Missouri school districts and local governments are paying $43 million too much in interest because they won’t put bond underwriting deals out to bid, according to state auditor Tom Schweich. Local officials’ ignorance of the bond business and their comfortable relationships with underwriting firms are letting underwriters cash in, despite a conflict of interest, he said.
A spokesman for the Missouri School Boards Association noted that local officials were complying with state law on bond issues. Two basic steps are taken when cities and school district issue bonds. First they decide on the deal’s details. Then they sell the bonds into the market, through a process called underwriting. Local governments can hire one firm to do both steps, without bidding, or they can hire an advisory firm to coach local officials and prepare the deal, then put the underwriting out to bid.
Between 2008 and 2011, 88 percent of general obligation bond issuers were non-bid. State auditors have been complaining about the practice for years. Sen. Claire McCaskill issued a similar critique when she was auditor in 2006.