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Thursday, June 22, 2006

Passing on Building Debt

By Viewlands parents Julie Howe Gwinn, Doug Lidz, Lynn Miller, Ron Wang, and Kathryn Wenke.

Passing on the Seattle Schools building debt to our kids is another painful lesson from the District. Let’s review a couple of interesting points about that $50 million Seattle Schools
headquarters building.
  • Original cost: $30 million.
  • Final cost: $54.5 million.
  • Actual cost: $104 million.

The $54.5 million new school headquarters in SoDo actually cost $104.5 million, the District confirms. Officials just prefer not to mention the $50 million in loan interest that taxpayers will be paying over 25 years. We don’t need a calculator. $54.5M + $50M = $104.5M.

That’s why the monorail folks thought they had a sure thing going. They learned from Seattle Schools District.

Originally, the building was to be paid for by the savings and income from consolidating operations. Now it won't be. The rosiest projections leave the district $33 million short, and Steve Nielsen (2003 Finance Director School District) candidly admits that such estimates are "non-scientific". Conservatively, the loss will eat up more than $1 million annually the district had promised would go to classrooms. The new, wider District financial crisis, requiring even more cost-cutting and savings, now guarantees the headquarters will become the biggest single wretched excess on school books.

From Seattle Weekly articles:
”Soon thereafter they (Seattle Public Schools) came to us and said they needed $338 million and $178 million in two levies, one for educational services, and one for school improvements. We approved it. Now they have another debt, and our children will be paying for it.”

The money trail...look at that $33 million figure...isn't that something like what they're after right now?

Never mind selling half the building. Sell the whole building and rent one floor from Starbucks, or just call Tully’s across the way. Whoever offers the most affordable rent for the largest amount of space gets Seattle Schools as a tenant.

And both landlords make good coffee.

3 comments:

Anonymous said...

When the district first said that the new headquarters could be paid for from savings, they agreed to announce, each May, the savings realized from the move to the JSCEE. Starting with the first year they failed to make that report until Chris Jackins demanded it. Each of those years the report showed that the cost of the building was NOT covered by savings - not by a long shot. The district has discontinued making those reports even though the Board resolution requires them to do so.

Last year, the district swept $30 million of capital budget overruns under the rug with a bit of fiscal sleight of hand. They used one of the accounting tricks that had helped to cover up the $30 million operating budget overruns. The Moss-Adams report recommended that they not use this accounting trick because it was inherently deceptive, and, as part of their fiscal integrity policy, the District is prohibited from using that trick IN THEIR OPERATING BUDGET. They felt no restriction from using a patently deceptive accounting practice in the capital budget when they wanted to cover-up those cost overruns.

Let's remember that $30 million in uncontrolled spending cost the previous Superintendent his job and the previous Board's failure to hold him accountable got many of the current Board members elected. $30 million in uncontrolled spending by this Superintendent was swept under the rug, and the current Board helped him to hide the fact.

Despite being strapped for cash and having to slash the budget, the district transferred a significant amount of money from the operating budget to the capital budget last year to retire some of the JSCEE bonds. Some have suggested that the transfer to pay off bonds is what put us in the tight spot we're in today.

Prior to the bonds for the JSCEE, the district had never issued bonds before. Joseph Olchefske was a former bond salesman for Piper Jaffrey. That was the last job he held before he became the district's COO.

Before the election two years ago that replaced four Board members, those Board members were touting the BEX I capital levy projects as "on time and on budget". In fact they were neither. Many of the projects were delayed and the district's financial office was reporting the BEX I projects as $6 million overbudget - not counting the Stevens fiasco. Four months later, before the levy vote on BEX II, the Superintendent was quoted as saying about BEX I "I just want to tell you that this is one of the best-run capital-program systems, public or private, and I can say that honestly." A few months after the vote the truth about BEX I came out: it was actually $12 million overbudget. The Center School project, budgeted at $1.5 million, actually cost $6 million - and the district doesn't even own that space. They lease it from Seattle Center. Superintendent Manhas knew, or should have known, the actual costs of the project when he was making deceptive statements to the public in advance of BEX II.

Every single BEX II project has run overbudget. In some cases the district staff wrote fantasy budgets that ignored reality, in most cases the schools added to their projects and the Board approved the additional spending.

The district spends the capital budget like drunks on vacation and it puts the BEX III levy at risk. No one - not the BEX II oversight committee, not the district staff, not the project managers, not the Board - no one is exercising any restraint at all.

BEX III is where the money is supposed to come from to fix up Hamilton, for a building for Pathfinder, and for The New School

Dan said...

Beth, I appreciate the point you're making about the potential opportunity cost of the stream of funds. I say potential because that assumes the dollars are fungible -- i.e., revenues could have been used either for capital debt service or for annual operating costs. If that's the case (and I don't dispute it, just don't know), then I agree there are meaningful tradeoffs.

But even so, I don't think it's entirely fair to conclude that the John Stanford Center "costs" $104M. By that logic I live in a $1M house. Wish that were true, but it's not the case. I'll be paying oodles of greenbacks in financing cost to the bank for next 30 years for my mortgage, I'll be paying taxes to King County for as long as the land and improvements exist, etc., but the house only costs what I paid the previous owner at the time of purchase.

-- Dan

Beth Bakeman said...

Dan,

Point of clarification...I did not write this post. Please note the names of the Viewlands parents who did.

However, I think in public budgeting it is generally considered relevant and appropriate to include future interest payments are part of the overall "cost" of a project.