In SCV, We Game the School Construction System
By Leon Worden
Note: A separate commentary from the SCV Facilities Foundation appears below the following column by Leon Worden.
In an opinion column today (see below), the foundation board members write, "By structuring the (school) development process through the foundation, the (William S. Hart Union High) School District was able to maximize state funding that made the entire project possible. But that's not the whole of the story."
It certainly isn't.
The foundation was created in 1998 to run a con on the state of California and its taxpayers. There's no other way well, no blunter way to put it. It's the whole reason the foundation exists.
See, the state is willing to fund 50 percent of the cost of building new schools. The foundation setup has enabled the school district to "maximize" its share of state funding by inflating the price of the land.
Is this a good thing? Foundation members will tell you and I believe them that their purpose is noble. The state doesn't provide enough school construction money to keep up with our growth, so the foundation organizers invented a clever way to get more. The real winners are the kids, who get beautiful new campuses instead of overcrowded portable classrooms.
But is it legal? I don't know.
I inquired a week or so ago whether the foundation has ever requested an official opinion from the state attorney general, to wit: Is the foundation setup truly consistent with the Legislature's intent for school funding? The foundation has never asked for such an opinion.
Seems to me, if the real problem is that the developers aren't paying enough for new schools, you change the laws that let them skate. You don't game the system. You don't shift the burden from the developers to the state taxpayers. We are state taxpayers, too. It's just not right.
But that's what we do in Santa Clarita.
I don't profess to fully understand the nuances of this funding scheme. It's a complicated beast, and we've had trouble over the years in getting a thorough accounting. But here's an example to illustrate the concept:
In 1998, the school district coveted a piece of property for Golden Valley High School. The 135-acre parcel cost something like $600,000.
How could 135 acres in the interior of Santa Clarita be so cheap? Because it wasn't buildable. It was on a ridgeline that was protected by a city ordinance. If buildable, it would be worth a lot more.
Why did the school district want it, if it wasn't buildable? Because school districts aren't bound by city building ordinances. A private developer couldn't build there, but the school district could.
For a paltry $600,000, it was a great deal for the school district, right? Not exactly. If the school district purchased the land for $600,000, it would get only $300,000 back for the land when it billed the state for half the cost (plus half of the school construction price tag).
But if the school district could somehow show the state it paid millions for the land, the district would get half of a much greater amount from the state.
So, did the district lie to the state about the price it paid? No. It didn't buy the land for $600,000. Instead, as I understand it, it transferred the $600,000 to the Facilities Foundation, which bought those 135 acres with the money it "borrowed" from the school district.
Hold the phone. Who is this foundation? At the time, the foundation was a group of five individuals (now seven), duly organized under the laws of the state of California as a nonprofit entity (which makes the organization, albeit not necessarily its actions, legal).
While some of the five individuals are affiliated with the school district, they run the foundation as individuals. The foundation is theirs. It's not part of the school district. On paper, there is little difference between the district handing $600,000 to the foundation on the promise of buying land for a school, and the district transferring $600,000 to me and four (or six) of my friends on the promise of buying land for a school.
You'll note that in today's commentary, the foundation says it has one part-time clerical employee, and it "hires outside consultants as needed, to manage specific projects."
According to its board minutes, two foundation board members including an individual who is also a school district employee act as the "real property negotiators" for the foundation. Are these foundation board members among the foundation's paid consultants when they perform property negotiating or management services?
We've seen the records the foundation wants us to see. No invoices from the past seven years were included. We still don't know.
The foundation says it has withstood the test of time, and it's right. Its unfettered flying under the radar is directly attributable to our failing as a news organization to delve deeply or consistently enough. Any time we've asked to see records, they've been conveniently unavailable, and we haven't pushed it. Now the foundation hands us a few pages of financial documents and there are no receipts to show how much it has paid for what to whom.
The foundation purchased those 135 acres atop the Golden Valley ridge with the school district's $600,000 and graded most of them. Now buildable, land that once was worth only $600,000 is worth millions far more than the cost of grading. With land, the value shoots up when it's entitled for development.
The school district needed only 53 of those 135 acres for Golden Valley High School. In 2003 the district bought or, bought back 53 ready-to-build acres from the foundation at its higher, entitled, fair-market price.
Now, rather than half of $600,000, the school district could show the state it paid millions (to the foundation) for the school site.
I said I don't know all the nuances. Exactly which pot of money the district used to pay the foundation for the 53 acres, I'm not sure. What the foundation intends to do with the millions of dollars it's got in the bank, I'm not sure. At some point, the foundation was able to purchase land in Sloan Canyon where Castaic residents don't want a school. Last I knew, the foundation still owns the Sloan-Hasley site. What it plans to do with it now, I'm not sure.
Back atop Golden Valley, the foundation still had 82 acres (the original 135 minus the 53 it sold to the school district). The foundation recently inked an agreement to sell 31 of those acres for $14 million to Centex (a home builder), as soon as the foundation (acting as the developer), wins the city's approval to build condos there. What about the ridgeline ordinance? Forget it. The foundation graded more than just the 53-acre school site.
Theoretically, the $14 million from Centex will be available to the foundation to use for future school site acquisitions.
That's the theory, anyway.
There's nothing in the law to force the foundation to do the bidding of the school board. Our publicly elected school board members can't dictate to it. The five (now seven) individuals who run the foundation aren't elected, and their only accountability to the public is what they choose to let the public know. They could decide to dissolve the organization tomorrow.
We often talk about "transparency" when it comes to handling public funds. The idea of shifting school district money to a group of five individuals, acting on their own accord, not legally accountable to anyone but themselves, is unnerving.
Even more unnerving is the use of public funds as "seed money" to buy land for ridgeline condos that shouldn't, by ordinance, exist.
And it isn't just the money. The whole idea of our publicly elected school board giving five (or seven) unelected individuals the authority to negotiate for new school sites and make decisions the school district should be making that's troubling.
Most troubling is not knowing whether the foundation's game is legal or consistent with the Legislature's intent for school funding.
"Structuring the development process through the foundation" to "maximize state funding" is a novel idea. Now let's find out if it's legal, and if it is, let's decide if it's right. Many people whose opinions I ordinarily respect believe that when it comes to school funding, the end justifies the means, and they have no problem with the foundation's inherent premise that two wrongs make a right.
Even if that means shifting the cost burden for new schools from the developers to the taxpayers.
Is that the majority opinion? We could find out by putting it to a vote and seeing if this is the way the people of the Santa Clarita Valley truly want their school district to operate.
Leon Worden is the president and CEO of SCVTV | Local Television for Santa Clarita.
Foundation Stands the Test of Time
By the Santa Clarita Valley Facilities Foundation
Funding for new schools was difficult to come by, and locating suitable sites was even tougher. Several school bond measures had gone down to defeat.
Something had to be done to break this bottleneck. The Hart district board developed a concept for a public-private partnership that could get a school project off the ground, move it along quickly, minimize costs and maximize state funding.
The school district's concept was to form a public-benefit corporation a private, nonprofit foundation that could focus on a school building project and bring it to fruition.
Working with prominent community leaders, the school district board helped to establish the Santa Clarita Valley Facilities Foundation with a mission to find a way to build the much-needed Golden Valley High School and relieve severe overcrowding.
The result is that Golden Valley High School was built and opened for students last September. It will serve 2,600 students and has assisted in alleviating overcrowding in the other local high schools Canyon, Hart and Valencia.
What many may not be aware of is that by structuring the development process through the foundation, the school district was able to maximize state funding that made the entire project possible.
But that's not the whole of the story. Along the way the SCV Facilities Foundation, in a successful joint venture with the city of Santa Clarita, provided a means to build a key portion of the Golden Valley cross-valley connector road at a substantial savings to taxpayers.
And now, the Facilities Foundation is in the process of selling residual property adjacent to the Golden Valley site it developed, and all of those funds will be plowed back into the education of children in the Hart district. That's the only thing the funds can be used for; it's the stated mission of the foundation.
None of this would have been possible without the foundation as an independent vehicle for marshaling the school site development. It was a new concept in 1998, and it is one that has now proven its worth.
Perhaps because it is a relatively new concept, the foundation and its work may not be familiar to everyone. The legal structure as a "public benefit" corporation also accurately describes the work and nature of the foundation.
The foundation is a nonprofit organization, and the members of the board of directors serve on a voluntary basis without pay or compensation for services of any kind. The foundation has just one part-time clerical employee, whom it shares with the Hart school district, and it hires outside consultants as needed, to manage specific projects.
The foundation voluntarily follows the "open meeting" rules that apply to every elected body in this state, and it regularly attracts members of the public to its meetings. A complete listing of all meeting agendas can be found at the foundation's Web site, www.hartdistrict.org/ foundation. They are posted in advance of every meeting, and attendance by members of the public is welcomed.
The Foundation's finances are also a matter of public record and are subject to an annual independent and certified audit. These financial statements are available from the foundation office.
In addition to five community leaders who were appointed to the board when it was founded by the school district, two additional seats have been created as a means of expanding independent oversight. One seat is reserved for the Hart district board president, and a second seat is held for the school superintendent.
Perhaps most importantly, in these times of tight government budgets, the foundation is now self-sustaining. All expenses are paid out of its own funds, which are generated from its development activities.
The Golden Valley projects involved a complex set of transactions. These projects required that the foundation meet all of the relevant rules, regulations and standards from myriad government agencies local, state and federal. The projects were formulated through many public meetings of the Hart district school board, the Santa Clarita City Council and those of the foundation's own board.
Through the foundation, the Golden Valley school and road projects were structured in a way that saved millions of dollars in costs and ensured that the school district would receive the absolute maximum in construction funds from the state and federal governments. The projects produced a surplus that will now be invested in our schools and the education of our children.
The school board, working with the foundation, is now able to consider the construction of new performing arts centers at Canyon and Saugus high schools.
As our community grows and develops, our needs and challenges with student enrollment also expand. The solutions will have to be as resolute as the problems we face. The SCV Facilities Foundation is one of those solutions that has now stood the test of time.
This column was submitted by the directors of the SCV Facilities Foundation: Richard A. Patterson, Gary E. Condie, Teresa Todd, John Hassel, Robert C. Lee, Dennis V. King and Rory Livingston. It represents their own opinions, and not necessarily those of The Signal.
©2005 LEON WORDEN · ALL RIGHTS RESERVED.
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