By Connie Llanos, Staff Writer - L.A. Daily News | http://bit.ly/bitGPW
10/17/2010 03:26:49 PM PDT - A new audit of Los Angeles Unified's massive $20 billion building program raises concerns about the district using overly optimistic projections in its budgeting and cautions officials about authorizing new construction projects.
The report comes as the school board is set Tuesday to finalize $320 million in loans for new capital improvement projects such as installing solar panels and relocating a police station.
The report by Capital Program Management, Inc. warns the district that while it expects nearly $900 million in bond funds owed by the state, it should only count on receiving about $220 million for now.
That could force the district to dip into its general fund - used to pay for salaries, programs and supplies - to pay back future loans, rather than count on money it already has on hand in its bond reserves.
The report has at least one board member rethinking Tuesday's scheduled vote. Board member Yolie Flores said the report makes her question whether the board should approve all $320 million, but she acknowledged that there are times when short-term loans are necessary.
"At home, sometimes you don't want to use a credit card but if it's an emergency and it's about your family sometimes you're just going to have to use it," she said.
While the district technically still has billions of dollars in voter-approved bonds to build projects, most of the money has been allocated for projects and the rest is state funds that are not being released due to the economic crisis.
School board officials want to use certificates of participation - loans used by districts to fund projects and generally paid back from the same fund that pays for teacher salaries, textbooks and supplies - to borrow money in the short term and pay it back with bond program reserve dollars.
But this strategy could get the district into trouble, since the report says spending the reserves to make payments on new loans could leave the district's building program in a deficit if unexpected costs occur.
"Established practice in the industry is that reserves are generally kept intact until the end of the program, because it is impossible to predict the occurrence of the type of event that calls on use of reserves," the report said.
Using reserves to make debt payments could backfire if the state's finances don't improve since the district's building program is already in a deficit if uncollected state funds are not included in the books, the CPM report says.
"At present, if uncollected state funds are not counted in the totals, LAUSD's program is by its own accounting about $114 million in deficit," the report says.
"LAUSD expects current funding from the State to materialize ... however, CPM recommends that the District not commit the money until it has been confirmed as secure," the report says.
District officials have said that most of these projects would have been funded by Measure Q, the district's $7billion voter-approved bond passed in November of 2008, but declining home values have also stalled the collection of these bond funds so district officials don't expect to begin collecting until 2016.
Still, LAUSD officials say they want to press ahead with projects now when it is cheaper to build than wait and pay much more later.
"The current bidding climate is such that it is much more cost-effective to release work now than it may be in the future as the economy recovers and construction costs rise," said Neil Gamble, LAUSD's deputy chief facilities executive.
District officials said CPM was overly conservative in its study and they are not making any recommendations, positive or negative, based on the document.
Some who follow the district's building program closely, however, think it is safer to wait.
"This review shows that we don't know enough about the future to go start planning more projects," said Scott Folsom, a long-time LAUSD parent advocate and member of the district's Bond Oversight Committee.
The report also suggests that the district's facilities department would have a better sense of how much reserves it actually has if it had stricter oversight of its budget.
The report says some of the lax financial controls could be leading to more change orders from contractors, letting them increase their final billing.
Project teams often demonstrate a lack of discipline in controlling costs, always knowing they can "go back to the well" if they have cost overruns, the report said.
It also found that most change orders were being added to construction bills at the end of projects - usually when change orders are most expensive.
The audit also found that contractor requests for change orders are rarely turned down.
"We were first told that a fairly elaborate and rigorous process was required to request extra money for a project from program reserves, then told in the next sentence that such requests were virtually never denied," the report says.
Flores said she did not plan to approve any more projects until she got better information on the long- term financial picture for the district's construction program.
She also raised concerns about the district's release of this report, which was dated Aug. 30 but not distributed to board members until this week after Flores asked for the information.
"I don't appreciate not having information that could help me make a decision," Flores said.
●●smf's 2¢: If I said "This review shows that we don't know enough about the future to go start planning more projects," (and I may have) what I meant was that we don't know enough about the future financial picture to start spending money on more projects.
This is the BEST POSSIBLE TIME to do long range/long term planning for that day when money is available and the future a little more clear.
COP debt is against the District's General Fund - and the General Fund is hugely in deficit. The intent of the Board and the Superintendent is to repay the COPs from Measure Q when Q Bonds can be sold - but kids now in elementary school may well be High school graduates before that can happen. And four of the current board members and the current superintendent may not be be here as of next July 1.
I too hope the State of California will pay the money it owes LAUSD - but when I set aside my rose-colored-glasses+put my 'reality cap" on I don't see where the state will get the money it owes the children of LA.anytime soon. And when LAUSD does get the money I wonder if will not be not better spent on cleaning and maintaining our schools, reducing class size and purchasing new textbooks …rather than relocating School Police HQ. And I love the School Police!