Where is Joe Ayres?
Tennessee State Comptroller Justin Wilson is looking at the use of variable rate debt/derivatives/swaps by cities and counties, and the new Comptroller apparently doesn't like what he sees.
Wilson points out conflicts of interest and notes that the complexities of these debt instruments may make them unsuitable for small cities and counties. Wilson's guest column in the Memphis Commercial Appeal is here. Other people such as investor/financier Warren Buffett have pointed out the dangers of derivatives as well.
In addition to the inherent financial dangers associated with derivatives, even a blind man could see the multiple conflicts of interest surrounding Joe Ayres/Cumberland Securities/Morgan Keegan/Regions Bank/TNLoans who provide and market variable rate swaps/derivatives to Hamblen County and other Tennessee cities and counties.
The fox (Joe Ayres/Cumberland Securities) is watching the henhouse (taxpayer debt) and being paid in multiple ways and through multiple entities to do the watching. Click here for a previous post on Hamblen County debt and Joe Ayres. Joe Ayres and his cohorts and companies are collecting, directly or indirectly, fees and commissions and profits through several entities with various connections to the debt issuance process.
The local press doesn't talk about the county's debt. The Trib just selectively reports the information that the county puts out. As a result, Hamblen County residents have to turn to The New York Times or the Memphis Commercial Appeal to read about the questionable actions of Joe Ayres/Cumberland Securities/Morgan Keegan/Regions Bank/TnLoans in Tennessee. Articles have also appeared in the Knox News-Sentinel, the Nashville Tennessean, and other newspapers.
On May 12, the county had CTAS (County Technical Assistance Services) give a presentation on the county's debt. Mayor Purkey, the county's chief financial officer, didn't bring in Joe Ayres (the fox) to review the debt (henhouse) this year even though Joe has always done so in previous years. Where's Joe?
Of course, another problem with recent Hamblen County debt is that it never gets paid off! Over the course of about ten years (1998-2008) NOT ONE PENNY OF THE LAST SCHOOL BUILDING PROGRAM (1998) WAS PAID OFF. Click here for a previous post and a link to Hamblen County's 2008 Audit and pages on debt.
About a year ago, a lot of the county debt was refinanced resulting in Hamblen County owing more after the refinancing that it owed before the refinancing. Deeper and deeper into debt we go.
And yet you have some county commissioners and all the school board members talking about embarking on another, even larger, school building program and even talking about making "interest-only" payments again.
To talk about a huge increase in county debt (up to $80M more) when unemployment is high in Hamblen County and in the City of Morristown, when businesses are leaving and cutting back, when our furniture and automotive-connected businesses are laying off, and when individuals in Hamblen County and across the state are struggling is fiscally irresponsible.
And let's not forget that the debt figures that they are tossing around are the amount of principal only. Most county officials and school board members conveniently ignore the interest costs during building program discussions.
If the county takes on another $80 million of debt for school construction while it still owes about $40 million from the 1998 school construction program ($35 million) and county projects (about $5 million), then the principal owed will be around $120 million. The total cost to the taxpayers (principal and interest) on that $120 million could be $200 million or more--especially if they go the interest-only route for many years. That's $200 million! $200,000,000.00! And that does NOT include the hospital debt for which the county is ultimately liable should hospital debt revenues fall short of hospital debt expenses.
But this is the government. Different rules. Other People's Money (OPM). It's much easier to go into debt with other people's money (OPM) than it is to do so with your own money.
I'd like to know which commissioner has taken out a huge mortgage (1998) and then has thrown away money by making interest only payments for 10 years so that when the debt is refinanced 10 years down the road (2008), he/she owes more than was owed at the start of the loan?
Only a commissioner or elected official who has done this or who would do this WITH HIS/HER OWN MONEY should promote this kind of debt scheme with taxpayers' money.
On May 14 during discussions of Hamblen County's debt fund, a commissioner asked "Where is Joe Ayres?" [Mr. Ayres always used to come to commission during the budget process to explain the county's debt position] There was no clear response to that question from County Mayor David Purkey, Trustee Bill Brittain, or Finance Director Nicole Buchanan.
The question remains unanswered.
Where is Joe Ayres?
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