D-11 eyeing variable-interest certificates

A proposal that could cut the losses Colorado Springs School District 11 has suffered because of volatile financial markets will go before the Board of Education at Wednesday's regular meeting.

The plan involves about $38 million worth of variable-interest certificates of participation, financial instruments that are similar to bonds.In a complex arrangement, the district generally was able to keep its interest rate below 3 percent, making it a reasonable financing tool.

But in September, the interest rate shot as high as 8.35 percent, costing the district an extra $150,000last month, said Glenn Gustafson, D-11 finance director. The rate resets weekly and has been volatile since mid-August.

The Internal Revenue Service recently gave government entities permission to purchase their own COPs to avoid such turbulence, Gustafson said.

While D-11 does not have the cash to purchase all its COPs, it has a reserve fund that could be used tobuy back more than $13 million worth, he said.

It would not be difficult for the district to buy the COPs because investors have turned away from the bond market. About $10 million of the district's COPs already are being held by the trustee, US Bank, Gustafson said.

If the board approves the move, it would stem the district's losses, and COPs could be returned to the trustee for resale when the market improves, he said.

"We're asking the board to buy them as investments," he said. "We won't make any money. We'd break even."

The COPs date to 1998-99, when the district sold $45 million in COPs to supplement the 1996 bond issue. The money was used for such projects as the construction of Jenkins Middle School and the Tesla Educational Opportunity Center.

The COPs were refinanced in 2004, when they were worth about $40 million. The savings that came with the refinance allowed the district to build a COP reserve fund, which it expected to use when they came up to pay off or refinance in 2009-10, Gustafson said.

Other items on this week's board agenda include:

• Request for a transfer of $110,000 to cover higher than anticipated legal fees stemming, in part, from a lawsuit against Hope Online Charter School. Additionally, the human resources department spent its budget in the first three months of the year, according to a chart attached to the agenda.

• A vote on a revised policy on student interviews, interrogations, searches and arrests. The changes are required to comply with state law and deal primarily with when a parent or guardian is notified if their child is to be questioned by police on campus. Under the existing policy, the district requires principals to notify parents, even in suspected child abuse cases when the parent or other family member was the suspect.

Under the proposed new policy, an attempt will be made to contact parents unless it would interfere with the investigation.

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Contact the Writer: 636-0251 or sue.mcmillin@gazette.com