Editor’s note: I’m starting a new discussion string from a comment on the District 428 School Board Forum. Stats are showing that readers are spending an average of more than 10 minutes reading the comments so its really a house-cleaning sort of thing.

Kerry Mellot is making an important point about what I’ll call the Resident Affordability Index (RAI). It is imperative that local elected representatives know and fully understand what the RAI is of the people who voted them into office.

Since the school district receives its revenue from residents through property tax, and that is a cost relative to the residents’ homes, then I suggest that those taxes be included in the 30% of gross income factor used as a guideline for mortgage lending.

The mortgage industry and its consumers either ignored the 30% affordability index, or they artificially inflated reported income earnings, or they “banked” on unrealistic future projections. Local governments nationwide, dependent upon property tax, also ignored the 30% rule. The current pre-Depression is the result.

School board members, who I believe are the most taken advantage of volunteers on the planet, must now-more-than-ever adhere to the RAI. The system used to elect school board members demands they represent the residents (all inclusive) of their community — or — demands they become snake oil salesmen every election season.

The populists line of thinking is that school board members represent Education in their elected duties. The naked truth is that they are elected as checks and balance to the spending required for our children’s education. They’re the only checks and balance we have. This places the school board member at odds (at times) with the very people they spend the most time with, after their election, the administrators.

If we grant that all motivations are pure we must also acknowledge that the administrators of District 428 are duly rewarded for executing their responsibilities. Regardless of their residence their compensation, on average, far exceed that of the median household income of DeKalb. If administrators are to remain duly rewarded then it should be expected of them to factor RAI into costs versus revenues.

An unintended consequence of practicing populism over naked truth is community gentrification aka suburban sprawl. Multi-generational resident families are forced to move from their hometowns because the RAI is increased beyond their capacity. Hardest hit are the lower middle income earners who must financially fend for themselves in their struggle to make ends meet.

Bringing it all home.

The school board, administrators and consumers of District 428 ignored the RAI in the $110 million referendum. No further proof of this needs to be presented than Paul Beilfuss’ answer to Kerry Mellot’s question pertaining to Dist 428’s median income, “I don’t know.” Further proof is Mike Verbic’s current position that the Board and Administration is trying to employ the $2 million TIF arrangement with the City to reduce the bond to $108 million. All things, like TIF is derived from property taxes, must be considered if RAI is adhered to and not ignored.

There now is, as described by Mike Verbic, a “mandate” to “fulfill” the referendum. It appears to be taking the form of a mandate to spend $110 million. The objective now appears to be to figure out how to borrow less than the approved maximum. Any notion of spending less than $110 million is defied by the very presence of add on options. There is absolutely no consideration of “subtract from” options.

Voters did approve the referendum, overwhelmingly. Is that not a statement of this community’s commitment to our children and our future? Is it not also a statement in trust that the Board and Administration not spend or borrow beyond those voters’ financial capacity?

The long and short of this long-winded comment is this: I know that Dist 428 board members, candidates and administrators are reading this discussion. I hope they share it with those among them who are not. I ask them to determine what this community’s RAI is and to factor that strongly into their decisions.

On March 2, the District 428 School Board learned from Mike Frances, a senior financial adviser for PMA, Inc. that the district is looking at a $1.5 million deficit heading into the next fiscal year. The District is authorized by referendum to sell up to $110 million in debt obligation bonds to build two new schools and repurpose three existing schools.

Yet, at March 18 Candidates Forum at the Egyptian Theatre, not a single direct question about the operating deficit or school construction plans was asked of the five candidates running for three open seats on the District 428 Board of Education.

Mike Verbic (President) and Michael Lord are seeking re-election to the Board. Andy Small chose not to run for another term.

Charles Hiller, Jessica Lyons and Mellodie Howard-Powell are the challengers in the school board race. The top three vote-getters of the five will fill the open seats.

The candidates generally agreed on most of the questions asked. Most of the questions were related to curriculum, diversity and the District’s Annual Yearly Progress (AYP) reports required by the No Child Left Behind Act. Verbic and Lord cited improved student test scores as among their top priorities. Lyons and Powell have both expressed concerns about lower test scores among the District’s minorities. Lyons promotes more parental involvement and input on their children’s education.

The candidates did discuss school construction in their opening or closing statements. Verbic and Lord emphasized their desire to see the referendum passed last year through. Hiller and Lyons noted the disparities between schools in the district. Hillier referred to the new high school, soon to be under construction, as a Taj Mahal in expressing his desire to serve on the board.

The budget deficit was also acknowledged. In response to a question asking what the candidates’ top three priorities are, finances were cited among all candidates. Hillier cited the low CPI factor used to determine a portion of the District’s revenue stream as a challenge. Powell believes increasing accountability and openness is needed to rebuild the community’s trust in the district.

Transparency and accountability was an area of contrast among the candidates. Lord and Verbic believe they will continue the District’s transparency and accountability. Hillier said that citizens only need to attend school board meetings to learn about the District. Lyons and Powell said those areas are of concern to them and will work to improve both.

I want to start out by saying that I supported the last school referendum. I also felt so strongly about the stand I took that I joined the Facilities Planning Committee (FPC). I also wish to state that the FPC is made up of a very concerned group of citizens who desire the best for the children being educated in District 428. This group has seen some lengthy discussions about enrollments, building sizes, and the future of all the district’s school buildings.

My concern is that we are making a mistake right now. The numbers that were used to promote the school referendum are completely different today then prior to the referendum on Feb. 14th. We all know that our economy has seen better days and no one can predict when we will come out of this. A recent demographic study pertaining to future enrollment numbers was completed by the same demographer that the district used for the referendum. Numbers now show fewer students in the new high school, in fact, 2012 shows 520 less students. This in turn is a result of less construction, families moving away from DeKalb, and an exodus of the Hispanic community due to fewer jobs available locally.

The referendum anticipated 600 new homes for 10 consecutive years (6,000) new homes to be built plus several already completed subdivisions also were wrongly counted for starts. For the referendum numbers to work, $20 million in new construction EAV is needed every year in order to maintain the $280.00 per year for a $200,000.00 home. This is not happening. We are currently $16 million over in anticipated interest repayment and looking to extend the number of years to pay down the bond debt. Also, the City of DeKalb experienced a windfall in that the city gets to keep the money from the referendum increase in all of their TIF District’s. The City of DeKalb is “graciously” giving the school district back 50% of which the district can spend any way they wish, not necessarily for the new schools. I strongly encourage the City Council to give back 100% earmarked for repayment of the $110 million referendum bond.

Our School Board is refusing to downsize the high school even though numbers show fewer students. We must design this school smaller with the ability to easily add on when needed. I would rather err towards a conservative approach. Has this community not learned from its past mistakes?

Ivan Krpan
FPC member

Round One: Citizen Finance Advisory Committee Meeting Jan 15, 4:30pm

First, for some good news… interest rates for debt bonds are at a low point in a rapidly fluctuating market, according to Liz Hennessy with William Blair and Company. The first $30 million in bonds were sold in mid-April 2008 and the District was able to take advantage of low interest rates at that time. By splitting the selling of the bonds into multiple segments taxpayers were saved millions of dollars in interest.

Since April 2008 the muni market has been volatile. Interest rates climbed rapidly in mid-September 2008 but fell sharply after the first phase of the federal bail-out package. A large number of underwriters (e.g., Bear Stearns, UBS, and Lehman Brothers) have either left the market or the extent of their future participation is in question which has hampered liquidity. Tax exempt 20 year rates has seen a growing gap between relative market value over the last eighteen months.

As the economy weakens municipalities and school districts could face lower revenues. Factors that have impact on the repayment schedule are extremely volatile. New construction has slowed to a halt. The CPI has plummeted to a potential 0% increase between December of 2007 and 2008.

Hennessy did point out to “the blogger” sitting in attendance (moi) that the use of $2 million of TIF revenue the City of DeKalb owes the District per the 2003 agreement was factored in to reduce the bond size to $108 million. While being called a blogger is certainly better than “whiner and complainer,” I guess I still have to point out that the $2 million I’m talking about has not yet been paid to the District and will expire in 2010 if not used properly or unless the City extends that deadline.

Brendon Gallagher, who chairs the CFAC, urged patience in selling the next round of bonds. He thinks things might get worse before they get better. The advantage of waiting would be even lower interest rates. Those rates could instead increase but if so would be tempered by the savings in interest from selling now.

While not suggesting selling the entire balance of the bonds at this time, Misty Haji-Sheikh, wanted all options on the table. As such that would include selling the entire balance at once and other options including an issue of $30 million in September 2009 and another $50 million in July 2010 or do a $40 million/$40 million on the same dates.

Tom Teresinski poured a dose of local economic reality on that table. He pointed out the significant reduction in new construction EAV (click image for larger view). He asked for my input on the number of home foreclosures in the District. I pointed out that as of Dec. 24, 2008 there are 54 Sheriff auctions scheduled in DeKalb, Cortland and Malta before the end of this school year. I also mentioned that the news has not been rosy for local commercial property either.

Teresinski stated that with the scenarios as presented by Hennessy the financing costs have increased by $16 million.

No action was taken.

Round Two: Facilities Planning Committee, Jan 15 @ 6pm

The purpose of this meeting was to discuss a request by Superintendent Dr. Jim Briscoe to change the construction method for the high school from a General Contractor to a Construction Manager. He reported on the field observations of the contractor at the Cortland Elementary School project, which is employing a Construction Manager. Briscoe believes there are more checks and balances between the contractor and the architect when using a Construction Manager.

Mike Wood (Elliott and Wood) spoke to the committee of his experiences with General Contractors and Construction Managers. It has been his experience that on large projects where out-of-town GC’s are the only eligible bidders it has sometimes been a practice for them to use local subcontractors’ bids to get lower prices from out-of-towners. He believes taxpayers will be better served and more local contractors will have a better chance if the Construction Manager method is used.

Tony Ficarelli, chief legal counsel for the District, went over risk assessment and various contractual arrangements between the two methods. In larger projects he has seen a trend toward the Construction Manager method and the results have generally been favorable. He stressed that it really boils down to the General Contractor or the Construction Manager that is selected.

If it was decided to change to the Construction Manager method a new contract with the architects would be required. If that was to occur, I pushed for Value Engineering and Material Compensation Disclosure to be added to the contract. Both of these items were suggested by Ficarelli in earlier meetings. According to Ficarelli, a Construction Manager would have more say in material selection. That flexibility could result in substantial savings for taxpayers.

Briscoe is to get RFPs from Construction Managers for further analysis. Not all was in agreement with further exploration of changing from a GC to a CM. Ron Naylor and Ron Beldon voted against the notion. Their concerns are very valid. The District faces less liability with a GC and in theory the GC is more likely to get the sharpest pencil. A CM is selected through a Request For Proposal where a GC is selected by lowest responsibile bidder.

But Briscoe was not superintendent when the referendum passed and therefore not part of the initial discussion on the GC versus CM method. At a potential price of almost $90 million his request for a change should be given time and consideration.

Teresinski repeated his brief presentation to the FPC on the decline in new construction EAV and enrollment projections. Hopefully, FPC, CFAC and most importantly, District 428 Board of Education members paid attention. In all the scenarios put together on the financials, and all the discussions on the alternatives on the construction methods, the one variable not given serious consideration is downsizing the high school.

But unless there is a public outcry for resizing the high school to fit newer lower enrollment projections, and higher than expected debt costs, the new high school will be let out for bids sometime in February at a size and cost this community likely cannot afford.

Preface:

If you were given permission to borrow and spend up to $110,000,000 how much would you spend? Caveat:  if you choose to spend it all and you live in the right location at the wrong time, in a $200,000 home, your monthly payments would only be around $280 per year. (first year)

The current economy sucks, don’t it. District 428 finally got a referendum approved after a decade of trying. That decade experienced the biggest boom in local new construction ever. As fate would have it, the school district must weigh the impact of borrowing money for building new schools with the inconvenient fact that, as of December 24, 2008, 54 homes within the district’s boundaries are scheduled to be sold via the DeKalb County Sheriff’s auction before the close of the current school year.

Thoughts on District 428 Facilities Planning Committee meeting Jan. 13, 2008

Several city administrative staff members were present at the beginning of the meeting but left before it ended. Long meeting.

Superintendent James (Jim) Briscoe presented the committee with a proposal to consider hiring the construction firm currently building the new grade school in Cortland as a Construction Manager for the proposed new high school. My initial reaction was to dismiss the idea because the committee already spent a lot of time debating the General Contractor versus Construction Manager arrangement and recommended the former over the latter.

But circumstances can change direction. Failure to adapt to changing circumstances can lead to disaster. Briscoe said he was making the recommendation based on on-the-field observations and felt such an arrangement might increase checks and balances on the high school construction. Briscoe was not the superintendent when the referendum was only a ballot measure. He is, for all intent and purposes, the CEO of the school district.

So I moved to hold another special meeting, sans the architects and the construction firm, this Thursday (Jan. 16) after the Citizen’s Finance Advisory Committee meeting. More questions can be asked of and answered by Briscoe.

Should the District purchase more land for the high school site? It currently owns 79.5 acres for the new high school site. They hold an option to purchase 25 more acres. The District has around $250,000 in impact fees collected from Cortland. No referendum money would be used to purchase the land. Ivan Krpan and I voted against recommending the District purchase the additional 25 acres but the motion to recommend the purchase passed.

Shodeen Development may purchase some of the land contained in the Iron Gate proposed residential project. Little details are known at this time but changes to the site plan for the high school are likely.

The land of Iron Gate, and the high school for that matter, are not yet annexed into the City of DeKalb. Because District 428 needs to annex before the development (if it does) there are some cart-before-the-horse issues. The main one is that Wildflower Street, or at least the portion of it needed to service the high school, will have to be built and paid for by the District.

For the Good of the Order

My bruised ego. I don’t really consider myself an important person, heck, aw shucks, I’ve never accepted a VIP pass to the Cornfest  tent at the beer garden. But, I think I’ve stepped up to help. Jeesh!!! Slap that ego down, Mac. Any citizen who writes a letter to a local elected official or appointed administrator should at least get an auto-response that says, “I received your letter and will contact you or have my people contact you as soon as possible.”

I guess Kris Povlsen could say that he had one of his people contact me, that being Mark Biernacki, who was the only one of four who received my email letter who responded. Mike Verbic and Jim Briscoe didn’t. Not even an acknowledgement and they were both in attendance at the meeting. Heck, I even signed Verbic’s petition to run for re-election to the school board. I’ll sign anyone’s petition willing to step up to an elected office. At least I’m courteous.

The FPC addressed “financial concerns” during the For the Good of the Order pre-adjournment session of the agenda. The city administrators in attendance had left by then. I think maybe they wanted to hear and perhaps provide input on any financial concerns regarding the $2-million in TIF funds the City could allocate them if the money is spent on Huntley Middle School or Cheseboro Elementary School by 2010. I’m sure they would have been interested in explaining their side of the coin on the TIF capture of debt-obligation-school-tax-levy that will be used for other purposes issue. But the meeting was long, and there are lots of meetings to attend… and besides, some of us have family issues that are pressing, too.

So we (Ivan and I) asked about the $2 million. The District would really like the City to extend the time period, beyond 2010 but they will use it regardless of deadline. Hopefully it will be used to reduce the amount of debt bond obligations from up to $110-million to up to $108-million. Tom Teresinski confirmed that $2-million not borrowed is really worth $4-million in taxpayer dollars.

Hypothetical arguments were presented to convince the two winers and naysayers, as Ron Naylor described Ivan and me, that the intergovernmental agreement between the school district and the City of DeKalb, plus combinations of numbers from TIF Districts 1, 2 and 3, made the District whole. That intergovernmental agreement says the District and the City will split the referendum debt bond tax increase levied on homes in the TIF District(s) on a 50-50 basis. Half of their tax increase will go to the City’s TIF projects and half will go to the School District. The half that goes to the school district is unencumbered, meaning the District could apply their share to debt reduction… or not.

I asked for hard numbers in a format most of us residents can understand so we don’t have to rely on hypothetical examples and speculation. I think that is a fair request. We’ll see if those facts and numbers are produced. After going round and round the hypothetical circle, Naylor asked what would make me happy and wanted a solution based answer.

My response was for the City of DeKalb to exercise their Home Rule Authority (and Illinois courts shall construe that authority liberally) to give 100% of the school district debt bond tax increase to the District for the sole purpose of debt reduction.

I tried to talk to the committee and the school board members in attendance (Mike Verbic, Holly Wallace, Michael Lord, Jim Mitchell) about adapting. Adapting to the economy in real time.

I passed around a sheet that had the names and addresses of the 54 homes scheduled for Sheriff’s auction foreclosure sale (as of December 24). I pointed out some were teachers, police officers, former NIU basketball standouts — a lot of good people.

I pointed out that student enrollment projections were reduced AFTER the referendum passed but no adaptation to downsize building sizes were made.

Krpan reinforced the new construction slow down that has occured since the referendum passed. The student enrollment figures, and the debt repayment amounts, are based on the District getting $60 million a year ($20 million EAV) in new construction each year for the next 24 years. The student projections used to justify the high school’s size are based on the District getting 600 new homes built in it for the next 24 consecutive years.

It was at that point that Naylor pointed out that the FPC had already discussed and voted to maintain pre-referendum high school size, using the speculation described above. He didn’t understand why the committee was wasting their time listening to the same old complaints from the two complainers.

I took that as my cue to shut up, so I did. Teresinski then told the committee perhaps they should have given Krpan and my concerns more consideration. No adaption was made.

Next meeting, Thursday Double Header… Citizen Finance Advisory Committee, FPC special meeting.

FPC members as identified in the October 8 FPC minutes: (School board members in italics)

Ronald Beldon
Don Biggs
Chris Brady
James Briscoe
Roger Chilton
Scott Cochrane
Andrea Gorla
Gary Gustafson
Kim Lyle
Becky McCabe
Mac McIntyre
Bill McGuire
Ron Naylor
Brian Schrader
Mike Verbic
Cohen Barnes
Brett Brown
Fred Davis
Russ Farnum
Russ Fletcher
Lindsey Hall
Dan Kenny
Ivan Krpan
Michael Lord
Roger Scott
Les Shaw
Tim Struthers
Tom Teresinski
Holly Wallace