Nov 27 Statement
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Below is a copy of the statement that I read at the Board's meeting on November 27, 2001 to explain my concerns regarding the upcoming $90 million school bond election.

It is clear to me from our study sessions that there are 4 votes for this $90 million bond measure, and I have made it clear to my fellow Board members that I will oppose any bond measure exceeding $40 million.  Tonight, I will try to outline the reasons for this $50 million difference of opinion so that the taxpayers can hear both sides of this issue.

First, I want to emphasize that I do not oppose the idea of a significant bond measure to cover three areas of need: 

1.      cost overruns on the current construction,

2.      constructing a new science building at the high school and

3.      a limited number of other items that appear legitimate. 

However, I believe that committing another $90 million of precious taxpayer dollars at this time would be irresponsible and wasteful.  I am in favor of providing the children of Beverly Hills with first class facilities, but I am concerned that the current plan was developed hastily and will prove disappointing.

Those who do not understand history are doomed to repeat it, and history suggests that the current plan will be a spectacular failure.

In 1993, the District passed a $77 million bond measure.  The proponents of the $77 million bond promised the public that this would be sufficient to address all important facilities needs.

In January, 1994, the Northridge earthquake damaged all of 5 schools, particularly Beverly Vista.  Due to negligence in failing to effectively pursue federal reimbursements for such damages, the District eventually faced a significant shortfall in trying to keep the promises that were made in 1993.  Also, from November 1993 until November 1997, the District hired and fired two construction managers and one architect, and wasted a lot of time and money, but accomplished virtually nothing.

In November, 1997, the District finally hired a credible construction manager known as PCM3 for a projected fee of  $3.5 million.  PCM3 immediately conducted its analysis.  After analyzing our finances and our needs and after conferring with our architects and district staff, PCM told the Board that there were insufficient funds to keep the promises made in 1993.  PCM3 told us that the original plans needed to be cut back to come within the $77 million budget.  With the Board’s approval, PCM3 developed a plan to renovate the District’s facilities in 8 basic areas:

HVAC

Plumbing

Electrical

Abatement of asbestos and other hazardous substances

Life safety items

Structural repairs and improvements to improve seismic safety

Repair and/or replacement of all roof that needed work

Compliance with ADA (define) requirements

Thus, in 1997, the Board approved a plan to go forward with these basic eight items, on the theory that these included all of the most important, fundamental items, and with the understanding that if additional funds became available, such additional funds would be devoted to add-ons, such as painting the schools, white boards, and cabinetry.  We expressly recognized that the $77 million would be insufficient to accomplish the 1993 promises, and we blamed this on the 1994 Northridge earthquake.

After 1997 and until now, the District proceeded with the basic 8 plan, but at a far higher cost than the original $77 million.  Fortunately, the District was able to obtain state bond funds of approximately $14.5 million.  Furthermore, the District was able to obtain over $10 million of interest income by accelerating the issuance of the original $77 million of bonds.  The hope was that most of this extra money would be used to provide the add-ons.  Unfortunately, such hope was not realized, and none of the extra money will ever go to add-ons.

The total extra funding from state bond funds, interest income and other items to date is approximately $31 million, making the total funding for the “basic eight” items approximately $108 million.  Recently we were told that there is a further shortfall of $18 million, but I believe that this number is inaccurate, because we have also recently received a schedule showing an additional $5.6 million or so of “basic 8” type items that still need to be completed and because the official shortfall completely omits the cost of renovating Buildings C & D at the high school.  Based on my calculations, the total ultimate cost of the basic 8 items will be approximately $134 million ($108 + 18 official shortfall + 5.6 of basic 8 items + 2.5 for buildings C & D at the high school).  This represents an increase over the original budget of approximately $56,000,000, which translates into an overrun of 72.7% of the original $77 million.  This also translates into a current deficit of approximately $25 million, not the $18 million that is contained in tonight’s official numbers.  I would also note that these numbers do not include any of the $5 million for add-ons that was contributed by the city.

From the point of view of the taxpayers of BH, the overall result is that they are getting far less than they were promised in 1993, and at a far higher cost. 

How did this happen?  How could the District go over the $77 million original budget by over $55 million?  There are many specific answers, which I will be happy to discuss, but in my view there were 3 leading causes:

1.  A decision in late 1999 by the new board majority to abdicate detailed Board oversight of the construction (which was characterized as micromanagement) and, instead, rely on the staff to handle the construction.  The board thereafter received very limited information and rubber stamped virtually all staff recommendations.

2.      A failure to heed warnings that there would be a shortfall.  For example, on February 3, 2000, two months after the new board majority took power, we received a report from the staff stating that we should have a surplus in our construction budget of between $4.9 million and $7.6 million.  Attached to such report was a spreadsheet that I had provided to the Board and the staff the previous month projecting a shortfall between $3.6 million and $10.1 million.  Despite my fervent protestations that there was no surplus, the Board actually had a meeting in February of last year (only 21 months ago) where there was a serious discussion for over 2 hours about whether we should use the surplus to build an $8 million science center at the high school or, instead, add 4 $2 million buildings at the K-8 schools.  As it turns out, even my estimate of a $10.1 million shortfall was far too optimistic, but I am willing to shoulder my own share of the responsibility for the huge deficit that we now face.  I would also note that in February 2000 we were told that a first class science building would cost $8 million.  Now we are being told that a science, technology and media center will cost over $24.5 million plus another $2.7 million to provide plush offices for a select handful of administrators.   

3.      Governmental bodies are inherently wasteful and inefficient, especially where there are no clear measures for accountability.  History teaches that money gets wasted when a government agency gets a blank check, and as I will discuss in a few minutes, the current proposal is so vague no one will ever be able to assess whether the public got its money’s worth.

In fairness, I also want to emphasize who is not to blame for this.  After Dr. Pellicone was terminated in August 1998, and after Richard Stone and Allison Okyle left the Board in December, 1999, we received the February 3, 2000 report projecting a surplus of up to 7.6 million .  As late as May 16, 2000, less than 18 months ago, we received a report projecting a surplus of almost $2 million.  Furthermore, less than a year ago, on November 28, 2000, we received a draft report commissioned by Dr. Gross showing a deficit of less than $1.3 million, which is less than 10% of tonight’s official deficit number and less than 6% of what appears to be the true deficit.  The first time that the Board received a comprehensive analysis of the construction budget after PCM3 was fired in February 2000 was in June of this year, when we finally brought in outside experts, and even this analysis showed a deficit of approximately $1.5 million less than tonight’s official deficit. 

Every person on this Board told the public when we ran that we would work hard to ensure that the construction would be completed on time and within the budget.  Not only have we failed, we have failed big time.

This a problem of the current Board and, to a lesser extent, the current staff, which failed until recently to identify the actual shortfall, and which, in my opinion,  waited months too long to put together a plan that efficiently addresses the true needs of the District.  In this context, it becomes clear why its politically expedient to mask the $25 million cash shortfall and the $56 million budget overrun in the cloak of a $90 million new bond issue that is intentionally vague as to how the money will be spent.

  [Read the language}.

 It is also important to note that the Board has been told that we will not be required to do everything on the list and that the list should be vague so that the Board will have maximum latitude in actually spending the money.  In essence, the Board is asking the taxpayers for a blank check, which is arrogant to say the least considering that there is no satisfactory explanation for running $56 million short on projects that were originally budgeted at $77 million.

I also want to emphasize that the $90 million is a made up number that was based on political considerations, not on need.  The projected cost matrix provided to the Board shows numbers between $82.3 million and $87.5 million, but our survey of likely voters shows that a $90 million bond measure will probably pass.  Thus the Board appears to want to go for the full $90 million.

{Go through notes re specific items}

To date, the Board has not received anything resembling a comprehensive staff analysis as to the specific items to be accomplished, and is instead relying on reports from architects and a construction manager who stand to receive a % of the booty if the bond issue passes.  As before, problems will inevitably result by proceeding without adequate planning, and if a $77 million budget can balloon to $133 million, then applying the same % increase to $90 millionwe can expect over $65 million of additional overruns.

The current plan has been developed on a rush basis, because the current funds are expected to be exhausted early next year.  Indeed, the District will be pursuing approximately $10 million in interim financing prior to election day, because without such emergency financing, the district would not be able to meet its obligations, and the bond money will not come in time to keep the current construction from being shut down.

The first material step in developing the current plan occurred only 3 months ago, on August 28, 2001 when we received a report of approximately 400 pages outlining the District’s facilities needs.  However, such report was so full of errors that almost a month later, on September 25, 2001, we received approximately 300 pages of corrections to such report.  To date, such corrections have not been correlated into a single report, so it is necessary to go back & forth between the 400 page report and the 300 pages of changes to try to figure out most of the ietms.

Furthermore, since September 25, 2001, we have received at least seven different sets of recommendations as to the work that needs to be done and the amount that each item will cost.   Each set of recommendations has included significant changes from the prior recommendations, and even the numbers given for the exact same item have varied widely.  For example, the report dated October 2 stated that we needed to spend $1.7 million on plumbing, but this was dropped to $1.25 million in the report dated November 3.  This number was further reduced to $187,850 in the report dated November 16, and was further reduced to $27,000 in the latest report.  This just one example of a rushed process that has been more political than analytical and that has been motivated more by survey results as to additional taxes that the public would be willing to pay than by a genuine assessment as to what is really needed to provide first class facilities.

I would also note that not a single moment of these meetings has been televised, despite my request that the public be exposed to these deliberations.  God forbid that the public actually be exposed to how this sausage was made.  As a result, we have a plan tonight that the public is expected to pay for through the nose, but the public was not allowed to see any of the discussion or debate that preceded the plan.  That’s too bad, because if the public had seen much of this, the chances of the Board having the chutzpah to ask for $90 million would be zero.

 

I have repeatedly suggested that we ask for a bond of $30-40 million to cover the true shortfall, build a state of the art science building at the high school and cover certain indisputable needs.  Then the Board could take its time to develop a decent plan, in public, not in sparsely attended afternoon study sessions, and the District could prove itself with $40 million before asking for more.  Such plan should include a decision, once and for all, about a middle school, before we waste millions of dollars building middle school science labs at all 4 of the K-8 schools.  Such plan should include an overall enrollment plan and strategy as to permit students, before we waste many more millions of dollars adding 38 new classrooms throughout the district at a time that our enrollment of resident children is holding steady and perhaps dropping.  Such plan should also include an analysis as to how education will change over the next 10 to 30 years, so that we are in the best possible position to respond to such changes without having to ask for tens of millions more taxpayer dollars down the road.  The current plan includes none of this, both for political reasons and because there is simply not enough time to do this right and still float a bond measure in the Spring of next year, when we will run out of money to pay for the current construction.  These are just a few examples of many, but are illustrative of the tendency of this District to lurch from one mistake to another.

A $40 million bond would have other advantages:

1.      We could give the taxpayers a huge break by employing a wraparound strategy, resulting in a very small tax increase or perhaps even a reduction.

2.      We could take the time to prosecute our millions of dollars of identified claims relating to the prior construction.  In contrast, the $90 million plan will jeopardize such claims if the District is not careful, because additional work will allow the prior culprits to argue that any problems were created after they left the sites.

3.      There would be time to develop better maintenance capabilities, so the buildings are not neglected to the point of rotting, as in the past.

4.      There would be time to address complex issues, such as whether additional safety lighting is really worth the hundreds of thousands of dollars of asbestos removal that this is likely to trigger.

5.      There would be time to give priority to curriculum and instruction.  In 4 years on the Board, I have never heard a parent or student complain about inadequate lighting, old desks or a lack of artificial turf.  Most complaints relate to curriculum and instruction.  However, the Board has spent over 60% of its time discussing construction issues and less than 5% discussing what goes on inside the classrooms.  Its time to stop being a Board of Construction and try to become a Board of Education.  In 4 years, I still have not heard a convincing excuse for the disappointing level of academic achievement in this district.  We are by far one of the best funded districts in the state and we are an educated community that places a high value on education, yet the level of basic achievement, as reflected in Stanford 9 scores and SAT scores remains shockingly low compared with similar districts.

6.  There would be more time to address construction safety issues.  We have been lucky so far that no kids have been seriously injured, despite exposure to electrocution at Horace Mann, a fire at El Rodeo and being run over by construction vehicles at all schools.  Another massive round of construction without far better planning will be pushing our luck as to serious injuries to students.

If the Board and the staff could stay within budget on an additional $40 million and could come up with a credible plan, I would be willing to support whatever number is necessary to provide first class facilities for the students who reside in BH, even if this turns out to be more than $50 million more, and I believe that the public would support this.

Unfortunately, political expedience is taking priority over good sense.  The Board has survey results suggesting that a $90 million bond will probably pass, and cutting the bond to $40 million would mean that most of the additional funds would go to pay for prior foulups.  This would highlight the fact that during the past 21 months, we have gone from an official surplus of $4.9 to $7.6 million to an official deficit of $18 million and a real deficit closer to $25 million. 

Every member of this Board made campaign promises to carefully monitor the construction.  Collectively and individually, we have failed.  Indeed, we have failed miserably.  Rather than bury such failure in a $90 million boondoggle, I would urge the Board to come clean and simply admit that we failed to adequately monitor the construction.  If you don't want to admit to the full $25 million, at least admit to the current official estimate of $18 million.  You can admit to the other $7 million later or bury it after I am off the Board.  But at least admit to something, and if you really care about doing your jobs, insist on a full report to the community documenting how a $77 million project has ballooned by almost $57 million without any material additional benefits to the District.  History tends to repeat itself, and the worst thing that can happen at this point is to try to bury failure with additional millions of dollars invested in a hastily constructed plan that is full of obvious flaws.

If this bond passes, then the total outlay for school renovation and improvement will exceed  $203 million(108 funding + 90 new + 5 city).  For this, we could have had a totally new $80 million high school and 4 $30 million K-8 schools, and every facility could have been optimally configured & state of the art.  However, its too late now to even come close to this result, because we have invested far too much in the old buildings to replace them.

Based on a report dated November 19, 2001, the total future cost to the taxpayers to repay the balance of the original $77 million plus the additional $90 million plus interest will be $314,200,000.  Furthermore, the District’s projections as to cost per $100,000 of assessed value are extremely questionable, because they are based on the assumption that property values will increase by 8.21 % in 2002, 5% in 2003 , 4% in 2004, 3% in 2005 and 2% in 2006 through 2030.  In the current economy, I believe that these assumptions are very unlikely to be realized, and I will be surprised if the actual tax rates in the future come close to what we are projecting.  The real estate market has been booming for a long time, but there are strong indications that values may drop substantially, at least for a few years, in which case the percentage rate increase will be far higher than we are projecting.

I would also note that I take little comfort in the fact that state law requires a citizen oversight committee.  Such committee will have no real power other than the power to alert the public to problems, and since the committee will be hand picked by the Board, I doubt whether any alerting will actually occur, no matter how many millions of dollars get squandered.

Finally, I can’t help but note that until a few months ago, the Board and the staff were bragging about how much was accomplished with the renovation and how wonderful the schools would be when it was completed.  There was no talk about any of the supposed problems that will supposedly be solved by the current $90 million proposal, nor were there many complaints about the items that are now being touted as being so important.  The current proposal is simply not credible.  In contrast, what I have said tonight can and will be backed up with copies of official district documents and reports which I will make available to the public on my website soon after my term expires.

In summary, I believe that this is a HUGE mistake and urge the Board to reconsider.  The deadline for passing this is December 7, so there are still 9 days or so to try to do the right thing.

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