Quality Education Is the pot calling the kettle black? Dan Denys accuses District 203 of financial mismanagement for using the system, but what about his record?
Dan Denys is no stranger to financial controversy. As a principal at Austin Meade and NTN, he played a role in a failed bond scheme that the IRS has characterized as a farce.
The following is excerpted from an article published by Bloomberg.com. (last updated on December 6, 2006.)
"You have people who are deliberately trying to find a way around the
law, and that's not good for anyone," said Charles Anderson, field
operations manager for tax-exempt bonds at the U.S. Internal Revenue
Service, which is investigating such bond deals. "Clearly these schemes
are designed so no money would be used and the maximum money possible
could be made by the banks. It's not an accident."
During the past decade, local governments across the U.S. have issued
more than 70 of these phantom bonds -- at least $7 billion of them. Proceeds
from the tax-exempt bond sales are supposed to be used to improve homes
for the poor or upgrade health care for the elderly or supply computers
to inner-city schools. Taxpayers never get most of those benefits; the
winners are the banks, insurance companies and financial advisers that
get paid millions of dollars for crafting these transactions and then
profit by using bond proceeds for their own investment gains. The
arrangements - often called black box deals, because they are complicated and mysterious - sometimes contain secret agreements that
promise to pay the financial middlemen higher fees if none of the money
from the bond offerings is used to help the public.
The agencies that issue the bonds buy them back from investors. The money goes untapped, and the advisers keep their fees.
Denys' role in the Illinois debacle
The 1999 variable-rate bonds, which initially sold at an annual interest rate of 3.3 percent, were supposed to make more computers available to kids. The Illinois Finance Authority, which is based in the state capital of Springfield, paid $1.4 million in fees to the underwriter, Kansas City, Missouri-based investment bank George K. Baum & Co., and an additional $1.8 million to advisers and promoters.
The schools got almost nothing. Of the $150 million from bond proceeds, a total of $833,000, or less than 1 percent, was used for technology. The Illinois authority ended the program in 2002 and bought back the bonds to avoid having the IRS declare them as taxable.
Daniel Denys, president of Austin Meade Financial, the Illinois authority's financial adviser, says his firm developed the program with honest intentions. Denys was also a principal stockholder in Skokie, Illinois-based National Technology Network Inc., which helped promote the bonds and was in charge of handing out loans, according to bond documents.
He says Chicago public schools expressed interest in borrowing all of the money and then backed out. Rising interest rates also stifled borrowing, he says.
"It was a failure to realize a noble cause,'' he says. ``We stand by the work we did.''
The IRS began investigating the program in 2002 and says in records provided by the authority that the program exploited schools, while allowing financial firms to profit.
"In this case, the farce has been shown because there were only two loan originations totaling $833,000 out of a bond issue of $150 million,'' the IRS wrote.
Is this the kind of fiscal integrity that the Taxpayers' Ticket
is going to bring to Naperville?
Added 2/1/08:
Details of the IRS investigation can be found here.