CHICAGO - A local teachers union has asked Wisconsin's congressional delegation to press federal authorities to bail out five school districts struggling to cope with losses stemming from a $200 million investment involving collateralized debt obligations.
Acting on its own and without the endorsement of the five districts, the Kenosha Education Association argues in letters to U.S. Sens. Russ Feingold and Herb Kohl and Rep. David Obey - all Democrats - and other representatives that the districts deserve the same assistance provided to companies like American International Group. The union wants the federal government to purchase the districts' investment using funds from the Troubled Assets Relief Program.
"These are the same types of investments that the Federal Reserve removed from the books of AIG ... based on the similarities between the schools' troubled assets and AIG's troubled assets, shouldn't our schools receive equal treatment?" the letters read. The association, which represents Kenosha's public school teachers, also sent a letter to Wisconsin Gov. Jim Doyle asking for his support.
The union's executive director, Joe Kiriaki, said several members of Congress told the organization that they had forwarded the request to the Treasury Department and Federal Reserve. Feingold and Kohl's staff could not immediately confirm that information.
The school districts on Monday stressed that they were not pursuing federal help and were not aware of the union's efforts.
"The districts would not rule out purchase or replacement of their investment at full value from any source. Whether or when to make a claim with a third party such as the government is a matter to be fully considered by the districts through their various boards, committees, and administration," a statement from the districts said.
The districts are working together in hopes of recouping their investment losses through pending litigation filed against Stifel Nicolaus & Co. and the Royal Bank of Canada, alleging that the firms fraudulently misrepresented the safety of the investments. The five districts collectively invested about $200 million in the transaction. They now estimate the value has dropped by at least $150 million due to subprime mortgage and other defaults.
Moody's Investors Service on Friday lowered the credits of two of five districts - the West Allis/West Milwaukee School District and Waukesha School District - and affirmed the ratings and assigned stable outlooks to the Kimberly Area School District and Whitefish Bay School District. The Kenosha Unified School District's credit was affirmed and assigned a negative outlook.
The action Friday followed the completion of Moody's review of both the complex investment transactions - involving CDOs and credit default swaps - entered into by the five districts to help fund their other post-employment benefit liabilities and the ability of each credit to cope with the financial strain posed by the investment losses.