A different perspective on the current state of Jeffco schools

Category: 5B Bond

Jeffco Schools’ Great 5B Bond Deception – Part III

Allocation of Bond Premium to Charters

As we saw in Part II, Jeffco’s Board of Education unanimously adopted a Bond Proceed Sharing Resolution that clearly states “the Board of Education will allocate a percentage of the bond proceeds equal to the percentage of full-time district students enrolled in district-authorized charter schools”.

Yet, Jeffco did NOT allocate ANY of the bond premium to District Charters. That was a loss of at least 9.29% of the Bond Premium of $50M or $4,660,360. If the share percentage was calculated correctly with 2019 student count numbers as explained in Part II, that revenue share loss is $4,745,642.

Why didn’t Jeffco schools share the Bond Premium? We weren’t part of the conversations and no discussion took place at the Board table, but we can only surmise that Jeffco is attempting to make a distinction between Bond “proceeds” and Bond “premium”, essentially saying that the bond premium is not part of the bond proceeds in order to keep the $4.7M for District projects.

That is just plain wrong!

While this attempted distinction has worked to silence the meek District Charter schools who are afraid of losing their Charter authorizations, the District knows that the IRS does not make that same distinction.

26 U.S. Code § 148.Arbitrage

Defines Proceeds as:

Proceeds means any sale proceedsinvestment proceeds, and transferred proceeds of an issue.

And sale proceeds as:

Sale proceeds

Sale proceeds means any amounts actually or constructively received from the sale of the issue, including amounts used to pay underwriters’ discount or compensation and accrued interest other than pre-issuance accrued interest. Sale proceeds also include, but are not limited to, amounts derived from the sale of a right that is associated with a bond, and that is described in 1.148-4(4). See also 1.148-4(h)(5) treating amounts received upon the termination of certain hedges as sale proceeds.

Jeffco agrees with this definition as in a May Alameda presentation to the BoE, Tim Reed included the Bond Premium in his calculation used to determine arbitrage requirements.

IRS Target Spend by 12/2021= 85% of Bond Proceeds & Premium $329,610,938

It is obvious that Jeffco knows that the IRS considers Bond Premium to be part of Bond proceeds.

Therefore, Jeffco has violated its own Sharing Resolution and defrauded the District Charters of over $4.6M by not sharing all of the Bond Proceeds, in this case the Bond Premium, with them.

In essence, Jeffco got the Charters to support, and campaign for, 5B, but in the end isn’t holding up its end of the bargain.

Shame on Jeffco schools!

10 Things we learned from Wednesday’s BoE Study Session – None of them good

Here are the 10 things we learned from the October 7, 2020 Jeffco Board Study Session on the District’s Capital Improvement Program.

None of these things is good!

1. HS Parity – We were told during the Wednesday meeting that one of the goals of the bond program was to achieve High School building parity. Someone might want to tell the staff, parents and students at Pomona, Wheat Ridge, Arvada and Green Mountain that. Even after the program finishes, these schools will still have Facility Condition Indexes above 15% while schools such as Bear Creek, Golden, Arvada West and Lakewood will have FCIs below 4%. That’s not parity/equity in my mind. Once again, Jeffco talks equity, but never, ever delivers.

2. Capital Transfer – We learned that in 2 years Jeffco has transferred $41.8M from general funds to the Capital Program and that over the next 3 years another $83.6M will be transferred for a total of $125.4M.

But, Steve Bell made that sound worse by stating that only $120M in total would be transferred over 6 years.

Jeffco voters were promised $23M/year would be transferred for a total 6 year transfer of $138M.

This is now an expected shortfall of $12.6M. This shortfall will need to be made up by either allocating contingency or reducing project scope. I don’t even think that the Board is aware of this shortfall at this point. Bell and Reed will use Wednesday’s presentation to say that they informed the Board, but this is a pretty weak argument. In reality, it was the CFO’s job to ensure that 2019-20 and 2020-21 budgets presented to the Board of Education included transfers of this promised money, OR, to inform the Board of Education of this shortfall. The former CFO Kathleen Askelson failed to do either. She failed in her fiduciary responsibilities to both taxpayers and the Board. It’s no wonder she suddenly decided to leave Jeffco. Once this came to light she should have been fired.

3. 19M Projects – During the meeting Reed casually mentioned that $9.5M worth of projects were transferred from the District’s 19M facilities maintenance program to the Bond program because they were ready to go and it would assist in meeting the arbitrage requirements of the bond.

What he failed to say was that these projects were funded straight from the contingency of the Capital Improvement Program and that this was in reality an increase of scope. Complete and utter deception on the part of Reed and Bell.

4. Missing $41M – $41M is missing from Bell and Reed’s presentation. Where is that money? Jeffco voters were told that the program came with $86M in contingency built into it (see image above). $50M was added through bond premium and another $12M added through interest.

That’s a total of $148M above and beyond the $563M in project cost estimates presented to voters. Reed and Bell told the Board that they are carrying $107M in program contingency.

In that case, where did $41M go?

$ 86M in contingency presented in original Flipbook

+$ 50M in bond premium

+$ 12M in interest

=$148M total available above cost estimates

– $107M in stated contingency

=$ 41M missing

5. % of contingency usage – Bell told the Board that $68M in contingency has been spent (video above). That contingency was spent during the completion of $264M ($332 expended and encumbered from Board docs – $68M in contingency used) in project work. Since there is (now) $594M in total work that needs to be completed for the program that means 44% of the total program work has been done against 64% of the total contingency ($68M of $107M in total contingency). At the current rate, available contingency will be used before all projects are completed and scope will have to be reduced. Calculated a different way, continuing to use contingency at the current rate would mean that Jeffco needs $153M in total contingency, $46M more than what is currently allocated. This is not a good position to be in.

6. Construction increases – We learned that there are several Board member apologists who want to blame inflation and the length of the program (6 years) for cost overruns. I don’t agree with that. A timeline for project work was clearly laid out in the Flipbook. District staff knew when projects would be worked on and SHOULD have incorporated inflation based increases into their cost estimates. If they didn’t do that, then they are incompetent and should be fired, not given a free pass as Rupert and Mitchell want to do. Besides, Jeffco is only 2 years into the program. Inflation based cost increases shouldn’t be responsible for over $68M in cost increases at this point.

7. Contingency use between May and September – In May Reed told the Board that there was $57M in remaining contingency.

May Contingency

Since that time the Board has approved approx. $11M in contingency usage, mostly at Alameda. Now, Reed is now telling the Board that there is only $37M in contingency remaining. What did that additional $9M in contingency get used for in such a short period of time? Where did it go in only a few short months without Board knowledge?

8. Questions about use of $50M bond premium – The bond premium was a bonus. In my mind, it should be used to provide real value to the taxpayers. During the meeting Reed told the Board that to get the total bond package down to something reasonable for taxpayers for the 2018 vote they had to remove two replacement schools.

Now, when Jeffco received bond premium, why did $50M just get consumed to pay for added contingency? Why weren’t 2 replacement schools added into the program? This is pure mismanagement and an atrocious use of taxpayer money. People should be fired for using $50M this way!

9. Where was the Citizens Capital Asset Advisory Committee? Members of the CAAC were supposed to be at the meeting to answer questions regarding their oversight and monitoring of the program. They are definitely aware (here and here) of the depth and degree of the $100M in cost overruns to date. It is suspicious that at the last moment they decided not to show up.

10. Board President Harmon and Directors Rupert and Mitchell will go to great lengths to cover-up waste and mismanagement and protect the District from criticism or scrutiny. When Director Miller brought up questionable practices regarding the use of the $50M bond premium, instead of addressing that issue first, Harmon attacked Director Miller and then Rupert and Mitchell went into a full on defense of the District. It’s not their money, so why should they care?

This Wednesday’s study session was enlightening, to say the least. It raised, and never answered, numerous questions regarding the management of a $3/4 Billion Capital Improvement Program. The degree of deception on the parts of Reed and Bell is just unbelievable.

The Program is a disaster – way over budget and heading further in that direction. That is not how you get taxpayers to approve your next bond request.

It is clearly evident that, as promised to taxpayers, a full and complete performance audit on the program must be conducted immediately!

Jeffco Schools’ Great 5B Bond Deception – Part II

Computation of Charter Share

The Board of Education’s Bond Revenue Sharing Resolution clearly states that “the Board of Education will allocate a percentage of the bond proceeds equal to the percentage of full-time district students enrolled in district-authorized charter schools”.

A reasonable person would have read this resolution at face value and come to the conclusion that the percentage would have been calculated based on the count of full-time enrolled Charter students divided by the count of total full-time enrolled District students. In fact, a spreadsheet presented to Charter schools (attached) to show how the distributions were calculated clearly displayed the following text referring to FTE (Full time Equivalent) in 2 locations:

1. Official Oct 1 2018 FTE

2. Note: October 1, 2018 Official FTE count (audited)

Yet, the District did not use FTE numbers. In its calculations, the District actually used the state calculated Funded Student Count numbers for total District student count number, which is higher. This effectively increases the denominator for the percentage calculation and reduces the Charters’ shares. State Funded student count numbers are higher because, in an environment of decreasing student enrollment, the state reduces impact of revenue decreases by computing a 5 year average of student enrollment. For the school year 2018-2019 this increased the total District funded student count number by 1,397 and resulted in a loss of nearly $1M to Charter schools.

Not only did the District perpetrate this loss of agreed upon revenue to District Charters, but they

  1. Ignored letters to the Board addressing this
    1. Letter to the Board – http://improvejeffcoschools.org/wp-content/uploads/2020/10/Gmail-RE_-Jeffco-Short-changed-5B-Charter-Share-by-Using-5-year-Enrollment-Average-in-Calculation.pdf
    2. Letter to the Board – http://improvejeffcoschools.org/wp-content/uploads/2020/10/Gmail-RE_-Jeffco-Short-changed-5B-Charter-Share-by-Using-5-year-Enrollment-Average-in-Calculation.pdf
    3. Response to Board Letter – http://improvejeffcoschools.org/wp-content/uploads/2020/10/Gmail-5B-Charter-Allocation.pdf
  2. Told the press that this was acceptable – https://arvadapress.com/stories/citizens-district-dispute-amount-5b-bond-money-charters-receive,282993
  3. Convinced the Chair of the District’s Financial Oversight Committee, Brian Ballard, to not investigate and that this was a non-issue.
    1. Letter to FOC Chair – http://improvejeffcoschools.org/wp-content/uploads/2020/10/Gmail-RE_-EXTERNAL-Jeffcos-Distribution-of-2018-Bond-funds-to-District-Charter-Schools.pdf

Charter parents campaigned very hard for a Bond that barely passed. How short-sighted is it of Jeffco to not see this? I doubt Charter parents will be as willing to expend as much effort and energy the next time Jeffco wants to pass a bond when Charters will know that Jeffco will be out to take advantage of them.

Jeffco Schools’ Great 5B Bond Deception – Part I

Jason Glass and Jeffco Schools promised transparency when they put a $567M Bond to the vote of taxpayers in 2018.

To great fanfare, Glass rolled out what was called a Flipbook that explained sources of revenue for the District’s 6 year Capital Improvement Program and exactly how much would be spent at each school.

There was one big problem though. The Flipbook did NOT show where nearly $17M in bond proceeds would be used. I even wrote about it in October 2018 – http://improvejeffcoschools.org/index.php/2018/10/ A year and a half later, through CORA requests, I’ve been able to piece together the uses of that $17M, now blossomed to over $19M, in spending:

ProjectEst. Cost
North Transportation-Joyce Renovation$349,400
Trailblazer Stadium$4,415,250.00
581 Conference Place Reopen$518,877.00
Mount Evans OELS Efficiency$3,210,190
Windy Peaks OELS Efficiency$3,340,982
Anderson Preschool Efficiency$117,794
Irwin Preschool Efficiency$48,935
Free Horizon Montessori$174,682
Litz Preschool Efficiency$77,479
North Transportation-Site Acquisition$7,000,600
Total $19,254,189

In looking at this list, one can only guess at why these projects were not shown to taxpayers – most are not directly related to schools. Trailblazer stadium, North Transportation Site, 581 Conference Place – these are not projects that would have encouraged me to vote Yes on the Bond.

Even when asked a question on his much touted Jeffco Generations Facebook page, Glass failed to answer a question regarding the missing projects.

https://www.facebook.com/groups/1236337263132884/permalink/1614849428614997

And, the most egregious thing was that shortly after the Bond was approved by taxpayers the Flipbook was quietly updated. Cost estimates increased from $563M to $594M, an increase of $31M in cost estimates.

Here are several examples of how project costs changed (you can see the complete list here):

SchoolOriginal FlipbookRevised FlipbookDifference
Alameda HS$18,003,098$19,434,000$1,430,902
Patterson International ES$463,102$2,232,000$1,768,898
West Jefferson Middle School$2,323,535$3,700,000$1,376,465
Powderhorn Elementary$5,756,358$6,100,000$343,642

Not only is there not a corresponding increase in revenue to fund these increases, but the impact of the changes turns out to be extremely important in the on-going deception of hiding the degree of cost overruns, which I will discuss in a future post.

The deception to taxpayers regarding 5B funding and projects started early and appears to be well thought out – not something that should be done if Jeffco wants to get another Bond approved in the future.