question," committee member Phil Derrow said. "Combined with the district's openness regarding its particular transactions, I concluded that the district had acted in good faith with the best interests of the taxpayer in mind. I found no evidence of impropriety from either the district or its advisers. Municipalities across the country engaged in these complex interest-rate swaps as they were sold and perceived as being a reasonable hedge against potential interest-rate increases anticipated at the time."

Committee member Molly Cooper agreed.

"These transactions are fairly complex, and we are still delving into it, but that I feel our questions so far have been answered by the board and the treasurer," she said. "Also, given the reported instability of Dexia, the buyout at this time seems to have been the most prudent course of action."

Emmett Kelly, the district's bond counsel, said in 2007 the district sold the right to refinance bonds initially issued in 2001 and 2002 to Dexia Credit Local. The process is known as "synthetic refunding," according to The Columbus Dispatch.

Dexia, a financially troubled Belgian bank, according to The Dispatch, paid the district $1.1 million and the district retained the rights to dissolve the deal at any time. The interest rate was fixed between 5 percent and 6 percent, and Dexia was to make payments to the district based on market interest rates, which fluctuate, until Dexia could exercise the right to resell the bonds when eligible in 2011 and 2012.

"There was no gambling at all," Kelly said. "The way this was structured, the (district) had all the rights."

Kelly said in 2011 Dexia exercised its right to have the district recall the 2000 bonds and reissue $8.1 million in long-term notes. The district had to pay Dexia based on the bond's original interest rates.

Because of concern about Dexia's stability based on its affiliation with European markets, the board in January decided to dissolve the 2007 deal. The termination required fees of $6.125 million, which were included in the $38 million issued as part of the 2012 refinancing.

The term of the bond remains unchanged. It expires in 2029.

Kelly said the district did not pay any more than it would have on the original bonds and saved $1.3 million overall on the 2007 and the 2012 transactions. The calculated savings includes the $1.1 million Dexia paid the district in 2007 and the approximately $140,000 the district said it saved in interest rates through the 2012 refinancing.

Derrow said it may be too hard to tell how much money was lost or saved.

"As for the claims that the district either came out ahead or lost money on these transactions, too many assumptions are required to make either claim," Derrow said. "While any loss of taxpayer money is important, the best that can be said in this case is that any loss or gain is insignificant relative to the value of the transactions involved."

Derrow said evaluating past decisions always is easier than making the original decisions.

"Hindsight is always 20-20 and again there is no evidence that the district had anything but the taxpayers' best interests in mind when they entered into these arrangements," he said. "If interest rates had risen as anticipated by most economists at the time, the transactions would now be seen as genius, as would the public servants who entered into them."

Committee members asked about the district's future refinancing policy. Domine said the board already has decided future bond refinancing should be completed using more-traditional methods. The district does not have to change its financial policy to do that.

"Public conversations have reinforced the board's goal that the approach should be more traditional," Domine said. "We intend to use more traditional structures moving forward."

Committee member Brian Steel said the group seemed to support "more-clearly defined parameters on what is deemed acceptable or not acceptable as a public school entity in future refinancing efforts."

"My recommendation to the district in the future is best summed up with a twist on an old phrase that I'll credit to my brother: 'Don't just do something; stand there,' " Derrow said. "In other words, government entities should be as boring as possible when it comes to bond transactions. Sell bonds as necessary to fund important public projects using the least-complicated, lowest rate structure possible and pay them off on time."

The 2007 bond swap was approved Sept. 12 with four of the six school board members present. Doug Flowers was absent from the meeting and William Records had moved out of the district and had not been replaced. The four members who voted unanimously in favor of the swap are George Stribick, Diane Goedeking, David Martin and Peter Horvath.

Stribick, when contacted recently by ThisWeek, said he did not remember the details of the swap.

Martin said he recalled it being a complicated and technical issue, which is why the district consulted multiple experts for advice.

"It seemed at the time, there was a sense that interest rates were moving and there was a limited opportunity to change the interest rates of these bonds," Martin said.

Goedeking said the board "reviewed it (the swap) carefully with our bond counsel, John Payne. We considered the pros and cons and at the time felt it would be a good move."

Goedeking said the board would have "had no clue as to how the market would change."

Horvath did not return messages seeking comment for this story.