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Questions raised about MDUSD bond expenditures

By Theresa Harrington
Friday, February 17th, 2012 at 7:51 pm in Education, Mt. Diablo school district.

Alicia Minyen, the taxpayer representative on the Mt. Diablo school district’s 2010 Measure C Bond Oversight Committee, has been raising questions about bond expenditures since she joined the committee.

Most recently, she is questioning two items that appear in the district’s first audit of money spent from the $348 million measure. The audit was completed by Christy White.

Here are the items questioned, as noted in the audit, which has not yet been posted on the district’s website:

Lease and general obligation bond payoff

On page 20, under “Tests of Expenditures”
“…In addition, the bond proceeds were used to prepay outstanding lease and general obligation bonds for a total of $14,288,580. We were unable to verify specifically in the bond ballot language the allowability of bond proceeds for debt service. Upon further inquiry, the district’s legal counsel advised us that these redemptions were permissible uses of the bonds and we relied on their expert legal opinion.”

Based on this, White concluded: “We found all expenditures tested to be in compliance with the terms of the Measure C 2010 Bond ballot measure and applicable State laws and regulations, without exception.”

Here is what the ballot measure said:

“To support quality education and safety for local students, and reduce impacts of State budget cuts by improving science, career and technical education facilities; upgrading classroom instructional technology; repairing leaky roofs; improving safety; maximizing energy efficiency including adding solar panels and modern air conditioning; and repairing, replacing, equipping or modernizing other school facilities; shall Mt. Diablo Unified School District issue $348,000,000 of bonds at legal interest rates, with independent citizen oversight, audits, and no money for administrator salaries?”

Issuance costs paid with bond premiums

On page 20, under “Deposit of Bond Proceeds”

“…The issuance costs were paid for with bond proceeds in the case of the Series C and D bonds, which appear proper. However, $1,781,511 in issuance costs was paid out of bond premiums for the Series A and B bonds. While this is an industry standard practice, there is a private letter to Poway Unified School District’s bond counsel from the State Attorney General’s office which expresses concern about the industry practice of artificially inflating the bond yield to generate a premium for cash out for construction and/or payment of issuance costs. The district did not receive any cash out for the construction purposes, which was the main concern of the Attorney General’s Office in citing the Superior Court decision. But, the district did use some of the premium for issuance cost payments, again a common practice. We found that the district did properly deposit these premium in a debt service fund pursuant to Education Code 15146(f) and then transferred the funds to the bond fund for payment of the issuance costs. Therefore, the district appears to have complied with the law.”

The letter says: “The law is clear that any premium, even if legitimate, must be deposited into a special fund, applied to pay debt service, and therefore cannot be diverted to pay costs of issuance.” It cites Gov. Code Sec. 29303 and Ed. Code Sec. 15146(f).

Gov. Code Sec. 29303 says: β€œ…Whenever any bonds issued by any county or by any school, drainage, or other district in any county, whose accounts are required by law to be kept by the county auditor and treasurer, are sold at a premium or with accrued interest, or both, the amounts received for the premiums and accrued interest shall be deposited in the debt service fund of the county or district unless it is expressly provided by law that they be deposited in some other fund.”

Ed Code 15146(f) states: β€œThe proceeds of the sale of the bonds, exclusive of any premium received, shall be deposited in the county treasury to the credit of the building fund of the school district, or community college district as designated by the California Community Colleges Budget and Accounting Manual. The proceeds deposited shall be drawn out as other school moneys are drawn out. The bond proceeds withdrawn shall not be applied to any other purposes than those for which the bonds were issued. Any premium or accrued interest received from the sale of the bonds shall be deposited in the interest and sinking fund of the district.”

Minyen questions whether the district’s bond counsel from the law office of Matt Juhl-Darlington can be considered to be truly independent. The firm contributed $10,000 to the Measure C campaign, including $5,000 donated May 10, 2010 (less than a month after the board approved a contract with the firm if the bond measure passed) and another $5,000 contributed so late that it didn’t get reported to the public until the election was over.

At the meeting, Committee Chairman John Ferrante initially told the group it couldn’t vote on the audit, since it hadn’t been publicly noticed as an action item on the agenda. Pete Pedersen, the Measure C program manager, said he didn’t realize he was supposed to do that. He said he had been expecting the group to accept the audit.

Since no one else raised any concerns about the agenda, the committee voted 7-0-1 to accept the audit as presented, with Minyen abstaining. Two of the members who voted to accept the audit had arrived late and missed a portion of the presentation and discussion, Minyen said.

Now, she’s wondering if the vote was legal due to the lack of public notice and lack of a quorum when the presentation and discussion began.

The audit covers expenditures through June 30, 2011. One committee member said she wants to be sure the next audit includes objections some members have to the district’s plan to install solar panels at Holbrook Elementary in Concord, which the board decided to close.

Pedersen has defended the idea of putting solar on the school, saying it could reopen in the future. But some committee members say it wouldn’t be cost effective to spend about $800,000 on a project that may not return the investment.

Do you agree with Christy White’s audit conclusions?

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