Debt restructuring proposal could save Luzerne County taxpayers millions
The Independent Gazette has recently learned of a late December offer made by Kingston financial advisor David Capin to provide debt restructuring guidance to Luzerne County Council pro bono. It appears the offer was not received by the council for review in a timely manner.
Councilwoman Kathy Dobash had this to say about the matter:
Luzerne County Manager Robert Lawton did not deliver mail addressed to County Council.
This list of questions reveal a deceitful action.
I am puzzled as to why Luzerne County Manager failed in his duty to keep County Council informed. PFM must respond to these questions.
Why did the Luzerne County Manager decide to keep mail addressed to County Council?
Did the Manager along with other County Council members decide PFM was the way to go?
Why is the Luzerne County Manager so comfortable in his decision to screen County Council mail?
What gives Robert Lawton the right to filter our correspondence?
Why do County Council members want to bail out a Manager who overspends and consistently gives excuses for untimely late audits?
The reason for high interest rates offered to Luzerne Country is late audits and overspending.
If this deceitful action does not convince the majority to terminate the County Manager then the citizens must ask: “Why do you tolerate incompetence from the Manager?”
I will state again I have no confidence or trust in Luzerne County Manager Robert Lawton.
County Council must follow their duty of public oversight and stop protecting the County Manager.
Luzerne County Council Member
Capin’s December 22 letter may be viewed by clicking on the thumbnails below.
A November 25 debt structure presentation by Harrisburg-based Public Financial Management may be viewed here:
The Gazette posed the following community-supplied questions to Luzerne County Council, Solicitor David Pedri, and Manager Robert Lawton on January 20:
1) Are you aware of Luzerne County bond issue 2006 A?
2) Do you know the total amount of fees paid by Luzerne County taxpayers to issue the 2006 A bonds?
3) Do you know what is referred to as a SNPA fee?
4) How and when was it brought to your attention that the County had an opportunity to refinance / restructure the 2006 A bonds?
5) Do you know the specific a steps required to issue a municipal bond?
6) How is the Financial Advisor, the underwriter, bond council compensated?
6) What is the roll of the Municipal Financial Advisor?
7) Do you know how much Luzerne County taxpayers have paid PFM since they became the Municipal Financial Advisor?
8) How much do you think it cost to prepare for and issue the 2006 A bonds?
9) Do you know when the County had the first opportunity to take action to refinance the 2006 A bonds?
10) What services are you looking for from an Independent Municipal Financial Advisor?
11) What was your understanding of why the SNPA fee was increased in May 2013?
12) Do you know how much the SNPA increased by percentage and dollar amount as of April 1, 2013?
12) Did you give PFM the authorization to unilaterally negotiate the extension of the terms of 2006 A?
13) Where you aware the 2006 A bonds could have been refinanced / restructured after May 15, 2013?
14) What are the various ways in which municipal bond issues could be structured?
15) If you had the opportunity to arrange a transaction where you could save the taxpayers millions of dollars would you consider the options?
16) Do you believe Mr. Lawton has the responsibility as County Manager to consider various options and fee structures before making a recommendation to Council?
17) Do you believe it is your responsibility to know all the fees associated with refinancing / restructuring / issuing municipal bonds for the County?
18) If Luzerne County did not currently have a municipal financial advisor, how would you go about the selection process?
19) Are you aware that bonds can be refinanced, restructured and issued without hiring a municipal financial advisor?
20) Do you believe it is appropriate to require RFPs before awarding contracts even contracts for professional services?
21) How do you know PFM will recommend the most cost effective refinancing / restructuring of the 2006 A bonds?
22) How many different ways can a municipality refinance, restructure or issue Municipal Bonds?
23) What is a private placement?
24) If you were advised that there were more efficient less costly ways to refinance the 2006 A bonds but we’re not advised by PFM to consider these options what would you do ?
25) If you knew there were ways to save the taxpayers millions of dollars but the municipal financial advisor did not provide you the options to consider, would you terminate the relationship with the advisor ?
25) If the County Manager did not perform necessary due diligence and after you voted to refinance the 2006 A bonds and learned the best terms were not negotiated resulting in millions of dollars of unnecessary costs,would you terminate the County Manager?
26) Do you believe it is your responsibility to make sure you understand the terms of a bond refinancing?
27) Understanding you are not expected to be an expert in municipal finance, how much detail do you believe you should be presented and understand before you vote on refinancing the 2006 A bonds?
28) Are you aware, the taxpayers will realize an approximate $14 million loss due to the ill advised fixed rate swap?
29) Are you aware the $ 14 million loss is referred to as an “exit fee” and will have to be added to the total amount when the 2006 A are refinanced.
30) Are you aware that in addition to the $14 million loss, taxpayers will have to pay interest on the additional $14 million dollars ?
31) Are you aware, J P Morgan has paid billions of dollars in penalties, fines and settlements related to the structuring and issuing swaps?
32) Are you aware there are class action suits that have been filed in Federal Court by municipalities who have been harmed by engaging in Swaps?
33) Are you aware Mr. Lawton was made aware of the class action suits and was given the name of the attorney and contact information for the lead attorney representing other municipalities that have been harmed by swaps?
34) Are you aware Mr Lawton has not pursued the possibility of joining the class action with the goal of recovering the $14 million in losses from the swap issued by J P Morgan?
35) Do you believe the municipal financial advisor should discourage the County Manager or his delegate from entering into negotiations with JP Morgan with the goal of recovering all or part of the $14 million lost on behalf of the taxpayers?
35) Can you think of any reason Mr. Lawton would not try to recover the $14 million of losses?
36) Are aware Mr. Pedri was handed a letter addressed to Mr. Lawton and Council on December 22, 2014 during a meeting he had with a Luzerne County resident?
36) Are you aware Mr. Pedri delivered the letter to Mr. Lawton but Council was never given a copy of the letter until January 8, 2015?
37) Are you aware Mr. Pedri followed up with Mr. Lawton three times about the content of the letter?
Are you aware Mr. Lawton responded by stating he would get back to Pedri ? Are you aware Lawton never got back to Pedri and never made sure the letter was distributed to council as requested?
1) When did you become Luzerne County’s Municipal Financial Advisor ?2) When you were hired, did PFM sign a contract with the County?
3) What were / are the terms of compensation PFM receives from Luzerne County?
4) How much has Luzerne County paid PFM for it’s services since becoming the County’s Financial Advisor
5) Describe all the different ways a Financial advisor can be paid.
Please be prepared to discuss and address the questions below at the next Council meeting:
1) What specific bond issue are you here to discuss?
2) Were you the County’s Financial Advisor at the time the Series 2006 A was negotiated , priced and issues?
3) Who was the County’s Financial Advisor in 2006 when the Series 2006 A bond was issued?
4) While you were not the County’s Financial Advisor at the time the 2006 A bond was issued, please describe your ongoing role as an advisor related to outstanding bonds issued by the County?
5) Has PFM been paid a retainer or any type of compensation to give ongoing advice on outstanding previously issued bonds?
6) Please describe the terms of the Series 2006 A Bond
7) What is a Fixed Interest Rate Swap?
9) Was a Fixed Interest Rate Swap part of the Series 2006 A Luzerne County bond issue
8) What would be the reason (s) for Luzerne County to enter into a Fixed Rate Interest Rate Swap?
9) What were the total costs paid by the taxpayers of Luzerne County associated with the Series 2006 A bond in 2006?
10) Would it be fair to say that anyone involved in this issue would have received additional compensation related directly to the Swap. In other words, was there any additional financial benefit by a bank, municipal council, the underwriter etc to recommend the County enter into the Swap?
11) While you were not the Financial Advisor at the time, do you know the total amount of additional taxpayers money was spent to initiate then 2006 A Swap?
12) In your opinion, was the 2006 A Swap a suitable recommendation for Luzerne County at that time ? ( You were quoted in a Times Leader article late last year that the Swap was in fact “not a suitable” Is that correct?)
13) As the County;s Financial Advisor, please describe if the County in your opinion, has any recourse against anyone who was responsible for making an unsuitable investment recommendation?
14) Do you recall at a recent Council meeting that you were asked if there was any legal recourse?
15) What was your response?
16) Do you know about the history of financial damage JP Morgan initiated Swaps have done to municipalities, School Districts, States, Colleges, Universities, Hospitals etc have suffered due to the Swap recommendations?
17) Are you aware J P Morgan has paid over $40 billion in fines, penalties and settlements over the past few years?
18) Why then would you respond that the County had no chance of successfully recovering money from a bank who made an unsuitable investment?
19) What was does SNPA stand for?
20) Was an SNPA include in the 2006 A issue?
21) Do all bond issues have an SNPA?
22) Why was in necessary for the County to have an SNPA included in the terms of the 2006 A issue.
23) What was the initial rates charged ( by percentage) for the SNPA fee?
24) How does that translate into dollars?
25) Was the SNPA rate fixed?
26) For how many years?
27) Did the County at any time during that time frame have the opportunity to tender. call, refinance the bonds and unwind the swap?
28) When was the first time the County could have exited the swap?
29) Why didn’t you recommend that the County exit the swap earlier?
30) When did the SNPA rate change?
31) Please translate that into increased spending taxpayers dollars as a result of the rate change?
32) Is it accurate that the SNPA rate changed on May 15, 2013?
33) Again, what was the SNPA rate prior to May 15, 2013?
34) What was the rate after May 15, 2013?
35) In your opinion, is the County in better financial shape now compared to December 2006?
36) In your opinion is the County in better financial shape now than it was on May 15, 2013?
37) In your opinion, is the County in better financial shape now than on June 30, 2014?
38) In your opinion, is the County in better financial shape now than it was on December 31, 2014?
39) Why did you wait until late October 2014 to discuss refinancing the Series 2006 A bond?
40) How much money did it cost the taxpayers of Luzerne County in additional interest expense from May 15, 2015 through December 31, 2014?
41) Why did you wait until late October 2014 to discuss refinancing theSeries 2006 A bonds
42) How much money did it cost the taxpayers of Luzerne County inadditional interest expense from May 15, 2013 through December 31,2014?
43) Is this a huge amount of taxpayer’s money?
44) If in your opinion, the County is in better financial shape than itwas on May 15, 2013, is it fair to say looking back that thetaxpayers would have saved millions if the refinancing of thecounty’s Series 2006 A bond was refinanced then?
45) As the County’s Financial Advisor, wasn’t it PFM’s responsibilityto provide Luzerne County management with ongoing municipal financeadvice?
46) Why did you recommend that since May,2016renegotiation of the SNPA have been ongoing but failed to recommendany action to that would have resulted in saving taxpayers money?
47) On page 4, of the October 2013, Luzerne County Debt Overview preparedby PFM, is it accurate that the SNPA rate increased from .25% to2.8%? In dollar terms, is it accurate that the amount of additionalcosts related to the SNPA fee increased from approximately $222,000to approximately $ 1,700,000?
48) If the financial condition of the County is better, how could therate have been increased so high so fast?
49) On page 6, of the October 2014. Luzerne County Debt Overview, whatwas the SNPA fee in term of percentages?
50)If in your opinion, the County is in better financial shape than it was on May 15, 2013?
51) Is it fair to say looking back that the taxpayers would have saved millions if the refinancing of the county’s Series 2006 A bond was refinanced then?
52) As the County’s Financial Adviser, wasn’t it PFM’s responsibility to provide Luzerne County management with ongoing municipal finance advice?
53) Why did you recommend that Since May, 2016 renegotiation of the SNPA have been ongoing but failed to recommend any action to that would have resulted in saving taxpayers money?
54) On page 4, of the October 2013, Luzerne County Debt Overview prepared by PFM, is it accurate that the SNPA rate increased from .25% to 2.8% ? In dollar terms is it accurate that the amount of additional costs related to the SNPAfee increased from approximately $222,000 to approximately $ 1,700,000.
55) If the financial condition of the County is better, how could the rate have been increased so high so fast?
56) On page 6, of the October 2014. Luzerne County Debt Overview what was the SNPA fee in term of percentages?
57) In terms of dollars, how much additional taxpayers money has been spent due to the increased rate on the SNPA fee?
59) Is it fair to say, PFM offered no tangible advice as required by your ongoing responsibility as the County’s Independent Financial Advisor?
60) Did you advise advise Mr. Lawton or anyone in official capacity in Luzerne County government, to consider refinancing the Series 2006 A bond?
61) When is the first time you discussed or communicated in writing, via email or any other form of communication about the importance of refinancing the 2006 A bond?
62) What was Mr Lawton’s response?
63) Did you follow up with Mr. Lawton subsequent to your first communication regarding the series 2006 A bond?
64) What was his response?
65) What is the approximate market value of the series 2006 A bond if the County decided to liquidate it today ? Approximately?
66) So, is it fair to say, the taxpayers of Luzerne County will lose over $14,000,000 if the Series 2006 A bond is refinanced/restructured?
67) What is the correlation between interest rates and bond prices?
68) Do you recall approximately where the 10 year treasury rate was late 2006?
69) Do you recall where the 10 year Treasury rate was in May 2013?
70) Do you recall where the 10 year Treasury rate was in December 2014?
71) Where is the 10 year Treasury rate as of now? Approximated?
72) What milestone took place last week with the 30 year Treasury rate?
73) Referring back to the relationship between interest rates and bond prices. When rates decline , what should happen to the cvalue of bonds?
74) How then is it possible that Luzerne County SNPA fee has increased from .25 % to 3.20% (average rate) at the same time interest rates have declined precipitously and are hovering around all time lows?
75) How is it possible that the taxpayers of Luzerne County will realize a loss in excess of $14,000,000?
76) Given the lack of advice, the time frame in which you neglected to recommend action (May 2013) do you believe Luzerne County taxpayers have been the beneficiary of PFM’s Independent advice as the County’s Financial Advisor?
77) Do you believe fair competition is healthy?
78) Doesn’t fair competition usually drive down costs while negotiating transactions in the municipal bond market?
79) As the County’s Independent Financial Advisor, did you recommend that Mr. Lawton request an RFP for to insure the taxpayers of Luzerne County are the beneficiary of the most cost effective Independent Municipal Financial Advisor to refinance the Series 2006 A bond?
80) How do we know, you are truly Independent?