SKINNY ON $25 MILLION IN BONDS: BRETT, FULLER HID TRUTH FROM TRUSTEES

By Juan Montoya
On Tuesday, former Brownsville Independent School District trustees Rick Zayas and Ruben Cortez re-emerge from their holes and make an appearance at the board meeting room along with about 20 sign-carrying protesters who later admit they were paid by their politiquera handlers who got the money from the duo.
The next day, a smaller group carry the same signs from across the street asking for BISD board chairperson Catalina Presas-Garcia to resign and stating their support fro BISD Superintendent Brett Springston.
Springston, who said he had had not come to work on Tuesday because he was "battling the flu," made a cameo appearance after the meeting where the only items on the agenda were his suspension pending an investigation into his performance was cancelled.
Taken separately, these scenes may make for some melodramatic plot where an embattled public servant (Springston) is matched against a vicious "gang" of "corrupt" trustees bent on removing him from office for some insidious personal vendetta.
But why would Zayas and Cortez and their paid politiquera stage this maudlin scene?
Believe it or not, it may all have to do with the audit called for by trustee Luci Longoria and voted on by Presas, Enrique Escobedo and Christy Saavedra on the issuance of $25 million in bonds that were supposed to be easy money but then backfired to cost the district $1.5 million annually for the next 18 years instead of the $841,093 initially promised the board by its financial advisors.
Now the questions are arising as to the wisdom of issuing the bonds based on the advice of the district's financial advisors and on the recommendation of Springston adn BISD's Chief financial Officer Tony Fuller.
Simply stated: Did Noe Hinojosa of Estrada Hinojosa & Co., Springston, Fuller, bond counsel Fulbright and Jaworski, and former BISD counsel Mike Saldana know that there might be problems getting the state to fund the debt service associated with the bonds before they sold them, bid and awarded the projects to architects and contractors, and continued to approve payments before they knew?
Although a community action group, Accion America, has requested any and all pertinent communications between these players and the communications between them and former trustees Zayas, Cortez, current members Rolando Aguilar and Joe Colunga, the superintendent has asked for an opinion on whether the public can have access to the information.
Yet, documents of communications related to the issuance between the financial advisors, the Texas Education Agency, and Springston reveal that indeed these players knew that potential problems existed that could cost the district dearly and make it dip into its rapidly depleting reserve fund to the tune of 11,862,373 over the next 18n years for repayment of the bonds.
Officials within the office of the financial advisor knew potential trouble loomed with the bonds when he emailed TEA representative of the State Funding Division Lawrence Crockett as early as March 30, 2010, telling him that the BISD had sold QSCB bonds in 2009 and asking him whether the same rules applied for bond sales of QSCB bond in 2010.
The QSCBs – or Qualified School Construction Bonds – are a U.S. debt instrument created by Section 1521 of the American Recovery and Reinvestment Act of 2009.
Section 54F of the Internal Revenue code covers QSCBs. QSCBs allow schools to borrow at nominal at zero percent for the rehabilitation, repair and equipping of schools.
In addition, QSCB funds can be used to purchase land on which a public school will be built. The QSCB lender receives a Federal tax credit in lieu of receiving an interest payment.
The money to pay the interest on a substantial portion (93 percent) of the regular interest due and owing on the bonds would be received by the district semiannually from the U.S. Treasury as a refundable tax credit under the American Recovery and Reinvestment Act.
Coupled with the State of Texas assistance under the Instructional Facilities Allotment (IFA), the district stood to get almost, if not all of the interest paid with the combination of those two programs, in effect, "free money."
Yet, when the financial advisors asked the TEA almost a year ago whether they could go to that well again, the state had grown wiser to the ruse and told them so.
Crockett, in his reply to Jordan of Hinojosa Estrada replied March 31, 2010, that: "According to current IFA rules, the entire debt service is considered eligible for funding; however, specifically those bonds such as Build America Bonds (BABs) that receive a federal tax benefits, the rules may change to reflect that only the net debt service is eligible for funding. Districts will be notified once the change goes into effect."
Now, Hinojosa & Estrada, knowing this, relayed the information to Springston and the former board majority and apparently decided to go ahead with the application despite Crockett's warning that the rules would change.In the application made then, they used the gross debt service instead of the net as specified by Crockett in March.
That June, the district made application to the TEA to receive the IFA s on the basis of a lease-purchase financing structure in which the district would make a local share contribution without accounting receipt for the federal subsidy.
Even back then, application amendments had to be made.
In August 13, 2010, the TEA wrote Springston that the district's IFA applications "has been approved contingent on the receipt of additional information as described in the official notice of allotment and other attachments," apparently referring to the TEA's warning that it would fund only the net and not the gross debt service.
In the last paragraph, it warned again: "We will not process payment of the 201--2011 state share until your district resolves these issues."
It then asked that the district submit an amended application that "excludes the nonqualified expenses."
Unless the BISD administration did so, the TEA warned that: "If we find that your district maintained nonqualified expenses in the application, we will request full recovery of the related state funds."
On Nov. 4, the BISD board majority changed as a result of the elections. Zayas and Cortez were gone, and in their place, Longoria and Saavedra came on board.
The dark clouds looming on the horizon notwithstanding, the financial advisors and the administration placed the issuance of the bonds on the Dec. 7, 2010 agenda. Suspicious of getting any "free money" from anyone, Longoria, Saavedra and Presas-Garcia voted against the issuance of the bonds. Aguilar, Colunga, and Pena were joined by Enrique Escobedo in approving the issuance.
From there on, things went from bad to worse, according to Springston's letter to TEA Commissioner Robert Scott Jan. 24, 2011.
Less than one week after trustees voted on the issuance, on Dec. 13, Hinojosa delivered the district's amended IFA applications to Crockett in Austin, still containing the gross debt service. On Dec. 22, the bonds were sold.
The thunderbolt struck on Jan. 6 when Hinojosa got a phone call from Crockett "during which time Crockett "informed... (Hinojosa) that the debt service schedules submitted with the IFA application were incorrect because they did not deduct the federal subsidy from the debt service on the bonds."
But in spite of this, Fuller – in recommending that trustees approve the transfer of $25 million from the general fund to the bond construction program – assured them they would recover the funds from the state program during their Jan. 11 meeting fully aware of the situation.
Lamely, Springston continues his letter to TEA president Scott that "the District, the financial advisor, and bond counsel were led to believe, and the district's board of trustees, superintendent of schools (himself, conveniently), and other senior staff members (Fuller) detrimentally relied upon, that the IFA would be paid to the district based upon the gross service requirements due on the bonds and not take into account the effect of the federal subsidy in calculating the amount of IFA the district would receive."
Springston complains in his missive to Scott that "this dramatic and materially adverse effect on the district's fund balance occurs at a time when revenues are declining and the TEA has announced budget cuts in funding Texas school districts."
Springston then begs Scott ro "honor the original correspondence," and if not that, to grant BISD "an extension of the deadline to fiel the amended (yet another one)...application until Feb. 11, 2011 to allow the district to present this amendment to the Board of trustees of the district for its consideration."
Was it ineptness, guile, disingenuity, or plain stupidity on the past of Springston and his staff to swallow Hinojosa's soft-shoe peddling despite the written correspondence from the state warning that the worse could happen?
Now BISD is reduced to begging the TEA to pardon its assumption that the state would pony up and include the federal subsidy in its loan repayment schedules. In other words, Springston is pleading ignorance that the administratin was repeatedly told starting on March 31, 2010, that only the net debt service would be funded.
This is the guy that politiqueras and their charges paid by Zayas and Cortez want you to believe instead of heeding the warnings that led Catalina Presas-Garcia, Lucy Longoria and Christy Saavedra to vote against the item.
You decide. Do you want to get rid of the chairperson who wasn't led astray by the financial gurus, or the guy who pleads ignorance after the $12 million horse has left the corral?