Yonkers City Council took out loans to pay for kids’ textbooks, gave millions to corrupt firm

Yonkers School District is taking out a loan for textbooks.

The district was facing a $22 million hole left by the pandemic and its economic crisis. Yonkers City Council had some tough decisions to make. How to close the gap?

Council ultimately decides how much to allocate for the school district (a pretty unique arrangement), and they did fill the gap. But not without some pretty eyebrow-raising moves.

Publicly, Council did some good ol’ union bashing to justify the new budget, noting that the Yonkers Federation of Teachers wasn’t budging on a less-than-two-percent pay increase demand.

So council decided to cut 168 positions from the district and include $10 million in a new bond issuance for textbooks and equipment.

The issuance is largely going towards school construction costs across the district. But to save $5 million, Council threw that extra line in for books. Like so many college students taking out loans for basic supplies, the district now owes an anonymous cabal of rich people money so their majority of color and working class kids can have textbooks.

But City Council should not be blaming the union for this. Leftist candidates and electeds should defend workers against these kinds of claims.

First, as I’ll write about later, the region is highly non-cooperative when it comes to school finance. There is so much money in the surrounding school districts, they should be ashamed that Yonkers has to do this.

Second, there’s been a pandemic crisis and teachers shouldn’t be blamed for modest demands in pay increase (less than 2%!), particularly in a city where most people rent and median income is relatively low.

Finally, and most importantly, the underwriters behind this bond issuance are corrupt!

Corruption

It may come as a shock to some readers that the cost of issuing this bond was $40,102,977.95, about fifteen times as much as the district needs to buy the textbooks.

Those costs go to the underwriters, or the people who make the bond issuance happen: a bevy of lawyers, financiers, and public finance consultants who make their living on the fact that school districts have to go to Wall Street to make ends meet.

The underwriters for this issuance were Roosevelt and Cross Incorporated. The firm made a total of more than $81 million on the deal.

We don’t get to know much about how underwriters work. We don’t know who is fronting this money, for instance. Roosevelt and Cross are just the middlemen.

One thing we do know is that these middlemen are corrupt.

Roosevelt and Cross were found guilty of fraud last year, right around the time this bond issuance was probably going down. The Securities and Exchange Commission “instituted settled enforcement actions against Roosevelt & Cross, Inc. and two of its registered representatives, Thomas Vigorito and William W. Welsh, for circumventing the priority given to retail and institutional investors in certain municipal bond offerings.”

Vigorito and Welsh prioritized bond ‘flippers’ over normal investors when putting together bonds. Like house flippers, these investors go in on bonds and quickly sell them off at a profit to other investors. They’re not supposed to do that.

This was an expensive steal for the firm. Roosevelt and Cross neither admitted nor denied these findings, but they did “consent to a cease-and desist order imposing a censure and requiring it to pay $681,037 in disgorgement, plus $135,978 in prejudgment interest, and a $200,000 civil penalty.” Vigorito and Welsh agreed to pay $425,000 between the two of them.

For all those keeping score at him, that’s $1,442,231 in fines related to the scam, more than a quarter of the sum Yonkers needed for textbooks.

City Council should not be blaming the teachers’ union and cutting 168 jobs that go to Black and Brown workers when it’s shelling out millions in fees to a corrupt underwriter. All Councilmembers should be held to account here, given that they handle the district’s finances.

John Rubbo praised this budget, for example, saying it

sets aside $1,000,000 for technology for our public school students, adds 4 additional nurses in September as our children prepare to return to school post COVID-19, invests tens of millions of dollars in our school buildings.

But he didn’t say anything about the 168 jobs lost, taking out loans for textbooks, or the millions wasted in corruption. Why?

Various and sundry details

The loan for books and related corruption is probably the biggest story behind this bond issuance. But I found out some other interesting details that might intrigue those focusing on the region.

  • There are 13 companies located in the City which have 200 or more employees. Its largest taxpayers include Consolidated Edison Company, The City of New York, Morris Builders, LP and AAC Cross County Mall, LLC.
  • The state-local relationship is unfamiliar to me. After a 2014 law permitting “inter-governmental cooperation,” the City Council holds the financial reigns of the school district. But when the district issues bonds, the state law “provides for a covenant between the State and the purchasers and the holders and owners from time to time of bonds and notes issued for school purposes.” The state guarantees the bond like a parent would a student loan.
  • This is kind of cool because the credit ratings are much higher on average. The districts aren’t out to sea. “Moody’s has assigned a rating of “A3” (with a stable outlook) to the Bonds and an enhanced rating of “A1” (with a stable outlook) to the Series B Bonds on account of the State aid intercept authorized by Section 99-b of the State Finance Law.” The local governments’ credit rating fate is tied to the state’s. We don’t have this in Pennsylvania.
  • Also, the new city budget is the largest city contribution to a school district in the state after New York City.
  • Finally, it’s going to be easier for homeless students to learn remotely (sidenote: what?) in Yonkers are getting a little gift due to an XboX business mistake. Apparently, Laetitia James arrived with a check for $150,000 because Microsoft charged New York residents too much on sales tax from the latest gaming system release.

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