Audit Claims Mo. K-12 Schools Could Save Money By Changing Bond Bidding Process

Nov 12, 2013
Originally published on November 12, 2013 4:48 pm

A state audit released Tuesday finds that local governments and school districts in Missouri have cost themselves $43 million by not allowing competition for underwriting public bonds.

State Auditor Tom Schweich (R) cites the practice of negotiated bond sales, in which an underwriter is hired in advance and sometimes acts as a financial advisor to the local government that issues the bond.

"Only 12 percent of our bonds have been competitively sold in Missouri, as opposed to a negotiation," Schweich said.  "We think competition yields lower interest rates and a better deal for the state."

Schweich recommends that local governments use independent financial advisors not tied to the bonds being sold, and that lawmakers pass legislation mandating competition for bond writing.

"I think the people that underwrite the bonds prefer a negotiated sale because they get a better rate," Scweich said, "but we found that states (save) money if there's competition, and you know that's very intuitive – if there's competition you get a better price."

The audit recommends that local governments hire financial advisors who have no ties to the bonds being issued, and that lawmakers pass legislation requiring competitive bids for bond writing.

In response, some school officials question the projected savings and say negotiated sales help build trust between underwriters and local governments.

The entire audit can be viewed here.

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