Memorandum
To: 2010 Measure C Citizen’s Bond Oversight Committee (“Committee”) and
Superintendent Lawrence
Date: October 10, 2011
From: Alicia Minyen
RE: Questionable expenses paid for using 2010 Measure C bond proceeds
Please review the following list of expenditures paid with 2010 Measure C bond proceeds that I
believe raise concerns of noncompliance with Proposition 39. In order for the Committee to
make an accurate assessment of whether or not such expenses are appropriate, I’m requesting
that the MDUSD (the “district”) provide the Committee with a thoughtful and complete response
to each expense listed below. I’m hoping that we can obtain a response from the district in a
timely manner so that the Committee can accurately inform the public in our Annual Report that
is required to be prepared under Proposition 39.
Please note that in ascertaining the appropriateness of expenses, I have considered the Projects
List disclosed in the “full-text” of the 2010 Measure C ballot, and the requirements and
conditions set forth under California law pertaining to: (1) Proposition 39 “The Smaller Classes,
Safer Schools, and Financial Accountability Act”;1 (2) Legislature AB 1908; (3) California
Constitution Article XIIIA Section 1.(b); and (4) State Attorney General’s Opinion No. 04-110.
Please also note that I did not consider the 2010 Facilities Master Plan as the Projects List since
the Ballot did not reference this plan.
Questionable Basis for Concern Recommendation
Expenses
SOLAR
PROJECT:
Solar Panels *Using $2.5 million in bond money to pay The district should
planned to be for solar on closed schools that are virtually reconsider using the $2.5
installed on two unoccupied does not comply with the spirit million that was planned
closed schools: of Proposition 39. for solar on closed
Holbrook schools in a more
Elementary and *It will cost at least $1 million to place solar constructive manner that
Glenbrook Middle panels on Holbrook. Holbrook was closed is in compliance with
School. Combined in May 2011 and is essentially unoccupied, Proposition 39.
cost is at least $2.5 other than temporarily housing the 2010
million. Measure C project team of about 15 people. Further, the district
should consider the
1
Proposition 39 states, in part, that bond proceeds will be used for specified school facilities’ projects only and for
the construction, reconstruction, rehabilitation, or replacement of school facilities including the furnishing and
equipping of school facilities, or the acquisition or lease of real property for school facilities.
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Questionable Basis for Concern Recommendation
Expenses
*The solar panel project for Glenbrook representations made in
Middle, which was closed in May 2011, will the Clean Renewable
cost the tax payer at least $1.5 million, and Energy Bond (“CREB”)
this school has leased only a small portion of Applications provided to
the school. the Internal Revenue
Service (“IRS”) for
Holbrook and Glenbrook.
CREBs are being used to
finance this solar project.
The IRS believes that
solar is being installed on
schools that are open.
Considering that the
federal government will
be subsidizing the interest
payments on these
CREBs, the district may
be out of compliance
with other laws if it does
install solar on these
closed schools.
Sunpower - This Performance Guarantee is described The Committee should be
Performance further on page 111 at Exhibit G of the provided with a legal
guarantee - $2 Sunpower contract, defined as a level “95% opinion regarding the
million of SEAMC”, which is essentially paid under appropriateness of this
a narrow set of scientific conditions. expense.
The Guarantee is an optional purchase, and Did the District perform
is separate from Sunpower’s normally any analysis to determine
included Customer warranty. if the Performance
Guarantee made
Because the Guarantee is not required and economic sense to justify
not a tangible part of the equipment, it this expense? If so,
appears this would be a general operating provide the Committee
expense. Further, this expense is not on the with such analysis.
Projects List.
Sunpower - Prepaid *Page 44 at Exhibit B to the Sunpower The Committee should be
Operations & contract describes Operations & provided a legal opinion
Maintenance - $3.5 Maintenance services to include annual regarding the
million “maintenance & inspections”; “Entire appropriateness of this
System Testing”; “Module Cleaning”; expense.
“Performance Reviews”; “Performance
Reports” and “On Site Facility Training”.
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Questionable Basis for Concern Recommendation
Expenses
This prepaid service agreement was not
required to be purchased, and services to be
provided appear to be general operating
expenses. Further, this expense is not on the
Projects List.
Solar CSI rebates – *Pursuant to accounting standards, rebates I recognize Bond Counsel
Estimated to raise are a form of revenue and should be offset stated in the August 22,
$15 million in against the cost solar equipment. Based on 2011, special meeting
revenues over the this concept and the intent of Proposition 39, that rebates can be used
next 5 years. the rebates should stay with the 2010 for general fund
District plans to Measure C fund to use towards debt service purposes. However,
divert CSI rebates or projects specified on the Projects List. because she did not
for its General provide any reasonable
Fund. explanation or support
such as law, case law, or
precedent, I respectfully
disagree. One analogy
the District should
consider is the treatment
of bond interest. Bond
proceeds are kept in
interest bearing accounts.
Bond interest revenue
cannot be placed in the
general fund, but is
required by law that such
interest stay with the
bond.
The district should also
consult with the Contra
Costa Community
College District where
they used solar rebates
towards projects, not for
their general fund.
CERTIFICATE OF
PARTICIPATIONS
(“COP”) and
LEASES:
1998 Refunding- See 1994 and 1998 COP offering statements Provide the Board one
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Questionable Basis for Concern Recommendation
Expenses
Certificates of dated 12/1/94 and 4/1/98 found at more opportunity to
Participation” www.emma.msrb.org ascertain the
(“COP”). appropriateness of this
*Use of bond proceeds to pay debt service expense. This would
This 1998 COP on Certificates of Participations (“COPs”) is include reconciling the
refinanced a $6.3 not specifically disclosed on the Projects unaccounted for balances
million COP issued List. relating to the cost of
in 1994. It is construction for the1994
important to read *The Maintenance building is not COP.
both the 1994 and specifically identified on the Projects List as
1998 COP a school facility project to be acquired
agreements. 2010 and/or purchased. (See: Full Text Measure
Measure C paid off C, which states under Misc. Projects:
the 1998 COP in the “Acquisition of any of the facilities on the
amount of Bond Project List through temporary lease
$5,039,405. or lease-purchase arrangements, or execute
purchase option under leases for any of these
authorized facilities.”)
*Prepaying the 1998 COP by refinancing it
with 2010 Measure C does not provide any
benefits to children today and does not meet
spirit of Proposition 39 where acquisitions
are to provide for current benefits. See
language of Proposition 39: a) “providing
access to 21st Century technologies” for
students; b) “building new classrooms to
facilitate class size reduction so our children
can learn basic skills like reading and
mathematics”; c) “repairing and rebuilding
our dilapidated schools to ensure that our
children learn in a safe and secure
environment.”
*Validity of 1994 COP agreement (which
was paid with the 1998 COP) in amount of
$6.3 million is in question - Page 11 of this
agreement, which states “Uses of Funds –
Costs of Construction - $6 million” for the
Maintenance building. However, building
permit number #943516 retrieved from City
of Concord dated 1/4/95, states estimated
cost of construction is only $1.7 million…so
$4.6 million is unaccounted.
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Questionable Basis for Concern Recommendation
Expenses
*Validity of the 1998 COP is in question.
Lease payments should be at fair value and
casualty insurance should be obtained in an
amount equal to lease payments outstanding
(See page A-10 of the COP). No Appraisal
was found by the District. Absent
documentation, the fair value of the
Maintenance building is in question, and the
tax payer may have over-paid.
*No analysis was done to determine whether
prepaying the 1998 COP was economically
sound. Using the 2010 Measure C funds to
pay off the COP is more costly than the pre-
existing payment terms since 2010 bond
proceeds are from Capital Appreciation
Bonds, which will cost at about 2-3 times the
amount of the 1998 COP.
2006 *According to the lender, All Points Capital, The Board should
Lease/Purchase the school used El Monte Elementary as provide evidence and
Agreement in the collateral in this lease purchase agreement so legal opinions that would
amount of $6 that the district could cash out $6 million. support the prepayment
million This lease provided no benefits to children of the lease as an
as a result of pay off. appropriate use of funds
using 2010 Measure C
*The Board agenda and resolution does not bond proceeds. The
specifically approve El Monte Elementary to Board should also
be subject to lease. Instead it states that the provide the resolution
lease would be used for energy efficiency showing the approval of
projects, but even these projects are not El Monte Elementary’s
defined. lease.
*El Monte Elementary, the collateral to this
lease, is not on the Projects List as a school
to be acquired or purchased as a result of
prepayment.
*Terms of the 2006 lease were much more
favorable than using the 2010 Measure C
proceeds to refinance the cost. Because of
the capital appreciation bonds used to prepay
this lease, the taxpayer will pay 2-3 times
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Questionable Basis for Concern Recommendation
Expenses
more than the original cost of the lease.
*The Board resolution 06/07-03 states that
the 2006 lease will be paid using cost
savings, PG&E rebates, deferred
maintenance and state matching funds.
Given that there were already designated
funding to pay off this lease, it does not
seem appropriate to use bond proceeds to
pay off this lease.
2007 Lease of *According to the lender, All Points Capital, The Board should
Westwood the school used Westwood Elementary as provide evidence and
Elementary - $3.9 collateral in this lease purchase agreement so legal opinions that would
million that the district could cash out $3.9 million. support the prepayment
This lease provided no current benefits to of the lease as an
children due to the pay off of this lease. appropriate use of funds
using 2010 Measure C
*The Board agenda and resolution does not bond proceeds. The
specifically approve Westwood Elementary Board should also
to be subject to lease. Instead it states that provide the resolution
the lease would be used for energy proving Westwood was
efficiency projects, but even these projects approved for this lease.
are not identified. Research shows this lease
was used to install solar panels on the roof of
Northgate High in 2007. Therefore, 2010
Measure C has paid for two solar projects on
Northgate High school that may have
amounted to $8 million ($3 million from
2007 plus another $5 million for the current
project).
*Westwood Elementary, the collateral to this
lease, is not on the Projects List as a planned
school to be acquired or purchased as a
result of prepayment.
*Terms of the lease were much more
favorable than using the 2010 Measure C
funds to refinance the cost. Capital
appreciation bonds were also used to prepay
this lease.
*The Board resolution 07/08-12 states the
lease will be paid with cost savings, PG&E
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Questionable Basis for Concern Recommendation
Expenses
rebates, deferred maintenance and state
matching funds. So since the district already
had a means for paying off this lease, it
appears inappropriate to use the 2010
Measure C bond.
CLEAN
RENEWABLE
ENERGY BONDS
(“CREB”)
Professional fees *The District applied for CREBs to the IRS The Committee should be
relating to the in August 2009, nearly one year prior to the provided a legal opinion
underwriting of 2010 Measure C election. on this issue. If it turns
CREBs – Series B (I could not find any district Board meeting out that disclosure was
issuance totaling agenda, resolution, or minutes discussing or required to the voter
$59 million. approving the $59 million application for regarding the payment of
CREBs.) debt service on the CREB
bonds, then the 2010
The district represented to the IRS in the Measure C should be
CREB application that the district’s refunded any professional
operating budget would pay the debt service fees incurred as a result
on the CREB bonds. Instead, the taxpayer of the issuance of these
under 2010 Measure C is paying the debt bonds.
service on the CREBs.
The 2010 Measure C full-text measure does
not disclose to the voter that the taxpayer,
instead of the district, would be paying the
debt service on the CREBs. Because of the
lack of disclosure, I question if the district
has the authority to use taxpayers’ money to
pay the CREBs’ debt service.
NEW BAYPOINT
SCHOOLS
PLANNING
Architectural fees to *New schools are not disclosed on the *District should consult
review plan of Projects List. Please note that Proposition with legal counsel and
adding a new high 39 allows for bonds to be used for new refund fees accordingly.
school to Riverview schools, but this project must be disclosed. If the district believes it is
Middle. Also ok to use bond proceeds,
planning new provide Committee with
elementary schools disclosure it is relying on
Alves undeveloped in the Projects List.
land - $160k
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