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.
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.
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
+$ 12M in interest
=$148M total available above cost estimates
– $107M in stated
=$ 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.
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?
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!
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
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
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.
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:
North Transportation-Joyce Renovation
581 Conference Place Reopen
Mount Evans OELS Efficiency
Windy Peaks OELS Efficiency
Anderson Preschool Efficiency
Irwin Preschool Efficiency
Free Horizon Montessori
Litz Preschool Efficiency
North Transportation-Site Acquisition
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
Even when asked a
question on his much touted Jeffco Generations Facebook page, Glass
failed to answer a question regarding the missing projects.
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):
Patterson International ES
West Jefferson Middle School
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.
In 2018, Jeffco’s 5B Bond request for $567M ballot language included ‘spending of the proceeds of such debt to be monitored by the citizen’s Capital Asset Advisory Committee’.
later, with $70M in contingency already spent and initial cost
estimates increased by an additional $30M, the Capital Asset Advisory
Committee is failing in its task of monitoring of the bond proceeds.
as a whole, have failed to be good stewards of our tax money. They have unquestioningly and nonchalantly allowed Jeffco Schools to add $50M of bond premium into a contingency slush fund, meaning that program contingency increased from an already robust $86M to an exorbitant $136M. And, they have seen an additional $11M in interest added to that same contingency for an obscene total of $146M.
As a voter I heard Jeffco Schools routinely tell taxpayers that the District had $1.3B in facilities needs. The Bond was going to be used to address only $563M of those total needs. Yet, when the District had a windfall of $50M, instead of using that to address additional needs or even replace several additional aging elementary schools, the CAAC blindly went along with the District’s overspending and allowed this money to be put into the massive contingency slush fund.
Instead of using this money wisely, it seems like the District and CAAC are going to rely on taxpayers to pass a new bond in a few years to address facilities needs that are only going to get worse.
This is just
atrocious monitoring on the part of the CAAC. Jeffco taxpayers were
misled by the District’s ballot language and the reasonable
expectation that our fellow taxpayers would monitor the bond money
like it was their own. It is painfully obvious now, that once on the
committee our fellow taxpayers view taxpayer money as funny money.
Shame on them.
routinely complain about lack of funding. Yet, why should taxpayers
increase that funding when Districts, and particularly Jeffco, are
such poor stewards of that money?
At this rate, and
with this level of District program management incompetence, it may
be a long time before another Bond issue is approved in Jeffco and
members of the CAAC will share in some of that blame.
The Jeffco Board will be presented with additional information related to next year’s budget today at a Board meeting, here and here.
of what is included in the two documents makes it look like Jason
Glass and the District staff really haven’t thought through what is
going to happen to the District financially or how to make the
necessary budget reductions.
To start, Federal money, both direct from Washington and allocated by Gov. Polis, appear to being used as compensation for a large budget shortfall in state funding. However, it is my understanding that the Federal money comes with some strings attached – primarily that it be used for explicit COVID-19 related expenditures, not merely as a backfill for items already budgeted or budget shortfalls. No where in the District staff discussion does it talk about these restrictions or how they will affect the use of the money. It merely appears that Jeffco is using the money as backfill. In addition, there is no discussion of ANY additional costs related to COVID, which the Federal money could be used for. Isn’t the District going to have fairly substantial COVID related costs? Why aren’t they reflected in the budget as increased expenditures?
The second major issue I have with the District’s budget discussion is that it is centered on next year. The state budget shortfall will last at least through the following year, probably longer, and the local property tax shortfall will begin next year as well. In this respect, CFO Askelson fails miserably in her job to present the Board with a complete financial picture. How can the Board decide how much to take from reserves this year if they have ZERO information on how bad the budgetary picture could look in the next few years? They can’t! In my mind, that is a demonstration of the total incompetence on the part of Glass and the CFO to not present that information.
I find some of the District recommended cuts to be extremely
There are only 2 proposed cuts listed as ‘Damaging’. One of those is the District’s paid lobbyist. Damaging? To whom? I have a hard time even remotely thinking of that cut as Damaging. Listing it this way clearly explains everything that is wrong with Jason Glass and Jeffco schools. Glass likes to say: “keep the main thing the main thing’. I hardly think a paid lobbyist is the main thing.
The listing of the ‘Damaging’ lobbyist cut goes hand-in-hand with the ‘Recommended’ cut of 2 Literacy Interventionists. That’s doesn’t seem to be a great idea in a District where over 50% of kids don’t meet state reading expectations. Why not reduce the number of Community Superintendents by 2 for a $326k+ savings instead and even hire an additional Literacy Interventionist?
And, what about a cut of $2.2M in School Improvement Funds, money that principally goes to Title I schools? In the interest of equity, couldn’t Glass find something else to cut – like $4.2M in 1:1 device purchases that have not been proven to improve academic growth or achievement?
Where would I cut? You can see that in a letter I wrote to the Board here, but below are some suggestions of where the District can and should look to make cuts.
I don’t envy the Board in having to make the cuts. I particularly don’t envy the Board because Glass and District staff have done such a horrendous job in deriving a list of potential cuts. However, there seems to be a tremendous amount of bloat in Jeffco’s $1.2B budget that is not focused on improving education that can easily be cut without affecting education or kids.
This past Thursday, May 7, 2020, Tim Reed, Executive Director Facilities and Construction at Jeffco Schools, told the Board of Education that as of April 30, 2020 $57M in contingency remained for the District’s 6-year Capital Improvement Program (CIP).
that the Contingency presented to taxpayers prior to the 2018 5B vote
was $86M, $57M sounds like a reasonable amount to be remaining.
it was only after Director Susan Miller asked a question did Tim tell
the Board that the $57M included additional Construction Contingency
of $11.5M that the Board would later vote on that evening for
overages in the Alameda project. This
the amount of remaining contingency to $46M. In addition, it seems
that the additional Construction
comes with even
Soft Costs (thanks to another question by Director Miller), usually
in the range of 20%. This would necessitate the use of ANOTHER $2.25M
in Contingency, further reducing the available amount to under $44M.
this is troubling, a mere 18 months into a 6 year program, there was
troubling news in Tim’s slide. That news was that Tim and Jeffco
$50M in bond premium and $11M in bond interest to the
Program’s Contingency, raising total Program Contingency to a
is shocking to me that Jeffco has seemingly burnt through over $100M
in Contingency in only 18 months, when the total Program Contingency
was presented to taxpayers as $86M.
only Susan Miller is concerned and asks questions about this.
Rupert asked Tim Reed if he agreed with the statement that it
appeared that over half of the Contingency remained and Tim agreed.
That statement is ONLY true if you base it on the original $86M.
Mitchell flat out stated that he trusts
Tim Reed, obviously too old and tired to, or maybe incapable of,
performing the math to show that $100M in Contingency has already
And through all of this Jason Glass just sat silently. His non-existent leadership on full display.
is going to provide oversight to this spending and
contingency budget is money set aside to cover unexpected costs
during the construction process. Who is going to ask why nearly every
project has unexpected costs and why those unexpected costs are so
Who is going to ask why there should be an expectation that this
trend will change with future projects? Who is going to ask why there
should be an expectation that there will be enough money to deliver
on ALL of the promises made to individual schools and taxpayers?
is going to take their fiduciary responsibility seriously? Glass?
Don’t count on it. The Board of Education? Susan Miller is asking
the right questions. Brad Rupert is asking questions, but they leave
too much wiggle room for Tim Reed. Susan Harmon and Brad Rupert are
just District fan boys who never question anything the District does
or says, so
don’t count on them.
The District and taxpayers have already suffered from this fiscal mismanagement (What to do with $50M in bond premium). It’s time to put an end to the reckless and harmful spending propagated by Glass and Reed to ensure that ALL projects can be completed on time with the initially planned scope and the money taxpayers provided.
It is simply not true when the Jeffco CFO tells the Board that an anticipated loss of 350 students will result in a loss of $3M in revenue or $8,571 per student.
This statement is predicated on 2 assumptions:
That all revenue the District receives is based on student count
That a loss of students results in an immediate loss of revenue
of those two assumptions is true.
Only state revenue to the District is based on student count. Local
property tax and ownership tax receipts to the District are NOT based
on student count. The District will get the same amount of revenue
no matter the student count from local property taxes and ownership
taxes. Only approximately $380M of funding comes from the state which
means the state funds only $4,700 per student. Therefore, the only
revenue loss would be a maximum of $1.7M, NOT $3M.
However, Colorado mitigates the loss of revenue due to loss of
students by basing District funding on the 5 year average of student
count if student count declines. Therefore, when a District loses
students, the real first year loss of state funding is only 1/5 of
the actual student loss count. In this case 70 students or
approximately $350,000, in the first year – 2020-2021. That’s a far
cry from $3M that Askelson is telling the Board.
Askelson’s gloom and doom presentation also only shows one side of
the Accounting ledger. Her presentation is based on the assumption
that a loss of revenue results in absolutely ZERO reduction in costs.
Again, this is a false assumption. Individual schools are ‘paid’ by
the District on a per student basis via SBB funding. At approximately
$5,500 per student for SBB (page 24 of Budget) and a loss of 350
students, the District’s expenses are reduced by approximately $1.9M.
In conclusion, instead of a $3M loss of revenue, Jeffco, in Year 1, only loses approx. $350,000 in state revenue but also has a corresponding cost reduction of $1.9M, for a net positive impact of $1.5M. Taking into account that Askelson told the Board they would be losing $3M the difference is $4.5M, or more than enough to prevent a furlough day, or prevent the closing of schools.
When Jeffco went
to the financial market to sell bonds for its Capital Improvement
Program, interest rates were low. Due to the way the bond was
structured, this allowed Jeffco to obtain $50M in unexpected funding,
or bond premium, for essentially the same costs.
But what to do
with that extra $50M?
In its 5B bond campaign Jeffco leadership stated (falsely) that the District had $1.3 billion in deferred maintenance needs. So why not use that $50M to address some of those needs that the $546M of 5B money couldn’t?
Replace several of the schools that were slated for replacement in the 2016 failed Bond proposal such as Kyffin, Green Gables, Fletcher Miller or Parr.
Ensure there is equity. Once 5B projects are completed there will still be several schools that have obvious FCI values much higher than other schools. For example, Vivian will have a FCI of over 44% while Stober, Colorow, Muhlholm and Lumberg will all have FCIs above 22%, well above the average FCI for District schools. Why not use some of the bond premium to actually provide the equity that Jeffco is always so quick to talk about?
Reduce the amount of Capital Transfer from the General Fund that will be needed each year. The Capital Improvement Program is predicated on receiving $23M per year from the General Fund. It looks like there is already a shortfall this year of $2.1M. So, as a minimum, use the $50M bond premium to reduce the pressure on the General Fund. Spread out over the remaining 5 years of the Capital Improvement Project that would mean a reduction of $10M from the General Fund each year.
This $50M is an OPPORTUNITY to use taxpayers’ money to over deliver and make some additional enhancements to Jeffco.
To do anything less will be fiscal mismanagement, demonstrating that Jeffco is not capable of adequately managing the money taxpayers trusted it with. It will also make it more difficult to get Bonds passed in the future.
Do not use this $50M as added contingency for a program that already has $86M or 15% contingency built into it!