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MDUSD responds to grand jury report

By Theresa Harrington
Monday, August 15th, 2011 at 1:03 am in Education, Mt. Diablo school district.

In April, the Contra Costa Grand Jury released a report regarding the district’s 2010 Measure C bond, organizational structure and finances. I recently obtained the district’s response, which was sent May 24.

I am posting both below.

“Contra Costa County Grand Jury Report 1102
FINANCIAL CHALLENGES PERSIST AT MDUSD
TO: Mt. Diablo Unified School District Board of Education

SUMMARY

Mt. Diablo Unified School District (District), like other school districts, has suffered revenue losses. The District has had ongoing budget deficits due to declining enrollment and reduced State funding. The District continues to face increasing costs for salaries and benefits. In an effort to address revenue losses and to complete identified projects not funded by a 2002 Bond, the District Board of Education (Board) sought passage of a bond measure (2010 Bond) that was later approved by the voters.

Four factors raised questions regarding the Board’s procedures and transparency:

- an expedited bond initiation process,
- a lack of open discussion at Board meetings of the full range of costs for financing a bond,
- revisions to the organization’s structure within the District, and
- continuing budget shortfalls.

Completed initial Bond offerings suggest that bond interest expenses should be less than the worst case scenario calculated by the bond advisor or reported in the news media. A potential 42-year life of the 2010 Bond could tie taxpayers to a long-term financial
commitment that significantly impacts future Boards’ ability to address funding shortfalls.

BACKGROUND

The Mt. Diablo Unified School District can be characterized as a microcosm of California demographics. One of the largest school districts in the State of California, the District has more than 56 school sites and programs. District statistics – for ethnic/racia1
diversity, average class size, test scores, number of Limited English Proficient (LEP) students and the primary languages they represent – mirror those of the State.

The District encompasses the cities of Concord, Pleasant Hill and Clayton, portions of Walnut Creek and Martinez, and unincorporated areas, including Lafayette, Pacheco, and Bay Point. Student population for K-12 is approximately 33,200 students.

The Board is composed of five elected members. As stated on the District’s website, the Board recently set the following goals:

- Improve the achievement of all students and close the achievement gap
- Improve attendance and reduce lost average daily attendance
- Insure access to all programs and services for all students
- Improve maintenance and facilities and appearance of the grounds
- Address legal and programmatic mandates
- Support new program initiatives:
o Career Integrated Academics
o Early Childhood Education
o Smaller Learning Communities
- Maintain sound fiscal procedures and practices.

The District Budget and Fiscal Services Department is responsible for developing and maintaining a balanced budget. The FY2010-11 Approved Operating Budget is $268.4 million.

The District has faced funding reductions from the State and from declining enrollment. In response to revenue losses of $20 million, the District has resorted to staff and service cuts by reducing its Approved Operating Budget by $17.9 million over the past three
fiscal years (FY2008-09 thru FY20 10- 1 1).

Even with significant efforts to reduce operating expenses, the District’s last two Annual Audits shows a cumulative deficit of $5.1 million as shown in the Table below: [Due to technical difficulties, the chart is not included in this blog. You can see it at http://www.cc-courts.org/_data/n_0038/resources/live/rpt1102.pdf]

Approximately 81 percent of the Approved Operating Budgets for the past three fiscal years has been committed to District employees’ salaries and benefits.

Since 2007, the District has discussed and attempted passage of a parcel tax to remedy budget shortfalls. A parcel tax generates school revenues at the local level to be used for general operating expenses without incurring interest costs. The District was unsuccessful in 2009 when a parcel tax was narrowly defeated. Subsequent surveys validated that securing the necessary two-thirds voter approval for a parcel tax was unlikely.

After the parcel tax failed and still faced with revenue losses, the Board sought new cost savings measures and revenue sources to offset operating expenses. In January 2010, the District began considering a bond measure. By law, funds raised from a bond can be used only for capital projects. Bonds require a 55 percent voter approval and the appointment of a Bond Oversight Committee (Proposition 39 and Education Code Sections 15278k, 15280 and 15282). Previously the District had prepared a list of capital projects with an estimated cost of more than $1 billion. About one-third of these projects had been completed with funds from a 2002 Bond.

On March 9, 2010, a resolution to seek voter approval for a $348-million bond was unanimously approved by the Board. Alternative bond financing measures provided by a financial advisor were reviewed by District staff. However, these financing alternatives were not discussed at open Board meetings. The resolution was placed on the June ballot for voter approval. The terms and conditions of the Bond included maintaining the existing tax rate (currently $60 tax per $100,000 of property valuation), and extending the repayment duration for up to 42 years. In the judgment of the Board, this scenario provided the best opportunity for voter approval.

The initial Bond offerings were completed at an interest rate significantly lower than the projected worst case scenarios as calculated by the bond financial advisor. Based on current low interest rates for bonds the probability of reaching the worst case scenario is diminished.

One feature of the 2010 Bond allocated $68 million for installing a solar energy system that would decrease operating expenses (i.e. reduce utility bills). The savings could be used for other operating expenditures. The District estimated that the solar energy system would create $5 million per year in savings, based upon receiving energy rebates, for the first five years after installation. Subsequent savings are estimated at $3 million per year for the remaining life of the solar energy system.

Some parents mounted a ‘Yes on C’ campaign that was funded by an assorted group of interested parties. There was no formal rebuttal on the ballot measure filed with the Contra Costa County Elections Office. The 2010 ballot measure does not state a range of costs to the taxpayers for the entire bond term. Voters approved the bond in June 2010. The Bond measure, from inception to voter approval, took only five months.

Another approach to reduce expenditures included changes to the District’s organization structure. This included eliminating some management positions and consolidating responsibilities into remaining positions. Specifically, the Assistant Superintendent of Administrative Services position was eliminated and some duties were assumed by General Counsel. The time demands of this newly assigned administrative work takes time away from conducting legal work. Recently another attorney was hired to assist with legal duties.

Despite cost cutting and revenue generating efforts during the past several years, the District still faces an operating expense deficit of approximately $8.6 million for FY2010-11.

FINDINGS

1. No discussion of the 2010 Bond’s possible financial ramifications took place at open Board meetings before the Board passed the resolution to proceed with a ballot measure.

2. Some of the capital projects, such as solar panels, insulation and window replacement, to be financed with the 2010 Bond should generate energy cost savings for the Districts.

3. The organization restructuring of the General Counsel’s responsibilities has not resulted in anticipated operational effectiveness and may not have fulfilled the cost savings originally projected.

4. In addition to the anticipated relief to the general fund from specific 2010 Bond projects, further savings could be achieved through further salary and benefit expenses reductions.

RECOMMENDATIONS

The Grand Jury recognizes the Board for their efforts in addressing funding problems in these challenging fiscal times. The Grand Jury has the following recommendations:

1. When contemplating future taxing measures, the Board should allow sufficient time for full disclosure to the public of financial information including legal fees, underwriting costs and repayment obligations. The Board should develop a written process addressing discussion of the financial consequences of taxing measures in a public forum and share their proposal with the public in the next 180 days.

2. To verify the estimated energy savings from specific planned capital projects, there should be an annual audit of energy expenditures. The audit should focus on and reflect any costs reduced by the use of solar panels funded by the Bond. This audit should be done within 180 days after the initial solar panels are installed and continue on an annual basis for 3 years.

3. The Board should review the effectiveness of combining the General Counsel’s responsibility for legal work and services with transportation, maintenance and food services. They should also analyze the impact of combining these responsibilities on actual costs.

4. The Board should continue to pursue reducing salaries and benefits to address the District’s 2011-2012 budget shortfalls.

REQUIRED RESPONSES

Findings

Mt. Diablo Unified School District Board of Education 1 through 4

Recommendations

Mt. Diablo Unified School District Board of Education 1 through 4″
————————————————
[END GRAND JURY REPORT]

Here’s the district’s response: http://www.docstoc.com/docs/document-preview.aspx?doc_id=89997086

Do you believe the board should have discussed the report and response during a public meeting?

AUG. 17 UPDATE: I just spoke to Lloyd Bell, the current civil grand jury foreman, who served on the grand jury that issued the report. I specifically asked him about the district’s response to finding number 1, which states, in part: “The respondent disagrees with the finding and is unclear as to the factual basis there for. The board had an extensive conversation on March 9, 2010, concerning the possible financial ramifications of the bond. The board discussed the tax rate extension, tax rate estimates, the par amount of the bond, and a possible bond proceeds schedule…”

Since this directly contradicts the grand jury’s finding, I asked whether the grand jury would take any further action on that issue.

Bell said the grand jury does have options to follow-up, if it disagrees with the district’s response. However, he said he couldn’t tell me whether it would or not, due to the confidentiality of the proceedings.

“There are things that can be done,” he said. “The grand jury, if it decides that the issue warrants further evaluation, could conduct another inquiry.”

If this occurs, the public wouldn’t find out until another report is released, he said. The grand jury could also seek clarification in a letter or invite district officials to clarify their response during a confidential interview in the grand jury room, he said.

“It’s very important that the public also has within its authority the ability to appear at a board meeting and question their response to the grand jury’s inquiry,” Bell said. “That is perhaps one of the most visible and effective — and the quickest way — to clarify that situation.”

He said the grand jury is prohibited from disclosing who it interviewed, what it considered, what it is evaluating and what it isn’t looking at.

“I can outline what we can do,” he said, “but more importantly, what the citizens can do, once they see their response.”

If the grand jury takes further action, it would do so before mid-June, 2012, Bell said.

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  • Dan

    Bravo Alicia,

    I will be at the meeting. I will be asking tough questions of John Ferrante and will be taping the whole proceedings on my videocamera which I will post on youtube afterwards.

    It is time some sunlight is directed at the filthy infected swamp that has become the Measure C project.

  • Theresa Harrington

    Dan, Please provide me with the link to your YouTube video after the meeting so I can embed it in my blog.
    It’s very unfortunate that no recording of the March 9, 2010 board meeting is available to the public.

  • Dan

    Theresa,

    I will be happy to provide you the link.

    All: I would like to fully understand my rights as I expect Mr. Ferrante will try to shut me down. My current understanding is the following:

    1. I have the right to tape the public meeting.
    2. I have the right to post the tape of the public meeting.
    3. I am not required to identify myself at the public meeting or during public comment.

    Anything else I should be aware of or know about?

  • g

    I hope to be there too–but Mondays are very difficult. I have a couple of questions that I have not brought up here. I fear to do so would give them ample time to “hide the ball” before the meeting.

    In case I cannot be there, is there a way to email the question to Alicia or Dan directly?

  • Theresa Harrington

    g: If you email me at tharrington@bayareanewsgroup.com, I could forward your email address information to Minyen.
    Dan: It is unclear whether Ferrante will allow public comment on individual agenda items. In the past, he has only allowed general public comments at the beginning of the meeting.
    You are also free to submit comments in writing, if you don’t believe you would have enough time to express them during the time allotted.

  • g

    Dan, I am appalled when I see at Board and even County level meetings when they say “Please state your name and address for our records” before they let you talk. I have even seen them stop the person, and insist. Then I am amazed at the people for putting up with it, probably because they don’t know their rights.

    The Brown Act clearly states that you do not have to identify yourself at all, and you certainly do not have to give your address in public!!! I would suggest that you fill out the speakers card (if provided) as Dan, and name of city. Then when called you introduce yourself as: “My name is (first name–or nickname–only) and I am a resident of (name of city), and go right on talking.

  • wait a minute

    This is really excellent as a tap of their responses can then be shown to experts in the arcane field of bond law and we can start getting some real answers as this onion get peeled back.

  • Theresa Harrington

    Even those who aren’t experts in the arcane field know that a Bond Oversight Committee member is entitled to receive detailed financial records. And public agency watchdogs say she shouldn’t have to file a Public Records Act request to get them.

  • Alicia Minyen

    I’m happy to address anyone’s questions and concerns. Just write to Theresa and she can provide my email address. Dan, thank you for video recording the meeting.

  • Doctor J

    wow, where there is smoke, there is fire ! MDUSD is clearly hiding something. We need a search warrant to confiscate all the computer and data bases to determine what is on them. The TRUTH must come out. The cloud of secrecy is hurting credibility.

  • wait a minute

    Maybe Peter Scheer of the First Amendment Coalition should be invited in to have a look?

  • Theresa Harrington

    The district has informed Minyen that it has copied 1,496 pages of documents in response to her July 5 Public Records Act request and her verbal request during the Aug. 9 board meeting, which will be available for review at Monday’s meeting. However, the district is requiring her to pay 10-cents a page, or $146.60, if she wants to receive the copies in advance of Monday’s meeting.

  • Doctor J

    Alicia is a committee member. The district cannot discriminate against her because she has raised claims of illegal transactions. This kind of crap must stop. I hope she posts the smoking guns on the web.

  • John Q

    Dan #53,
    You probably would be requested to identify yourself if you make public comment, for the sake of accurate minutes. Ironic isn’t it?

  • Dan

    Well be assured there maybe someone from the ’72 Dolpins attending the meeting on the 22nd then.

    Larry Csonka or maybe Bob Griese?

  • Theresa Harrington

    I have just posted Minyen’s email to the Bond Oversight Committee (asking for a special meeting) and her letter to the board (addressing specific questions to the bond counsel): http://www.ibabuzz.com/onassignment/2011/08/18/mdusd-bond-oversight-committee-meeting-to-address-questions-about-spending-audits/

  • Theresa Harrington

    Regarding my comment #21, I would like to clarify that I did ask a question at the June 16 bond oversight committee meeting that was answered. Then, another member of the public tried to ask a question and Ferrante told her that questions needed to be asked during the Public Comment period at the beginning of the meeting.
    I also spoke to Peter Scheer of the First Amendment Coalition regarding the public’s right to ask questions at meetings. He said that committees can require all public comments about any agenda item, or items not on the agenda, to be made at the beginning of the meeting, as long as that is clear on the agenda.
    He said the public is free to ask questions, but there is no guarantee that they will be answered.