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					     OFFICE OF THE STATE
       COMPTROLLER
       STATE OF NEW YORK




Progress Report on the Buffalo Joint
   Schools Construction Board:
  Financing, Reconstruction and
          Diversity Goals




          Alan G. Hevesi

             May 2004
                                    TABLE OF CONTENTS



EXECUTIVE SUMMARY .............................................................................................. 1
OVERVIEW...................................................................................................................... 7
ROOTS OF JSCB ............................................................................................................. 8
CREATION AND POWERS OF JSCB........................................................................ 12
THE PROGRAM MANAGER...................................................................................... 14
   PROCUREMENT ISSUES ................................................................................................... 16
THE STATE’S SCHOOL BUILDING AID FORMULA ........................................... 18
PHASE I OF JSCB CONSTRUCTION........................................................................ 22
   BOND ISSUE ................................................................................................................... 22
   LOCAL SHARE ................................................................................................................ 24
   CONSTRUCTION PROGRESS ............................................................................................ 28
PHASE II AND BEYOND ............................................................................................. 29
DIVERSITY GOALS ..................................................................................................... 31
   GOALS FOR JSCB CONTRACTORS .................................................................................. 32
   UNION MEMBERSHIP...................................................................................................... 33
   TRAINING ....................................................................................................................... 34
CONCLUSIONS ON JSCB MODEL AND PROGRESS ........................................... 38
   FINANCING ..................................................................................................................... 38
   APPLICABILITY OF MODEL TO OTHER LARGE CITIES ..................................................... 39
   DIVERSITY ..................................................................................................................... 40
Executive Summary

The Buffalo Joint Schools Construction Board (JSCB) was created by local action and
given special powers under State legislation passed in 2000 and amended in 2003, with
the mandate to meet educational, as well as economic and diversity goals. Buffalo has
some of the oldest schools in the nation and the School District’s capital program had
been under-funded for several decades prior to creation of JSCB, due to the poor
economy and fiscal condition of the City. Policymakers at the State and local levels
responded to these conditions by creating a new financing and construction model under
a board representing both City and School interests. JSCB was designed to implement
and oversee a major overhaul of the City School District’s facilities through a ten-year,
$1 billion capital program that will potentially include the renovation of approximately
80 school buildings.

To achieve this expansive objective, JSCB was empowered to employ innovative
financing techniques to cover the local share of the program’s costs (i.e., the share after
reimbursement through the State’s school building aid formula), to utilize the Erie
County Industrial Development Authority (ECIDA) as a conduit financier to issue bonds
for the project, and to use a unique design-build approach with a program manager
selected by JSCB being responsible for virtually all aspects of the construction program.
JSCB’s goals also include developing the City’s construction industry and ensuring the
inclusion of women and people of color.

The Legislature has chosen to provide authorization for JSCB in a phased manner. Under
Phase I, 11 reconstruction projects have been authorized, including renovation of nine
schools, and district-wide technology and energy projects. JSCB is currently seeking
authorization to proceed with Phase II, which includes renovation of 13 schools, as well
as continuation of district-wide technology improvements, energy conservation, and
masonry repair. In addition to the authorization for Phase II, JSCB is seeking several
changes in their authorizing statute, including the elimination of the “Bond Issuance
Charge” (BIC) imposed by the State.

The Campaign for Fiscal Equity (CFE) has just released a school facilities plan calling
for a $10 billion school infrastructure investment funded by State bonds, enrichments in
State building aid and exclusion of the State aid-funded portions of school bonding from
the debt limit calculations for big cities. There are many different ways to address the
facilities needs being advocated for by CFE, and the State should be proactive in its
approach to this issue.

This report reviews the progress of JSCB in implementing its financing and construction
plans, as well as in meeting its diversity goals. Because JSCB’s program is still in its
earliest stages, it is difficult to assess its ultimate success. Accordingly, the Office of the
State Comptroller (OSC) will devote audit resources to the oversight of JSCB activities
within the next year. This report also considers whether the JSCB financing and
construction model could be successfully used in other large cities.



                                                                                             1
Financing Model

Without the Buffalo JSCB legislation and amendments, the City would not have a way to
address its school facilities needs, and therefore, the success of this model is critical. Our
review of the financing and work underway on Phase I indicates that the contracts in
place with the “program manager,” (Ciminelli Construction, Inc.), as well as other
contributions provide a plan under which these projects can be accomplished without a
“local share.” This will be accomplished through interest earnings on constructions funds,
reimbursement for County funds initially expended on design services, and the savings
received from an energy performance contract.

The ability of JSCB to cover the local share costs without taxpayer impact is dependent
upon the advantageous building aid ratio currently used in the State’s school building aid
formula for Buffalo (93.7 percent), which could be altered if the building aid statutes
were changed. Were this aid ratio to decrease, the City would have to find additional
revenues to support JSCB projects. Under current law, a different aid ratio would apply to
Phase II projects; this aid ratio is currently computed at 91.7 percent, and will likely
fluctuate from year to year.

It should be understood that the building aid ratio, whether it fluctuates or not, does not
necessarily, or even usually represent the overall percentage of the project covered by
State aid. If costs exceed maximum cost allowances, for example, or if un-reimbursable
expenditures are made, or building plans are changed in ways that alter the maximum
cost allowances, or debt service is structured in a manner different from the assumptions
used in the assumed amortization calculation, then the overall percentage of building
costs borne locally will be higher.

The state aid projections that JSCB is relying on may no longer be entirely accurate.
Changes made since original plans and cost estimates were approved can negatively
affect aid. In at least one of the school building projects for example, SED officials
believe that revisions in plans and costs could mean that reimbursable costs will be
reduced.

At this point, we cannot review how the local share will specifically be paid for in Phase
II, as the components of this plan have not yet been fully described. However, our review
of the method used in Phase I gives us reasonable confidence that the local share for
Phase II can be covered using a similar approach. Nevertheless, we cannot say with
certainty at this time that JSCB projects will never have an impact on the City’s revenues,
and coverage of the local share could become more difficult with every phase (as the
School District runs out of energy improvements to make, for example).

Although contractual provisions and performance bonds provide a level of comfort, in a
construction plan of this magnitude there is still a risk of the prime contractor not being
able to deliver the project on time, on budget, and in a manner that completely satisfies its
customers. Simply put, the type of design-build approach employed in Buffalo remains
somewhat uncommon.



2
When Phase I proceeds to a point of substantial completion, we will be able to audit the
results achieved and thus we will be better able to evaluate the security of the financing
model used.


Recommendations:

   •   Given that JSCB’s financing and construction program is apparently operating
       effectively to date, the Legislature should authorize Phase II bonding. The lack of
       approval for this phase would interrupt the implementation of the program, having
       negative consequences for its education and diversity goals.
   •   While the Buffalo Building Trades Development Partnership (BBT), a consortium
       of local construction trade unions, remains ultimately responsible for increasing
       the number of women and minorities in the construction trades, JSCB should
       recognize that the weaknesses in the training model used thus far require the
       Board to take other actions to ensure that this mandate is met. In authorizing
       Phase II, the Legislature should require JSCB to create and coordinate other
       efforts to ensure that the promises made regarding a more diversified workforce
       are kept.
   •   In authorizing Phase II, the Legislature should eliminate the 0.7 percent Bond
       Issuance Charge (BIC) normally imposed on large authority borrowings and
       specifically prohibit the program manager from participating in construction
       work.
   •   JSCB and Ciminelli Construction need to carefully and continually work with
       SED staff to ensure that the project’s building plans are consistent with SED’s
       calculation of their maximum cost allowances and related State aid expectations.
   •   Because there is the potential for JSCB borrowing to impact City finances, such
       borrowing should be subject to approval by the Buffalo Fiscal Stability Authority
       (BFSA), which must approve or disapprove such borrowing within 30 days.
   •   OSC will commence an audit of the performance of JSCB for Phase I
       construction projects early in 2005, providing an opportunity to review whether
       the model is working and the program manager has successfully delivered the
       desired improvements.
   •   If the model is extended elsewhere, the procurement process should be improved
       and the program manager should be expressly prohibited from doing construction
       work.
   •   JSCB’s financing model authorizes borrowing which is not subject to the City’s
       debt limit. This approach can be justified because Buffalo is currently able to rely
       on funding from sources other than additional local taxes and has an advantageous
       State aid reimbursement rate. This issue should be carefully considered before this
       model is extended elsewhere.
   •   In Buffalo, the school building needs were debated publicly for some time prior to
       creation of JSCB, and the plan underwent significant changes as a result of that
       discussion. If legislation were enacted to create a comparable approach elsewhere,
       it should contain a requirement for a similarly intensive public discussion period.


                                                                                         3
    •   Moreover, any application of JSCB’s model to the projects of other localities
        should include similar commitments to foster both the hiring of minorities and
        women, and the use of related minority and women-owned businesses.


Diversity Aspects

The program manager (Ciminelli), with help from an independent firm, must monitor
compliance by contractors with a workforce requirement for JSCB projects (23 percent
minority and 7 percent women), as well as 25 percent minority and 5 percent women-
owned business enterprises (M/WBE) requirement. Ciminelli includes remedies and
sanctions for non-compliance with these diversity objectives in all of its contracts with
contractors. Current reports from the independent monitor required in JSCB agreements
show that the minority hiring goals are being met (26.3 percent), although the results for
women are slightly behind (6.8 percent – but the percentage is expected to improve in the
later stages of Phase I). The M/WBE goals are currently being met (28.8 percent and 8.4
percent, respectively).

As part of a labor agreement with JSCB, the BBT agreed to set aside 35 percent of their
pre-apprenticeships for minorities, and 10 percent for women, and adopt a plan to
diversify membership, with an identical goal for union membership within five years
(i.e., 35 percent minorities and 10 percent women). Under that agreement, the unions
were required to maintain a building trades training center to serve Erie County residents.
Contractors were required to contribute ten cents for every hour worked on JSCB projects
to the support of the training center.

In addition to the ten cents per hour worked contribution, the training center previously
operated by the BBT relied on both State and federal funding sources. Each of these
funding agencies has different timeframes and requirements, and the training center has
suffered from a chronic lack of consistent and reliable funding. Although much of this
difficulty came from the delay in Phase I construction, it also appears that the training
center was not well run, accumulating approximately $650,000 in debt. Regrettably,
while its training center remains closed, to date, the BBT has neither formally contracted
with any organization to offer the required training, nor otherwise provided for future
training in the construction trades.


Recommendations:

Workforce and Business Enterprise Goals:
  • In authorizing Phase II, the Legislature should require JSCB to create and
     coordinate efforts to ensure that the promises made regarding a more diversified
     workforce are kept.




4
•   Specifically, JSCB needs to play a greater role in ensuring that its Diversity Plan
    is successfully implemented by all contractors, at each of the project’s worksites,
    throughout all of the project’s phases. JSCB and the program manager have
    remedies for contractor non-compliance. Those remedies should be used.
        o JSCB’s monthly meetings should include a report from its Diversity
            Committee, and/or a general agenda item focusing on compliance with its
            workforce and business enterprise goals. As part of this process, JSCB
            should formally review both the independent monitor’s monthly report, as
            well as any other relevant information.
        o At these meetings, JSCB should identify instances where the Plan’s goals
            have not been satisfied, what actions will be required of the contractors
            responsible to ensure their future compliance with these goals, and, unless
            a waiver is specifically granted per provisions of the Diversity Plan, what
            sanctions will be applied to these contractors as a result of their continued
            failure to meet the Plan’s diversity goals.
        o JSCB should keep a public record of such proceedings and provide an
            annual report that presents aggregate information regarding compliance
            with the Plan’s goals and the sanctions applied, if any, to contractors who
            failed to meet those goals.

Training Efforts:
• While BBT remains ultimately responsible for increasing the number of women
   and minorities in the construction trades, JSCB should recognize that the
   weaknesses in the training model used thus far require the Board to take other
   actions to ensure that this mandate is met.
• It is essential that BBT immediately secure a new service delivery/management
   mechanism capable of adequately ensuring its full accountability for the funds
   expended (from both the contributions of its member unions per provisions of the
   project labor agreement (PLA), as well as public monies, especially those from
   the State) in the provision of the training it agreed to provide for in its contract
   with JSCB’s program manager.
• No later than September 1, 2004, the program manager, the BBT, and those
   involved with related training efforts should submit a report to JSCB on these
   efforts. This report should:
       o Clearly identify the organization, board of directors and staff who are
            accountable for helping BBT and the program manager meet the diversity
            goals;
       o Provide a schedule of planned activities that include goals, with specified
            timeframes, for the number of people to be trained and placed. Such a
            schedule should be carefully coordinated with the needs of the program
            manager and contractors for employees;
       o Explain the protocols to be used in the training effort to recruit, train,
            place and follow-up with women and minority candidates who are seeking
            to take advantage of construction employment opportunities created by
            JSCB projects;



                                                                                       5
            o Project forward from the baseline census, showing how the training and
                placement goals will be reached;
            o Describe how the training efforts used will support the union membership
                goals for women and minorities in the construction trades;
            o Present a balanced financial plan for training operations, including
                identification of revenue sources, and an expenditure plan that identifies
                salaried positions and other expenses of the training effort;
            o Identify the individuals responsible for the day-to-day operation and
                financial management of the training effort (if different from those
                identified above); and
            o Provide a schedule for the financial review of the training efforts used
                that includes specific dates for both reporting by accountants and/or
                outside auditing entities, and the submission of such reports to JSCB.
    •   Annually, BBT should provide a report, authored by an independent monitoring
        firm with specific experience in the evaluation of vocational training programs,
        that details the criteria and process the program used to select its students, the
        program’s graduation rate (by race and gender), and the extent to which the
        program’s graduates are able to remain in the field and gain union membership.
        This report should provide an understanding of both the program’s successes, as
        well as areas for improvement.
    •   Independent monitoring, of the type currently provided in connection with
        contractors working on JSCB projects, should be extended to include the
        operation of any training program that receives contributions, per the PLA. Such
        independent monitoring can assist BBT and JSCB to identify problems early.
    •   The board and/or management of the training center should include a person with
        strong academic/professional credentials in program evaluation and specific
        experience in achieving diversity goals.
    •   An additional funding stream for the project’s training efforts is clearly needed.
        However, additional funding should not be provided without the assurance that
        management and accountability will be improved. The Legislature should put in
        place requirements such as those described above, either through special funding
        legislation, or the authorization of Phase II JSCB projects.

Union Membership:
   • The PLA’s requirement that BBT provide an annual census of its members is a
      vital part of ensuring that the agreement’s diversity goals are ultimately met. The
      baseline census provided should be updated semi-annually.
          o At a minimum, JSCB should convene an annual public meeting to discuss
              the results of each year’s census.




6
Overview

The Buffalo Joint Schools Construction Board (JSCB) was created by local action and
given special powers under State legislation passed in 2000, with the goals of meeting
educational, as well as economic and diversity goals.1 The Buffalo City School District
(“Buffalo Public Schools,” BPS) is governed by an independently elected Board of
Education, which is fiscally dependent on the City for local support. BPS has some of the
oldest educational facilities in the nation and a capital program that had been under-
funded for two decades prior to creation of JSCB, while the City shared in the region’s
overall economic decline. This systemic inadequacy, exacerbated by the poor fiscal
condition of the City, led to a situation in which Buffalo constructed only three new
schools during the past 25 years, the last one being occupied in 1995. Additionally, the
City’s capacity to directly incur debt is limited, as Buffalo has exhausted 95 percent of its
constitutional debt limit as of 2002.

Policymakers at the State and local levels responded to these conditions by creating a
new financing and construction model under a board representing both City and School
interests. JSCB was designed to implement and oversee a major overhaul of BPS’s
facilities through a ten-year, $1 billion capital program that could include the renovation
of approximately 80 school buildings.

To achieve this expansive objective, JSCB was empowered to employ innovative
financing techniques to cover the local share of the program’s costs (i.e., the share after
reimbursement through the State’s school building aid formula), and to utilize the Erie
County Industrial Development Authority (ECIDA) as a conduit financier to issue bonds
for the project. JSCB’s reform mandate also included the goals of developing the City’s
construction industry and ensuring its inclusion of women and people of color.

This report reviews the progress of JSCB in implementing its financing and construction
plans, as well as in meeting its diversity goals. It also considers whether this financing
and construction model could be successfully used in other large cities.




1
  Chapter 605 of the Laws of 2000. Chapter 59, L. 2003, made major amendments to the authorizing
statute.


                                                                                                   7
Roots of JSCB

A variety of conditions led to the creation of JSCB, including many spanning several
decades. In a court case initiated in 1974, which produced numerous appeals, a federal
district court found that both the City of Buffalo and its Board of Education were
responsible for its unconstitutionally segregated public schools, and subsequently
supervised the implementation of a three-part desegregation plan.2

The City later attempted to settle a related legal dispute regarding its 1995-96 budget by
proposing a four-year agreement in which it would provide BPS with additional operating
support and $80 million for capital improvements (via the sale of bonds). The court
accepted the City’s proposed agreement, noted its dire fiscal condition (e.g., exhausted
constitutional tax limit, declining property tax values, and responsibility to provide other
public services, etc.) and subsequently ordered the City and its Board of Education to
create a revolving capital reserve account. The court compelled the City to deposit $80
million into that account as required by the cash needs of the Board’s capital program.3
Although the City later spent more than the $80 million required on the
construction/renovation of school facilities, it found both that amount and it’s capacity to
provide more support were insufficient to meet BPS’s capital needs.4

BPS is fiscally dependent on the City and cannot levy taxes or determine independently
how much it will spend. It is therefore reliant on the City for its share of the City’s
property tax levy. The State Constitution and related statutes restrict both the amount of
revenue the City of Buffalo can raise from the imposition of property taxes and the
amount of debt it can incur. Taxes levied on behalf of the Board of Education and debt
incurred by it are subject to the City’s constitutional tax and debt ceilings. The entire
amount of debt issued for school purposes is charged against the City’s debt limit, even
though the preponderance of Buffalo’s debt service expenditures have been covered by
State building aid reimbursements (certain other school districts can deduct the amount of
debt supported by this aid from their limits). As of 2002, the City of Buffalo had
exhausted 77 percent of its tax limit and 95 percent of its debt limit. These limits are
based on a percentage of the full value of taxable property, and when property values
decline – as they have for many years in Buffalo – these limits also decline.




2
  Arthur v. Nyquist, 415 F. Supp. 904 (W.D.N.Y. 1976). This case was initiated by a group of City
residents with the support of local community groups, such as the regional National Association for the
Advancement of Colored People (NAACP).
3
  Arthur v. Nyquist, 904 F. Supp. 112 (W.D.N.Y. 1995)
4
  Joint Schools Construction Board. (2001). Request for Qualifications: Program Packaging and
Developing Services Provider. New York


8
Buffalo’s population peaked in the 1950’s and has declined steadily ever since, falling by
11 percent between 1990 and 2000. Unfortunately, this trend is expected to continue. In
fact, in 1999, the City of Buffalo ranked eighth in terms of population loss among more
than 200 cities with populations over 100,000 nationwide. The unemployment rate in
Buffalo is consistently above State and national averages. Indeed, in 2003, the City
experienced an unemployment rate approaching 10 percent. Additionally, the City’s
wealth indices continue to drop well below average and the outlook is dismal. Buffalo’s
median family income and housing values are only 60 and 62 percent, respectively, of the
average for the State, and almost one-quarter (which is twice the State’s average) of its
residents live in poverty.5

In 2001, Moody’s Investor Service downgraded Buffalo’s general obligation bonds to
“Baa2” (denoting average creditworthiness relative to other issuers of tax-exempt
securities; the lowest rating “investment grade” securities can receive), substantially
diminishing the competitiveness of the City’s bonds. By 2003, the rating company
downgraded Buffalo’s general obligation bonds to “Baa3” (the very bottom of the band
of issuers of “average” creditworthiness) and deemed the financial outlook of the City to
be “negative.” The Baa3 rating and negative outlook has been affirmed in 2004,
reflecting continuing challenges in regaining structural budgetary balance with virtually
no revenue raising flexibility.

The financial difficulties in Buffalo led to a special review of the City’s finances by the
State Comptroller in May 2003. This review showed that the City had been operating
with a structural deficit for many years, kept afloat with increased or accelerated aid from
the State.6

The Legislature responded to the Comptroller’s report by creating the Buffalo Fiscal
Stability Authority (BFSA), a public benefit corporation and oversight panel with broad
powers over the financial operations of the City. BFSA is empowered to issue debt for
the City for deficit financing purposes, up to a maximum of $175 million. BFSA is
generally charged with oversight and approval of the City’s budget and capital plans, and,
if necessary, the development of such plans itself. Under statutory provisions, the Mayor
is required to annually submit a four-year financial plan to BFSA that includes the City’s
school district.

BFSA is currently pursuing additional powers, including the ability to issue debt for other
City purposes. Given the existence of JSCB and its financing tools, however, BFSA has
no plans to issue debt to provide for school capital needs.




5
    City of Buffalo (June 2003). Draft comprehensive plan. New York: Buffalo.
6
    Office of the State Comptroller. (2003). Budget review: City of Buffalo New York


                                                                                          9
Worsening economic conditions and a loss of population, as noted above, have played a
major role in Buffalo’s fiscal problems. In addition, current demographics within the City
highlight the need to address disparities in the composition of the construction labor
force. In 2000, 42 percent of the City’s residents were people of color (fully 36 percent of
whom were Black); 30 percent were under the age of 20; 57 percent of its housing units
were rentals; and 67 percent of Whites owned their own homes, whereas only 33 percent
of minorities did.7

The composition of Buffalo’s school enrollment has also changed dramatically in recent
decades. While it originally accommodated more than 90,000 students, BPS today serves
only about 43,000. Additionally, BPS’s enrollment is expected to continue to decline
over the next decade.8

As in schools across the State, however, buildings designed to meet the educational needs
of 50 years ago no longer meet the needs of even much smaller enrollments. A school
that adequately served 1,000 students in 1960 may be crowded today with only 800
students. This has occurred because of the immense growth in special education, remedial
education and other new educational requirements, all of which drive the need for
additional classroom space.9 The State’s efforts to raise academic standards, as well as
modern science, language and technology requirements also create specialized needs.
Universal pre-kindergarten and class size reduction initiatives also require additional
classroom space.

More than 82 percent of Buffalo’s public school students come from families with
incomes that classify them as indigent (compared to 26 percent for the City as a whole).
Between 1974 and 1993, minority enrollment increased by 11 percent, while non-
minority enrollment decreased by over 43 percent.10 Currently, 72 percent of Buffalo’s
public school students are minorities and almost one-fifth are disabled.11 These trends
demonstrate that more and more of those with the means to educate their children
elsewhere have declined to send their children to the City’s public schools.




7
  2000 United States Census.
8
  “Rehab more likely than new buildings,” Buffalo News November 23, 2003. States that “The number of
[Buffalo’s] public school students is expected to fall by as much as 20 percent in 10 years.”
9
  School Facilities – Conditions, Problems and Solutions, Office of the State Comptroller, October 1997.
10
   Arthur v. Nyquist, 904 F. Supp. 112 (W.D.N.Y. 1995)
11
   Report to the Governor and the Legislature, State Education Department (2002).


10
One of the factors contributing to the flight of the middle-class from the City’s schools
has been their deficient physical condition. The average age of Buffalo’s school buildings
far exceeds both the national average and the average for the remainder of the State. In
fact, the median age of the City’s educational facilities tops 46 years, and if this statistic
is based on the original section of each building, the average age climbs to 69 years.12
Furthermore, the City has built only three new schools within the past 25 years, the first
of these being built in 1974 and the last opening in 1995.13 Undeniably, many of
Buffalo’s existing school buildings are in poor physical condition and are ill suited to the
provision of a 21st century education.

Thus, the condition of Buffalo’s school facilities, its economic and fiscal difficulties,
including its severely limited ability to incur debt and/or raise additional revenues, all
necessitated a new approach to its school facilities needs. A successful new approach
would require the use of alternative financing mechanisms.

Indeed, having been systemically neglected for over two decades, the capital needs of the
City’s school district are great and the cost of meeting them prodigious.14 Accordingly,
any capital investments made would have to result in quality improvements capable of
meeting the needs of Buffalo’s school children well into the future.

Similarly creative construction models have been used in other cities in similar
circumstances. For example, in 1996, legislation was passed enabling the Niagara Falls
City School District to contract with a private entity to construct and finance a new high
school. A similar project also took place in Ithaca.




12
   Buffalo Public Schools Strategic Plan: Facilities Condition Assessment, Hillier (March 19, 2003). The
Hillier Architectural Group is part of the team of companies selected by the program manager (Ciminelli,
Inc.), to effectuate its duties to JSCB.
13
   Chapter 605 of the Laws of 2000. The City of Buffalo and the Board of Education of the City School
District of the City of Buffalo Cooperative School Construction Act.
14
   “Since 1979, the school board has failed to recoup money it was owed by the state [sic] for school
construction projects, [Comptroller of the City of Buffalo] Giambra said.” The Bond Buyer, October 24,
1994.


                                                                                                       11
Creation and Powers of JSCB

The first step in the implementation of Buffalo’s groundbreaking new capital financing
and economic development program came in 2000 with the creation of the Joint Schools
Construction Board (JSCB). The actual creation of JSCB was accomplished by
amendment of the City Charter, and through resolutions of its Common Council and
Board of Education, each of which detail the nature of JSCB’s operation. State legislation
(Chapter 605 of the Laws of 2000) provided JSCB with the power to enter into contracts
on behalf of the City and its School District, utilize project labor agreements, and access
financing through the Erie County IDA (ECIDA). Moreover, this opening legislation also
described the procurement method for, and role of, the program manager.

Legislation enacted in 2003 (Chapter 59, L. 2003) altered the authorization for the initial
phase of JSCB construction by allowing for renovation, rather than construction of new
schools. Additionally, this legislation allowed JSCB’s projects to be financed either
through ECIDA or the Municipal Bond Bank Agency (MBBA), and provided Buffalo
with exceptions to the State’s school building aid formula.

JSCB is a municipal entity, comprised of a total of seven members: two from the Board
of Education, the superintendent of schools, the Mayor of the City of Buffalo, a common
council designee, the city’s comptroller, and the member of the NYS Board of Regents
for the eighth district.15

JSCB is directed to manage the acquisition, design, construction, renovation, and
financing of the City’s educational facilities by integrating the efforts and resources of
the City and the School District. JSCB is charged with overseeing the redevelopment of
Buffalo’s public schools such that the City’s children will be able to receive a first rate
education in state-of-the-art facilities. Additionally, JSCB was urged to engage the local
labor force as much as possible and to maximize the attendant benefits of its projects to
the region’s economy.

To effectuate these formidable goals, JSCB is given powers beyond those normally
available to cities and school districts. Notably, JSCB holds the authority to enter into
related contracts and/or leases on behalf of the City. Although JSCB is required to
comply with the State’s prompt payment and prevailing wage statutes, it is authorized to
award contracts according to determinative factors other than cost alone, and to utilize
project labor agreements. JSCB projects have not been subject to the provisions of the
Wicks Law.16
15
   This member resigned due to a potential conflict of interest and currently serves as an ex offico,
nonvoting member.
16
   JSCB’s new construction projects (per a provision of Chapter 605 of the Laws of 2000), and its
renovation projects that are financed through the ECIDA are exempted from Wicks. Section 101 of the
General Municipal Law (commonly referred to as the Wicks Law) requires that municipalities contract
separately for (1) plumbing and gas fitting; (2) steam heating, hot water heating, ventilating and air
conditioning; and (3) electric wiring and lighting in public building construction projects, when the cost
exceeds $50,000.


12
While the original authorizing legislation is intended to address a ten-year, $1 billion
capital program, the Legislature has chosen to provide authorization for this plan in a
phased manner. JSCB is initially authorized and proceeding with 11 reconstruction
projects (referred to as Phase I of the overall project). JSCB is currently seeking
authorization to proceed with Phase II.

Financing for Phase I JSCB projects is available through bonds issued by either ECIDA
or MBBA, depending on which agency can provide the lowest total cost.17 The
legislation also allows for the State’s school building aid payments to reflect the full
interest cost of the project, rather than at an assumed rate (generally used in this aid
calculation).18 All State aid payable to the City and/or the School District is available to
pay debt service on the bonds, should the School District fail to make a scheduled
payment.

JSCB is required to annually report to the State Comptroller, the Legislature, the
Commissioner of Education, and the Governor detailing the status and progress of its
projects. (The first report provided under this requirement is discussed in the
“Construction Progress” section of this review).

JSCB is also allowed to enter into joint venture agreements and to fashion school
facilities that would be used by other organizations/enterprises with complementary
functions (e.g., counseling centers or businesses that provide jobs for students, etc.) with
the overarching goal of creating learning environments that meet a fuller array of student
needs.

JSCB is specifically permitted to enter into a maximum set price contract with the
program manager it selects, as well as a project labor agreement (PLA) with the labor
unions supporting the project.




17
     Chapter 59 of the Laws of 2003.
18
     Press release of the Governor dated May 20, 2003.


                                                                                         13
The Program Manager

All JSCB projects are required to be managed by an independent program manager that is
responsible for:
    • Creation of a district-wide educational facility redevelopment plan and review of
       the related architectural designs;
    • Management of the construction/renovation of the school buildings themselves;
    • Procurement of the financing needed to fund JSCB’s capital projects;
    • Management of the labor force used (e.g., procurement of the employees needed,
       etc.);
    • Preparation of cost estimates; and
    • Provision of insurance for each project.

Ciminelli Construction, Inc. has been selected by JSCB and is now carrying out the duties
of the program manager (also known as the “program developer” or “prime contractor”).

In May 2001, JSCB sought a program manager for Phase I by issuing a request for
qualifications (RFQ).19 Among the factors that JSCB considered were the applicant’s:
   • Financing: ability to report, track, and obtain building aid reimbursement;
        demonstration of how local share might be provided without affecting the BPS’s-
        and City’s budgets, and their ability to obtain other sources of local share;
        identification of means by which the costs incurred by JSCB for the planning and
        management of the program can be provided/reimbursed;
   • Shared facilities: ability to arrange joint ventures for the use of school facilities by
        government and/or nonprofit entities that provide services to students or the
        public;
   • Workforce and business diversification: ability to establish, implement, monitor,
        and manage a progressive plan for the participation of minorities and women in
        the provision of labor and business services used in JSCB’s projects;
   • Workforce development: ability to secure workforce agreements that contain
        apprenticeship programs and training opportunities for minorities and women;
        and,
   • Green design: ability to minimize any negative effects of the buildings on the
        environment.

JSCB’s RFQ also took into account the applicant’s ability to achieve the workforce
development and diversification goals; their recent experience with projects of large
magnitude; and their financial stability.




19
  “Request for Qualifications, Program Packaging and Development Services Provider,” dated May 30,
2001. JSCB’s draft RFQ was approved by the Erie County Legislature in Meeting Number 11, held on
May 10, 2001.


14
In JSCB’s RFQ, it reserved the right to:
    • Seek clarification and/or interview any respondent;
    • Reject any or all responses without cause; and
    • Select responses that JSCB believes to be in its best interest.

In June 2001, a pre-submission conference was held during which JSCB answered
previously submitted, written questions from respondents. There were a total of 12
responses to its RFQ, and the selection committee subsequently narrowed the field to
four, whose applications were later presented to the full Board. In January 2002, the
Ciminelli Construction Company was selected to collectively manage all phases of
JSCB’s capital plan.20 JSCB and the responses to its RFQ are subject to the State’s
Freedom of Information Law.21

Under the terms of its contract with JSCB, Ciminelli Construction provides an all-
encompassing array of services, including:
   • Creation of a district-wide educational facility redevelopment plan and review of
      the related architectural designs;
   • Management of the construction/renovation of the school buildings performed by
      other firms (as well as some components performed by Ciminelli itself, or
      subsidiaries);
   • Procurement of the financing needed to fund JSCB’s capital projects, including
      the provision of local share at no cost to JSCB, BPS, or the City;
   • Management of the labor force used (e.g., procurement of the employees needed,
      etc.), including the development of a new diverse workforce, as well as the
      utilization of this workforce on JSCB projects;
   • Implementation and compliance with JSCB’s Diversity Plan, which sets goals
      regarding the percentage of the project’s workforce that are minority or female, as
      well as the percentage of the value of the Project’s contracts that are awarded to
      M/WBEs; 22 and
   • Coordination of community relations, including development of a program
      website, attendance at community meetings, and the creation of a video
      documentary chronicling the Project.




20
   “Comprehensive Program Packaging and Development Services Provider Agreement” signed June 5,
2002. Although various provisions allow either party to terminate the agreement under certain conditions,
the agreement does not automatically end until either the tenth anniversary of the agreement or the final
completion of all work covered by the agreement.
21
   Article 6 of the Public Officers Law.
22
   “Development and Diversification Plan for Workforce and Businesses”, adopted by JSCB on June 27,
2002.


                                                                                                        15
The Board has essentially handed over the management, financing, oversight, and
implementation of its capital plan to a private, turnkey developer. The program
manager’s services are funded by the proceeds of related financings, as well as funds
constituting local share, which the program manager is required to identify. Moreover,
the program manager agrees to complete the project for the maximum cost allowance set
by the State Education Department (SED). Thus, the program manager guarantees that
JSCB’s projects will be completed without additional cost to the School District or City.



Procurement Issues

Section 3(k) of the original authorizing State statute for JSCB (Chapter 605 of the Laws
of 2000) outlines responsibilities for a program manager that are primarily managerial,
and that do not include the actual performance of construction/renovation work.
Authorization for JSCB to contract with firms or organizations to design, construct,
manage or own new educational facilities is provided in §5(a) and §5(b) of this statute,
which provides for the award of contracts pursuant to an RFP process, under a basis of
factors other than cost alone.

The original statute seems to envision the use of separate entities to carry out the program
manager and new construction responsibilities. However, this situation has changed since
JSCB’s plans were altered after enactment of Chapter 605 (i.e., no new schools are
included in Phase I or Phase II), and JSCB sought and obtained subsequent amendments
(Chapter 59, L. 2003).

Chapter 59 allowed for the program manager to directly let contracts for
construction/renovation on behalf of JSCB. JSCB’s contract with Ciminelli Construction
clearly envisions a single program manager/prime contractor entity that contracts with all
companies doing the actual construction work. Neither Chapter 605 nor Chapter 59
specifically states whether the program manager can also carry out any construction work
directly.

While the majority of the actual construction/renovation work in Phase I is being carried
out by contractors not affiliated with Ciminelli Construction, some of it is being carried
out directly by Ciminelli Construction and/or its subsidiaries.

From a procurement perspective, a situation where a program manager contracts with
itself, and oversees its own work, is far from ideal. This has been recognized in Buffalo,
and JSCB is planning to prohibit the program manager from directly performing
construction work in Phase II.




16
If JSCB’s model is to be replicated elsewhere, ideally we would recommend that:
    • This selection process include an RFQ to narrow the field of competitors,
       followed by an RFP, which could be awarded on a basis other than cost alone.
       The RFP process could be less cumbersome than that outlined in Chapter 605 §5,
       but should include a fair and open solicitation of proposals (e.g., public
       advertisement), development of evaluation criteria - including price and other
       relevant factors (e.g., experience, technical proficiency, staff support, timeliness);
       and a fair evaluation process that uses a rating committee or process that weighs
       price versus other criteria. This process could provide for a negotiation process as
       long as it ensured that all firms making proposals are treated in a fair and
       equitable manner.
    • Selection of one or more firms/groups for the actual design, construction,
       financing and ownership of school facilities be completed via either a sealed
       competitive bidding or a RFP process, similar to that outlined above. Evaluation
       criteria could include some of the factors listed in Chapter 605 §5[b].
    • A prohibition against a program manager or one of its subsidiaries also being one
       of the construction firms.




                                                                                          17
The State’s School Building Aid Formula

The State’s school building aid formula is a central component of JSCB’s plan for
financing school facilities costs, as it provides a relatively high reimbursement rate for
Buffalo. Building aid is one of the oldest of the State’s many school aid formulas, dating
back to the 1960’s, and pays for a portion of local school building costs.

This formula is complicated and technical, and it has been changed many times, but the
basic philosophy has been to reimburse a portion of building costs, based on an “aid
ratio” concept, with higher reimbursement for lower wealth school districts, like Buffalo.
Most school construction projects are financed by borrowing, in which case building aid
covers expenses for debt service, but it can also cover direct costs if no borrowing is
used. Costs for leased space and major capital replacements (such as boilers, roofs,
electrical and other systems) are also reimbursed.

To be eligible for building aid, projects must be approved by the State Education
Department (SED), based on space needs, building capacities and other factors. SED also
imposes a cost ceiling for aid calculated based on factors such as the type of building, its
capacity, and regional labor costs. The aid calculation is then based on a percentage of
“aidable” costs (i.e., those covered by the school building aid formula, up to a maximum
cost allowance).

The percentage of aidable costs reimbursed is based on a “building aid ratio” computed
for each school district, based upon its relative wealth and other factors, as specified in
statute. Buffalo, being a relatively needy school district, receives one of the highest aid
ratios in the State, which is currently computed to be 93.7 percent for projects approved
locally on or after July 1, 1998, but before July 1, 2000. For projects approved on or after
this date, a different aid ratio is applied, which under current calculations for 2003-04 is
91.7 percent. Under the provisions of current law, the 93.7 percent aid ratio will continue
to apply for projects approved by the Board of Education on or after July 1, 1998, but
before July 1, 2000 (its calculation is based on the choice of aid ratios among a number of
years). However, the aid ratio for projects approved after July 1, 2000 will likely
fluctuate from year to year, as it is based on relatively current data showing a ratio of
Buffalo’s wealth to the State’s average wealth.




18
The maximum cost allowance, which also affects aid, is computed for each project by
SED based on the project’s educational program spaces and other factors, including
regional labor costs. This calculation is based on the “Building Aid Units” (BAU)
assigned to each project by grade level or category for new and existing space, which is
then multiplied by a construction cost index and a regional cost factor.23 In January 2000,
SED assigned a maximum cost allowance for each of the schools included in Phase I,
based upon the plans they approved.24 Aidable costs include most common construction
expenses as well as assorted incidental costs, such as: certain expenditures for site
purchase and/or improvement; related design and legal fees; construction insurance;
general administrative costs; and purchase of particular types of equipment. Incidental
costs are capped at 20 to 25 percent of each project’s maximum cost allowance,
depending on the school grade the project serves.

To calculate building aid, the aid ratio is applied to the lesser of the maximum cost
allowance or the actual monies spent on aidable portions of the project. Change orders,
revised cost estimates, and final cost reports must all be provided to SED, and if building
plans change in a way that alters the application of the maximum cost allowance to the
actual costs of construction/renovation, then aid can be adversely affected.

Aid is based on a standardized, “assumed amortization” schedule25 – but this schedule
represents only that portion of the assumed debt service payment that is associated with
the aidable costs of the project. For example, if a project were financed for an amount
exceeding the maximum cost allowance, SED would not reimburse the portion exceeding
their maximum allowance. Thus, the aid ratio (currently 93.7 percent for JSCB’s Phase I
projects) represents a maximum sharing percentage. If there are costs exceeding the
maximum cost allowance, or expenditures that are not approved for aid, the overall
reimbursement percentage will be lower than the aid ratio.

For most school districts, the assumed amortization schedule is based on an average
interest rate established by SED. The statewide average interest rate for projects approved
by SED in the 2002-03 school year is 3.875 percent. For certain school districts,
including those that access financing through the Dormitory Authority, other rules apply.
In the case of JSCB’s Phase I projects, the school building aid reimbursement is based on
the actual interest rate paid on the bonds issued.26

23
   Building aid units are computed using space standards established by the Commissioner of Education,
and the actual computation is complex. For a description of this methodology, see State Building Aid for
Public School Districts and BOCES, State Education Department (March 200), available online at
http://www.emsc.nysed.gov/facplan/publicat/BuildingAidGuide_030702.pdf
24
   Request for Qualifications, Program Packaging and Development Services Provider, dated May 30,
2001.
25
   Chapter 383 of the Laws of 2001 established this “assumed amortization” approach. The amortization
schedule used assumes that the term of the bonds will be from 15 to 30 years (depending on the type of
project), and will include equal, semi-annual debt service payments.
26
   Chapter 59 of the Laws of 2003 (§5) directed SED to utilize the lesser of the actual interest rate applied to
bonds issued by the Erie County Industrial Development Agency (ECIDA) or the interest rate that would
have been applicable to bonds issued by the Municipal Bond Bank Agency (MBBA), if the Phase I
projects had been financed through such agency. As MBBA was not able to offer lower cost financing, the
actual effective rate paid on the bonds issued by ECIDA for Phase I (Series 2003 bonds) is the measure.


                                                                                                             19
It must be emphasized that the aid ratio, and the assumed amortization calculation, as
well as other aspects of the school building aid formula, are always subject to change.
Indeed, the school building aid formula has been changed a number of times in recent
years. One of these changes was the institution of the assumed amortization approach
itself, which created, in part, the necessity for JSCB enhancement legislation in 2003.

In a letter to the Buffalo School District describing the current application of the school
building aid formula, SED cautioned that the aid ratio that would apply to those Phase I
projects already approved was estimated to be 93.7 percent only for the 2003-04 school
year. SED warned that the “aid ratio applicable to other projects as well as the aid ratio
applicable to those projects in future years may vary.”27

It should be understood that the building aid ratio, whether it fluctuates or not, does not
necessarily, or even usually, represent the overall percentage of the project covered by
State aid. If costs exceed maximum cost allowances, for example, or if un-reimbursable
expenditures are made, or building plans and/or expenditures are changed in ways that
alter the application of the maximum cost allowances, or debt service is structured in a
manner different from the assumptions used in the assumed amortization calculation, then
the overall percentage of building costs borne locally will be higher. In other words, an
aid ratio of 93.7 percent does not mean that building aid reimbursements will equal 93.7
percent of total costs (and as discussed later, Buffalo will not be receiving 93.7 percent
reimbursement overall for Phase I costs, even under current assumptions).

The state aid projections that JSCB is relying on may no longer be entirely accurate.
Changes since the original plans and cost estimates were approved can negatively affect
aid. In at least one of the school building projects, SED officials believe that revisions in
plans and costs could mean that reimbursable costs will be reduced.

The risk of changes in the building aid formula is not insignificant. With the Governor
and Legislature presently grappling with the need to address a major school financing
court decision in the CFE case, it is likely that there will be further changes to the
building aid formula.28 In fact, the Governor’s Commission on Education Reform has
already called for amendments to the building aid formula to simplify the reimbursement
methodology, as well as other changes. However, the Commission also recommends
providing city school districts with the flexibility to finance essential school construction
through alternative financing mechanisms on a district-by-district basis (a statement
which would seem to cover JSCB). 29




27
   Letter dated July 21, 2003 from the New York State Department of Education to the School District.
28
   Campaign for Fiscal Equity, Inc. v. State of New York
29
   Commission Unveils Plan to Reform State Education System, Governor’s Press Release of March 29,
2004.



20
The Governor and Legislature should consider the impact of any future changes in the
application of the school building aid formula to JSCB projects and should strongly
consider “grand-fathering” clauses or other actions to protect these operations in the
event of such changes.




                                                                                   21
Phase I of JSCB Construction

The first phase of JSCB’s ten-year, five-phase capital program was initially authorized in
the 2000 legislation, with some changes made in the 2003 amendments (chiefly that only
school renovations were envisioned, rather than the construction of six new schools).

Phase I includes:
    • Renovation of nine schools (site work, both exterior and interior building
        improvements, as well as mechanical and electrical upgrades);30
    • An energy conservation project involving approximately 30 schools (replacement
        of lighting fixtures, upgrading of heating equipment, central control of the
        district’s heating, ventilation, and air conditioning systems);31 and,
    • Completion of a district-wide technology program, including improvements to
        the district’s telecommunications system.32



Bond Issue

In September of 2003, ECIDA issued school facility revenue bonds in the principal
amount of $180.3 million to help finance the work to be completed during Phase I of
JSCB’s five-phase capital program (also known as the “Series 2003” bonds). In effect,
these bonds were issued on behalf of Buffalo City School District, which – as an agent of
ECIDA – will direct the administration of the projects. The administration and
construction work will be managed and/or performed by the program manager operating
under an agreement with JSCB.33




30
   Erie County Industrial Development Agency, City School District of the City of Buffalo Project, Series
2003. Official Statement (September 10, 2003.) The nine schools covered are school numbers: 19, 31, 38,
66, 67, 74, 80, 302, and 307.
31
   Tied to an energy performance contract in which Johnson Controls, Inc. (JCI) guarantees that the
operational efficiencies achieved by the schools as a result of improvements provided will save the School
District over $530,000 annually.
32
   The “E-Rate 5” (education rate) program is part of a federal initiative that reimburses and/or provides
discounted telecommunications services (e.g., local and long-distance telephone service, etc.), Internet
services (e.g., access charges, etc.), and internal connections services and equipment (e.g., cables, hubs,
routers, and other equipment that make up a school’s computer network, etc.) to public schools teaching
students in kindergarten through twelfth grade. Under Phase I, 13 schools will be rewired so that they can
utilize modern data and communications devices, and telephones will be installed in all of BPS’s
classrooms and administrative offices.
33
   The agreement referred to is the “Master Construction Agreement among the City of Buffalo City School
District, on its own behalf and as agent for the Erie County Industrial Development Agency, Joint Schools
Construction Board, and Louis P. Ciminelli Management Co., Inc.,” dated September 1, 2003.


22
Although the ECIDA bonds were issued in the principal amount of $180.3 million, the
offering included an “original issue premium” of $16.7 million – which is an amount
above the face value of the bond that investors are willing to pay. This means that the
total funds available from the offering are $197 million. 34

In addition to the general project costs, the bond funds support the costs of issuance,
capitalized interest and the creation of a Debt Service Reserve Fund (DSRF) of $19.1
million. This fund strengthens the credit for the bonds, and is almost offsetting, in that its
interest earnings help to support local share. However, State building aid does not
reimburse debt service related to the creation of the Debt Service Reserve Fund (such
funds are not typically used for school district construction bonds).

Payments due bondholders are secured by both a pre-default intercept (by the State
Comptroller) of the School District’s State aid and private municipal bond insurance.
Moody’s and Standard & Poor’s gave this bond issue their highest ratings of “Aaa” and
“AAA”, respectively. The net interest cost for this issuance was 4.9438 percent.35

The structure of this bond issue is largely typical of those done by industrial development
agencies. ECIDA took title to the schools and leased them to the School District via a
“facilities lease” for the term of the bonds. The payments to ECIDA under the lease are
due April 1st of each year for the term of the issue and are equivalent to the annual debt
service on the bonds. Per a related indenture of trust, ECIDA effectively transferred its
rights36 under the facilities lease to the Manufacturers and Traders Trust Company
(M&T), who serves as both the Trustee and Depository Bank for the bond issue. It is in
effect, paying the debt service through the facilities lease.

State aid due the school district is credited to the State Aid Depository Fund and the
trustee transfers the funds to the Bond Fund to pay the debt service. State aid in excess of
that needed to make facilities lease (debt service payments)37 is then released to the
School District. If the Bond Fund does not provide sufficient amounts to satisfy debt
service payments and the School District fails to make the balance of the lease payment
as scheduled, aid due the District from the State can be redirected by the State
Comptroller to the trustee for the payment of debt service. If the amount of debt service
due were to exceed the sum of the amount of State aid that can be redirected and amounts
available from the other accounts of the bond issue, funds obtained from a private insurer
could be used.




34
   Erie County Industrial Development Agency School Facility Revenue Bonds (City School District of the
City of Buffalo Project), Series 2003, Official Statement dated September 10, 2003.
35
   Exhibit A-4, Record of Proceedings, City School District of the City of Buffalo Project, Erie County
Industrial Development Agency (2003).
36
   ECIDA assigned to M&T its rights, title, and interest in the rental payments and related revenue streams
used to make payments due under the lease (i.e., debt service).
37
   The annual lease payment made on April 1 by the School District is equal to the sum of the debt service
due in May and November of that year.


                                                                                                        23
Local Share

In the context of the Phase I bond issue, “local share” refers to the difference between the
debt service/lease payments and the State aid received for the related capital projects (i.e.,
the portion of the project expense not reimbursed by building aid). JSCB is often
described as a mechanism that provided for coverage of the local share from sources
other than Buffalo’s property taxpayers.

This characterization refers to the use of creative resources to cover the local share
amount, including funding from Erie County38, interest earnings from the debt service
reserve account and other project accounts set up for the first bond issue, as well as
savings produced by an energy performance contract.

JSCB’s model is also unique in that it makes the program manager (i.e., Ciminelli
Construction) responsible for identifying sources of funding for local share. However, the
legal responsibility for making these payments ultimately falls to the City’s School
District. For example, were the State building aid ratio to fall below 93.7 percent (a
known risk for the Phase I projects), the School District, not the program manager, would
be responsible for finding the resources to make up for it.39

The local share has also been described as the balance of funding needed after the
application of the 93.7 percent aid ratio (implying that the local share is 6.3 percent). In
actuality, the local share for Phase I will be approximately 11 percent. This is based on
State aid projections provided as part of the Series 2003 bonds’ record of proceedings,
which were based on a letter from the State Education Department40 and verified by a
CPA firm (although, as discussed earlier, some risk remains).

Based on current assumptions, State building aid for projects funded through the Series
2003 bonds will cover only 89 percent of the total debt service/lease payments; building
aid does not cover amounts financed for the debt service reserve fund. In addition, if
there are changes in the projects, or non-aidable expenditures made from bond proceeds,
the proportion of the debt service/lease payments covered by State aid could go down.




38
   Done via a private agreement in which Erie County agreed to provide monies to JSCB for the renovation
of historically significant school building facades.
39
   Section 8.3 of the “Master Construction Agreement among the City of Buffalo City School District, on
its own behalf and as agent for the Erie County Industrial Development Agency, Joint Schools
Construction Board, and Louis P. Ciminelli Management Co., Inc.” dated September 1, 2003 states that:
“the Program Provider [project manager] assumes no responsibility for any failure of the SED to reimburse
the District as set forth…or for any changes to the SED reimbursement formula hereinafter enacted.”
40
   Letter dated July 21, 2003 from the New York State Department of Education to the School District.


24
The local share associated with the Phase I bond issue is to be funded through several
different approaches:
    • Debt Service Reserve Fund: $19.1 million from the Series 2003 issue was placed
        in a Debt Service Reserve Fund (DSRF). The principal amount will remain in the
        DSRF for the term of the bond issue, being transferred out to make the final
        payment. Interest earned on the DSRF over the life of the issue will be used to
        fund a portion of the local share.
    • Project Fund: $164.4 million from the bond issuance was initially deposited into
        the issue’s Project Fund, which disburses funds to support the work. Interest
        earned on these monies will also support local share.
    • Capitalized Interest Fund: Similarly, interest earned on the monies held in the
        Capitalized Interest Fund will be used to fund local share.
    • Energy Performance Contract: An energy performance contract guarantees that
        the School District will realize approximately $530,000 in annual energy cost
        savings, providing a total net savings of about $10 million over the term of the
        bonds.41

While not all of these funds are in hand, the estimates for interest earnings were verified
by a CPA firm as part of the bond issue, and the energy performance savings are
guaranteed through a contract with Johnson Controls.




41
  Per the “Performance Guarantee Contract” between Johnson Controls, Inc. (JCI) and the Buffalo City
School District, signed December 3, 2003.


                                                                                                       25
The following table provides a breakdown of how the local share funds are projected to
be funded over the life of the Phase I bond issue, from 2004 through 2024.



                                       Local Share Funding
                                 Projected Over Bond Term: 2004-2024
                                             ($ millions)

      Facilities Lease Payment                                                                      $314.9
      Less Capitalized Interest/Other Adjustments42                                                   $4.3
      Less Projected State Aid                                                                      $277.1
         Difference: Estimated Local Share                                                           $33.5

      1. Debt Service Reserve Fund Interest43                                                         $15.3
      2. Debt Service Reserve Fund Liquidation (2024)44                                               $19.6
      3. Interest on Idle Cash45                                                                       $1.3
      4. Energy Performance Contract46                                                                $11.2
     Total Funding for Local Share                                                                    $47.4

     Excess Local Share Funding                                                                       $13.9


As shown, State building aid is projected to total $277 million over the term of the bonds.
The facilities lease payments of $315 million will also be offset by capitalized interest,
and the net local share remaining is estimated to be $33.5 million over the life of the
bonds.

We believe the projections for local share funding are reasonable. There is, at this point,
little risk of a significant decline in the local share funds projected for the Phase I
borrowing. Moreover, since the projections are for an excess of local share funding of
$13.9 million over the life of the bond issue, we are confident that any declines in
individual sources of local share funding for Phase I could be made up by other sources.




42
   Includes capitalized interest applied in 2004 and thereafter, as well as a comparability adjustment for
interest earned on deposits in the bond’s Project- and Capitalized Interest funds over the term of the issue
(which are excluded from facilities lease payments).
43
   Includes the value of the interest earned on the principal deposited in the DSRF at the bond issue’s
inception ($19.1 million).
44
   Liquidation of the DSRF to fund the last Facilities Lease payment due on the bonds.
45
   Includes the interest earned on deposits in the bond’s Project- and Capitalized Interest funds over the
term of the issue.
46
   Approximate value of the savings over the life of the bonds in the energy performance contract with JCI.


26
A Local Share Fund was created to reimburse the program provider (Ciminelli), with the
consent of the School District, for the local share and/or project costs it incurred. Unlike
the Project Fund and other funds established by the bond issue’s indenture, this Local
Share Fund is controlled by the School District and the program manager (Ciminelli), and
governed by a separate agreement.47

A portion of the funds deposited into the Local Share Fund will replenish the $5 million
contribution from Erie County that was used to prepare the renovation plans ultimately
aided by SED in the Phase I bond issue.48 It is estimated that there will be approximately
$5 million in the account available to support local share in Phase II. JSCB also plans to
approach Erie County for additional support.




47
   Local Share Trust and Depository Agreement among the City of Buffalo City School District, Louis P.
Ciminelli Management Co., Inc., and Manufacturers and Traders Trust Company, as Depository,” dated
September 1, 2003.
48
   Per an agreement between Erie County and JSCB, dated August 15, 2001, in which the County agreed to
incrementally provide JSCB with up to $5 million to be used towards the local share costs associated with
the exterior renovations of historically significant school buildings under Phase I of JSCB’s capital plan.


                                                                                                        27
Construction Progress

Although both the program manager and JSCB have indicated that they are on time and
on budget for Phase I, there has been some slippage in the estimated completion dates. As
shown in the following table, the estimated completion dates for Phase I projects have
been extended by two months on average. While there are completion dates for projects
specified in JSCB’s contract with Ciminelli, there appear to be no specific penalties for
failure to meet these deadlines. The annual report required in statute49 makes no comment
on the change in dates.



                               Construction Completion Dates
                                     (All dates 2004 unless noted)

                        Project         JSCB Contract &               Annual
                                       Official Statement50            Report
                     PS #19                   August                  October
                     PS #31                  October                 November
                     PS #38                   August                   August
                     PS #66                   August                   August
                     PS #67                   August                 November
                     PS #74                 December                 December51
                     PS #80                 November                 December
                     PS #302                  August                 December
                     PS #307                  August                 November
                     Technology               March                    March
                     Energy                 December                 January 05




49
   Annual Progress and Status Report, JSCB (January 15, 2004); this report is required by Chapter 59 of
the Laws of 2003.
50
   Per the “Master Construction Agreement…” and ECIDA, City School District of the City of Buffalo
Project, Series 2003. Official Statement Citigroup (September 10, 2003).
51
   Does not list a total completion date for this project.


28
Phase II and Beyond

The redevelopment of Buffalo’s educational facilities under the stewardship of JSCB is
an incremental, long-term process, envisioned as a five-phase, ten-year, $1 billion capital
plan. Phase I of this plan began in 2003 and is scheduled for completion early in 2005.



                         Outline of JSCB’s Construction Phases

     Phase         Project Costs         Design Begins           Construction           Occupancy
                    (millions)                                      Starts
        I             $16652                COMPLETE                 2003                   2005
        II             $200                    2004                  2005                   2006
       III             $200                    2005                  2006                   2007
       IV              $250                    2006                  2007                   2008
        V              $250                    2007                  2008                   2009



The overall plan for JSCB construction is outlined in the State Legislation. However, the
Legislature has elected to authorize each phase of JSCB construction individually,
specifying the projects that can be undertaken.

The amounts and schedule included in the table above for Phases II through V represent
only an approximate outline provided by the program manager.

Phase II is the next installment in this capital agenda. As proposed by JSCB, and
approved by the City’s Board of Education53, it includes the comprehensive renovation of
13 schools, as well as the continuation of district-wide improvements related to
technology, energy conservation, and masonry repair.54

JSCB has authorized the preparation of the schematic designs customarily required by
SED for proposed Phase II projects. Work on this next phase is tentatively scheduled to
start in 2005 and be completed in 2006. Phase II project costs are projected to total
approximately $200 million (excluding financing and other related costs).




52
   This amount does not include costs of issuance or financing, and is therefore comparable to construction
costs estimated for the remaining phases. Source: Exhibit A-2, Record of Proceedings, City School District
of the City of Buffalo Project, Erie County Industrial Development Agency (2003).
53
   Mayor Masiello’s 2004 State of the City Address.
54
   Buffalo Public Schools Program: Strategic Plan Recommendations, Ciminelli Construction, January 14,
2004.


                                                                                                        29
The financing structure used to support Phase II is slated to be substantially similar to
that used in Phase I. It is planned that the local share, or the portion not reimbursed by the
State, will be supplied by savings achieved through the use of another energy
performance contract, interest earnings from the idle cash generated by the related bond
issue, and a contribution from Erie County.

In addition to the authorization of Phase II bonding and construction, JSCB is seeking
other legislative changes that it believes will facilitate the implementation of Phase II:
    • Exclusion of debt issued on behalf of JSCB from the State’s bond issuance
        charge. This charge is imposed at the rate of 0.7 percent on the large bond issues
        of public authorities. A portion of the charge’s proceeds are used to finance
        oversight of those authorities by the State’s Division of the Budget (DOB).55
    • An exemption allowing JSCB debt offerings to proceed without direct approval
        by the Buffalo Fiscal Stability Authority.56
    • Technical changes that would clarify SED’s ability to base the timing of State aid
        payments on the date SED approved the projects.57
    • The exclusion of the Phase II technology and energy projects from existing
        provisions that require contracts awarded by the program manager for the
        reconstruction or renovation of facilities owned or leased by ECIDA to be
        awarded through a competitive process that considers the bidder’s experience,
        ability to provide maximum value at the lowest cost and meet the goals for
        participation of women and minority-owned businesses.

At this point we cannot review how the local share will specifically paid for in Phase II,
although it will be covered using the same approach used in Phase I. According to
officials at Ciminelli Construction, no specific descriptions or projections will be
available until August. (Ciminelli is currently working with the State Education
Department to develop maximum cost allowances for Phase II projects, which is a
necessary precursor to pricing the bond issue and calculating local share requirements).

It is likely, however, that the aid ratio used in the school building aid will be lower than
the 93.7 percent that Buffalo is currently receiving for Phase I projects. For projects
approved on or after July 1, 2000, a different aid ratio is applied, which under current
calculations for 2003-04, is 91.7 percent; this aid ratio will likely fluctuate from year to
year, as it is based on relatively current data on the ratio of Buffalo’s wealth to the State’s
average wealth (it could increase as well as decline).



55
   §2976 of the Public Authorities Law
56
   Chapter 122 of the Laws of 2003 subjects borrowings on behalf of JSCB and/or the School District to
review by the Buffalo Fiscal Stability Authority. However, this statute also exempted Phase I borrowing
from review.
57
   State building aid is paid to school districts according to an amortization schedule that assumes the first
payment of debt service 18 months after the approval of the project by SED or the date the project’s
contract is awarded by the school district, whichever occurs later. Because the program manager, and not
the School District itself, awards the contracts for JSCB’s projects, this provision can make the appropriate
timing of SED’s reimbursement unclear.


30
Diversity Goals

JSCB was created with diversity objectives as well as educational and economic goals in
mind. In arriving at this model and process, legislators and other area leaders have said
that developing the City’s construction industry and ensuring that it adequately reflects
the City’s diverse population are fundamental goals of the program. Between 800-1000
new jobs are expected to be needed during the first half of JSCB’s ten-year, $1 billion
capital project.58 The diversity component of JSCB’s plan is designed to use this
expansion of the regional construction industry as a way to create opportunities for those
groups who have traditionally not participated in the construction trades.

Most of the diversity aspects of the program reflect agreements other than the State
enabling legislation, which only requires JSCB to comply with the affirmative action
policies of the School District and the City.59

In June of 2002, JSCB developed its “Development and Diversification Plan for
Workforce and Businesses” with the primary goals of helping the City and School
District develop a more diverse workforce and foster the business development of under-
represented populations. This plan also encourages contractors to use Western New
York-based labor and suppliers.

To ensure the availability of a stable project workforce, the program manager (Ciminelli
Construction) entered into a PLA with the region’s major construction trade unions.60
JSCB not only required the program manager to accept the provisions of its Diversity
Plan, but also required acceptance of that plan by the unions in their contract with the
program manager (i.e., the PLA). Although non-manual work is specifically excluded in
the PLA, JSCB has encouraged the extension of these goals to professional/managerial
work as well. The contract also provides an incentive for the unions to diversify their
membership, because if the unions can't provide enough minority/women workers for a
contractor to meet the diversity requirements, the contractor can hire nonunion personnel,
regardless of the contract’s other provisions.




58
   Ciminelli Construction Companies’ response to JSCB’s RFQ, dated July 6, 2001
59
   Chapter 605 of the Laws of 2000
60
   “Joint Schools Construction Board, School Construction and Rehabilitation Program, Workforce
Development and Diversity Program Agreement between the Building and Construction Trades Council of
Buffalo, New York and Vicinity, AFL-CIO; Empire State Regional Council of Carpenters, Local Union
No. 9; Empire State Regional Council of Carpenters, Local Union No. 42; and Louis P. Ciminelli
Management Company”


                                                                                                 31
The program manager has a variety of other definite duties, as specified in the agreement
with JSCB:
   • Conduct a community-wide public relations campaign alerting the Buffalo public
       to the job and training opportunities available;
   • Monitor compliance61 by contractors with the Diversity Plan’s requirements;
   • Include remedies and sanctions for noncompliance in all its contracts with
       contractors; and
   • Report to JSCB on contractor compliance monthly, making recommendations
       regarding “alternative agreements” where applicable.62



Goals for JSCB Contractors

The Diversity Plan requires all contractors performing JSCB work to have 23 percent of
their project personnel (including trades people, trainees, journeymen, etc.) be minorities
(defined as African-, Hispanic-, Asian-, and Native-Americans) and 7 percent be female.
To demonstrate their compliance with this guideline, contractors are required to submit
monthly reports and certified payroll records detailing the total work hours of each
employee by classification (i.e., minority, female) as a percentage of the total hours
worked by all employees, as well as the total number of minority employees by gender
(e.g., number of Hispanic women, number of Asian men, etc.) and the number of all
employees by gender (i.e. number of women).

According to the March 2004 report from the independent monitor (Bevlar & Associates,
Inc), to date, the workforce goal for participation by minorities has been met overall, with
26.3 percent of JSCB project labor being minority. However, the rate of participation by
women on Phase I projects is currently about 6.8 percent, slightly below the goal of 7
percent. While the workforce goal for participation by women has not been achieved,
satisfaction of this mandate is expected as Phase I progresses and begins to incorporate a
wider array of trades.

Although overall (i.e., aggregate), results show that the workforce goals have been met
by the contractors hired by Ciminelli, many individual companies have not met these
goals. Indeed, out of a total of 66 contracts let for Phase I projects thus far, a total of 34
contractors have not met JSCB’s workforce goals. In approximately 28 instances, the
women workforce goals were not met, and in about 16 instances, the minority goals were
not met.




61
   In the Program manager’s (Ciminelli, Inc.) contract with JSCB, Ciminelli was required to select an
independent monitoring firm, acceptable to JSCB, to aid this effort. Bevlar & Associates, Inc. was selected
to collect, verify, and tabulate the data submitted by contractors in Phase I.
62
   Requires an affirmation that good faith efforts were made to secure the services of under-represented
workers and/or businesses.


32
The racial composition of those hired was somewhat varied and appeared to be based on
the specific trade/service needed by the contractor (i.e., the minorities hired by some
contractors consisted of only one racial group). Several contractors have asserted that
they could not meet the workforce goals because of the dearth of local minority/female
trades people (e.g., electricians). Additionally, some contractors noted that they already
had a proven/established field crew and didn’t need to hire additional employees and
thus, could not meet the workforce participation goals. On occasion, as projects neared
completion (and the contractors had been substantially paid for their work) the
contractor’s minority/female workforce participation rates declined.

Each contractor or supplier is also required to engage a minority-owned business for at
least 25 percent of the value of each contract/purchase order and a woman-owned
business for at least 5 percent of the value of each contract/purchase order. To date, these
goals have been met overall according to reports from the independent monitoring firm.63
Per the terms of its standard contract, the program manager can terminate its contract
with any contractor that fails to comply with JSCB’s Diversity Plan.

For noncompliance, JSCB has informed contractors that it can:
   • Summon the contractor to a hearing and withhold payment pending resolution of
       the hearing;
   • Terminate/cancel the contract or purchase order; and/or,
   • Identify the contractor as a non-responsive bidder, potentially making them
       ineligible to be awarded a contract on subsequent JSCB projects.



Union Membership

Via the PLA, each of the participating trade unions agreed to adopt a plan with the goal
of increasing their minority and female membership rates to 35 percent and 10 percent
respectively, over the first five years of the Project.64 Similar goals are mandated for the
union's pre-apprenticeship and apprenticeship classes. To track progress and ensure
compliance with these membership goals, the unions are required to submit an annual
census report that details the ethnic/gender composition of their membership by
classification (e.g., apprentice, journeyman, etc.).




63
   Construction Contract Monitoring and Compliance Services Monthly Report: Addendum 1 Project, dated
March 2004. Although the M/WBE goals have been met Project-wide, some contractors have not met these
goals, and necessary data from some contractors has not yet been received.
64
   On July 31, 2003, the Unions submitted baseline data regarding the racial and gender composition of
their membership against which future outcomes will be assessed. Accordingly, their annual update of this
information is due by July 31 of each year.


                                                                                                      33
                   Data from the Union’s First Annual Census
                                  (Submitted July 2003)

           Local Union              Total Membership % Minority             % Female

 #4: Insulators & Asbestos                    95                8%              3%
 #7: Boilermakers                            149                5%              1%
 #9: Carpenters                              623                5%             <1%
 #111: Cement Masons                         109                9%             0%
 #14: IUEC                                   114                5%             <1%
 #41: IBEW                                   576               10%              3%
 #6: Ironworkers                             452               22%             <1%
 #660: Glaziers                              119                8%              3%
 DC #4: Painters                             548                9%              3%
 #17: Operating Engineers                   1148                9%              5%
 #9: Plasterers                               84               15%              0%
 #22: Plumbers & Steamfitters               1525                8%             <1%
 #74: Roofers                                208                5%              1%
 #71: Sheet Metal Workers                    324                6%             <1%
 #449: Teamsters                             300               38%              4%
          Total/Average:                    6,374              11%             2%



Training

Under the terms of the PLA, the unions also agreed to provide the training required to
help a diverse regional construction workforce reach journeyman status, and were
specifically required to maintain a training facility, such as the one previously operated
on Clyde Street.

The training initiative related to JSCB has three components: a five week “soft skills”
component, an 18-week building trades pre-apprenticeship program that is directly
funded by the unions, and a trade-specific apprenticeship program offered by particular
local unions, which can be coupled with paid apprenticeship work at JSCB project
worksites.




34
The soft-skills component or “preparation for building trades” module is provided by the
Educational Opportunity Center (University at Buffalo EOC). Here, students receive
instruction in technical reading, writing, basic computer literacy, applied mathematics,
and life skills management. This training component also provides students with an
introduction to the construction trades and related regional employment opportunities, via
classroom instruction as well as trips to local construction sites and technical colleges.
Although students typically complete this module in about five weeks, the EOC
continues to work with those students who require additional support. Only those
students who successfully master the introductory curriculum of this first link in the
training matrix are directed to the pre-apprenticeship training opportunity.

Next, focused instruction in the construction trades is provided by the Buffalo Building
Trades Development Partnership (BBT). The Buffalo Building & Construction Trades
Council, which is a consortium of local construction trade unions, created the nonprofit
BBT for the express purpose of providing Western New Yorkers with the training needed
to allow them to enter unionized employment in the local construction industry. This pre-
apprenticeship program is designed to provide students with an introduction to the
various construction trades. This training is provided over approximately five months by
master craftspeople from the Council’s 17 member unions. As part of the their
commitment to promote the inclusion of both minorities and women in the local
construction trade unions, the BBT’s training module is expected to actively mentor and
recruit students from these groups.65

Finally, graduates apply to one of the individual BBT unions’ apprenticeship programs
where they receive specialized training in a particular construction trade. They are
concomitantly placed in the pool of candidates eligible to work on Phase I projects.66 The
hours worked on these projects, for which graduates are paid union apprentice-level
wages, are credited toward their efforts to gain union membership and journeyman status.

Except for the mandatory submission of annual census data, unlike the workforce
diversity goals required of contractors however (which are reported monthly by an
independent monitoring firm) there is no such oversight of the union’s compliance with
the diversity goals applicable to either their pre-apprenticeship, or apprenticeship
classes.67 Additionally, the PLA does not appear to include any sanctions that may be
applied to the unions should they fail to achieve the diversity membership goals applied
to the fifth year of JSCB’s project. Similarly, longitudinal and/or historical analysis
regarding how many minorities and women trained under the auspices of the BBT and/or
given work on JSCB projects who are able to remain in the construction field and
transition to non-JSCB work is not explicitly provided for.


65
   The PLA requires the Unions to adopt enrollment goals of 35 percent minorities and 10 percent women
for all pre-apprenticeship classes; and 25 percent minorities and 10 percent women for all apprenticeship
classes.
66
   This work is expected to include that done on Phase I projects, as well as trade work completed at other
regional construction sites.
67
   The contract between Ciminelli (as the program manager) and the Unions does not have a specific sunset
date, but is designed to endure until the last JSCB project is completed.


                                                                                                        35
Per the PLA, contractors must contribute ten cents for every hour worked on JSCB-
related projects to the training center. This revenue stream is projected to provide
approximately $100,000 per year. The center has also received funding from a variety of
external entities including the New York State Department of Labor (NYSDOL),
nonprofit organizations, corporate sponsors and the federal government. The “Built on
Pride” program, for example, represents an arrangement whereby the Buffalo Urban
League gathered funds from both government and private sources, and directed a portion
of those funds to the BBT’s training of low-income students.

Overall, the training center received a substantial portion of its funding on a
reimbursement basis, if/when it placed graduates in construction jobs for a specified
amount of time.68

Problems exist in that the union agreements with the program manager do not contain
clear guidelines on the number of people the training center must train and successfully
place. Furthermore, there are no monitoring tools that track whether the training center’s
graduates retain employment and gain permanent union membership.

The training center opened in March of 2002, in anticipation of construction beginning
shortly thereafter. However, the financing of Phase I was not completed until September
2003 – after legislation was passed that addressed the change in the school building aid
formula, as well as the change in the approach of Phase I. This delay was quite harmful to
the ultimate success of the first round of the training center’s operations, as people were
trained before jobs were available. It is estimated that the center has graduated over 200
students but found employment for about only half.69 Students in the training center’s
most recent class graduated at the end of January 2004.

Although the training center’s difficulties have been caused in part by the delay in the
Phase I work, it is also apparent that the training center has been poorly managed.
Indeed, having incurred debt of approximately $650,000, the BBT’s training center on
Clyde Street has closed. Leaders of the BBT have severely criticized the training center,
saying it was “out of control” and “totally mismanaged.” 70

In order to fulfill its obligation under the PLA to operate a training program, the BBT
voted to delegate its training operation to the AFL-CIO Economic Development Group
(EDG). Formed in 1999 by union and other labor leaders, EDG is a nonprofit
organization that strives to coordinate the region’s training and economic development
resources in order to stabilize the local economy. It receives some of its funding from
private companies, and trains for both union and nonunion positions. Under a proposed
arrangement, EDG would provide training in the construction trades on behalf of BBT.



68
   Often BBT will be reimbursed for a portion of the costs incurred training a student at set intervals (e.g.,
when the student begins the program, at completion, when placed for 60, 90, 120 days, etc.).
69
   Money Troubles Plague Job-Training Center The Buffalo News (January 18, 2004).
70
   Money Troubles Plague Job-Training Center The Buffalo News (January 18, 2004).


36
The $100,000 projected to be generated annually by the union's required hourly
contribution is currently insufficient to fully support the training program, thus
necessitating the NYSDOL contributions of the past. Unlike the past funding streams
however, which were back-end-loaded and reimbursed the BBT when graduates were
placed, EDG claims to have identified additional, stable funding streams that are not
indexed to the number of people trained or their placement. According to EDG, the size
of the training classes can now be indexed to both the availability of apprenticeship
opportunities in each construction trade, and the probable number of available positions
by trade.71 Consequently, EDG currently anticipates training approximately 50 people in
the construction trades in 2004. Moreover, as part of EDG’s companion community
development program, the “Joint Neighborhood Stabilization Initiative,” a private
corporation has been formed that will hire many of its construction trade students to
rehabilitate decayed properties in Buffalo. Thus, they believe that a portion of the training
program’s expenses could be paid for via Federal grants from the United States
Department of Housing and Urban Development (HUD), and Community Renewal Act
funds, etc.

Regrettably, while its previous training center remains closed, to date, BBT has neither
formally contracted with any organization, including EDG, to offer the required training,
nor otherwise provided for future training in the construction trades.




71
  The training component entails a three-step process: soft skills at the EOC, introduction to all the
construction trades by the BBT, and acceptance into the apprenticeship program of a specific local trade
union. It can take as long as four years before someone reaches journeyman status.


                                                                                                           37
Conclusions on JSCB Model and Progress

Without the Buffalo JSCB legislation and amendments, the City would not have a way to
address its school facilities needs, and the success of this model is therefore critical. The
project’s potential contribution to diversity in the construction workforce and its suppliers
is also vitally important. Other large cities in New York State have conditions and needs
very similar to Buffalo’s. Our recommendations are guided by these considerations.



Financing

Our review of the financing and work underway on Phase I ($180.3 million bond issue
for nine school renovations, and district-wide technology and energy projects to be
completed by early 2005), indicates that the contracts in place with the “program
manager” (Ciminelli Construction, Inc.), as well as other contributions provide a plan
under which these projects can be effectively accomplished. We are also convinced that
for Phase I, the plans to cover the “local share” are adequate, even if there is slippage in
any of the individual estimates.

At this point we cannot review how the local share will specifically be paid for in Phase
II, as the components of this plan have not yet been described. However, our review of
the method used in Phase I gives us reasonable confidence that the local share for Phase
II can be covered using the same approach.

However, at this time we cannot say with certainty that JSCB projects will never have an
impact on the City’s revenues, as coverage of the local share could become more difficult
in subsequent phases (as the School District runs out of energy improvements to make,
for example).

Although the contractual provisions with the program manager, as well as performance
bonds for most of the work being performed, provide a level of comfort, in a construction
project of this magnitude there is still a risk of the program manager not being able to
deliver the projects on time and on budget. There is also a risk that cost pressures will
result in the projects being completed in a manner that does not satisfy the School District
or JSCB. Simply put, the type of design-build approach being tried in Buffalo has not
been used at this level before. We would have greater confidence had Phase I proceeded
to a point of substantial completion, where an audit could have been undertaken.

While the JSCB process appears to be functioning properly to date, there are
improvements that could be made in its procurement process, and the program manager
should be prohibited from also doing actual construction work (as apparently is planned
for Phase II). We remain concerned about whether the program can achieve its goals
through all five phases of the planned $1 billion construction program.



38
Recommendations:

   •   Given that JSCB financing and construction program is apparently operating
       effectively to date, the Legislature should authorize Phase II bonding. The lack of
       approval for this phase would interrupt the implementation of the program, having
       negative consequences for the education and diversity goals of the original
       legislation.
   •   In authorizing Phase II, the Legislature should eliminate the 0.7 percent BIC
       normally imposed on authority borrowing and prohibit the program manager from
       directly performing construction work.
   •   Because there is the potential for JSCB’s borrowing to impact the City’s finances,
       such borrowing should be subject to approval by BFSA (which must approve or
       disapprove such borrowing within 30 days).
   •   Early in 2005, OSC will commence an audit of the performance of JSCB for
       Phase I construction projects, providing an opportunity to review whether the
       model is continuing to hold to the plans.
   •   Similarly, in 2005, a general audit of JSCB’s operations that includes its
       agreements with its program manager should be completed, so that the meeting of
       the Board’s workforce diversity goals can be examined.


Applicability of Model to Other Large Cities

Each of the “Big Five” cities, Buffalo, Rochester, Syracuse, Yonkers, and New York-,
are fiscally distressed, and this condition is affecting their dependent school systems,
which are both fiscally and educationally disadvantaged. These schools contain more
than half of the public school enrollment in the State, and the vast majority of its poor and
minority students. Educational facilities in these cities must be funded within the debt
limits constitutionally required for the big cities, and each of these cities is approaching
its debt limit.

The State is currently faced with implementing a court decision in the CFE case
(Campaign for Fiscal Equity, Inc. v. State of New York) that is linked with big city
educational issues, including school facility issues. The CFE has just released a school
facilities plan calling for a $10 billion school infrastructure investment funded by State
bonds, enrichments in State building aid to increase annual aid by approximately $350
million, and exclusion of the State aid-funded portions of school bonding from the debt
limits of the big cities. There are probably many ways to consider addressing the facilities
needs being advocated for by CFE, and the State should be proactive in its approach to
this issue.

As New York City and Buffalo now have specialized school construction processes and
financing options, consideration may be given to addressing these issues in other large
cities.




                                                                                          39
Recommendations:

     •   Other large cities in the State have educational and economic needs similar to
         those of Buffalo, and thus the JSCB model should be considered for application in
         those cities.
     •   This model does, in essence, authorize borrowing for school purposes outside of
         the municipal debt limit. In Buffalo, given an advantageous state aid
         reimbursement rate, the approach can be justified because the City is currently
         able to rely on funding from sources other than additional local taxes. This issue
         should be carefully considered if the model is extended elsewhere.
     •   In Buffalo, school building needs were debated publicly for some time prior to
         creation of JSCB. If legislation were enacted to create a similar approach
         elsewhere, it should include a requirement for a similarly intensive public
         discussion period.



Diversity

As part of a labor agreement with JSCB’s program manager (Ciminelli), Buffalo’s
building trades unions agreed to set aside 35 percent of their pre-apprenticeships for
minorities and 10 percent for women, and adopt a plan to diversify their membership,
with an identical goal for union membership within five years (i.e., 35 percent minorities
and 10 percent women). Under that agreement, the unions were required to maintain a
building trades training center to serve Erie County residents. Contractors contribute ten
cents for every hour of labor on JSCB projects to support this training center.

The program manager, with help from an independent firm, must monitor compliance by
contractors with a workforce goal for JSCB projects (23 percent minority and 7 percent
women), as well as a 25 percent minority and 5 percent women-owned business
enterprises (M/WBE) goal. Ciminelli includes remedies and sanctions for non-
compliance in all of its agreements with contractors.

Current reports from the independent monitor (March 2004 is the latest) show that the
minority hiring goals are being met (26.3 percent), although the results for women are
slightly behind (6.8 percent – but the percentage is expected to improve in the later stages
of Phase I). The M/WBE goals are currently being met (28.8 percent and 8.4 percent,
respectively).

There are no monitoring tools, however, that track whether the training center’s graduates
retain employment and/or gain union membership. The Training Center operated by the
unions relies on both State and federal funding sources in addition to $0.10 per hour
worked contributed by the unions. Each of these funding sources imposes different
timeframes and requirements, and the training center has suffered from a chronic lack of
consistent and reliable funding. Although much of this difficulty came from the delay in
Phase I construction, it also appears that the training center has not been well run.


40
Problems exist in that the union agreements with the program manager do not contain
clear guidelines on the number of people the training center must train and successfully
place, and there are no monitoring tools that track whether the training center’s graduates
retain employment and gain permanent union membership. Some funding agencies have
required that graduates be placed in construction jobs for a certain period before they
reimburse the training. However, this approach shortchanges the actual training process.
Clear goals and a practical funding approach need to be established by the training center
and other stakeholders.


Recommendations:

Workforce and Business Enterprise Goals:
  • In authorizing Phase II, the Legislature should require JSCB to create and
     coordinate efforts to ensure that the promises made regarding a more diverse
     workforce are kept.
  • Specifically, JSCB needs to play a greater role in ensuring that its Diversity Plan
     is successfully implemented by all contractors, at each of the project’s worksites,
     throughout all of the project’s phases. JSCB and the program manager have
     remedies for contractor non-compliance. Those remedies should be used.
         o JSCB’s monthly meetings should include a report from its Diversity
             Committee, and/or a general agenda item focusing on compliance with the
             workforce and business enterprise goals. As part of this process, JSCB
             should formally review both the independent monitor’s monthly report, as
             well as any other relevant information.
         o At these meetings, JSCB should identify instances where the Plan’s goals
             have not been satisfied, what actions will be required of the contractors
             responsible to ensure their future compliance with these goals, and, unless
             a waiver is specifically granted per provisions of the Diversity Plan, what
             sanctions will be applied to these contractors as a result of their continued
             failure to meet the Plan’s diversity goals.
         o JSCB should keep a public record of such proceedings and provide an
             annual report that presents aggregate information regarding compliance
             with the Plan’s goals and the sanctions applied, if any, to contractors who
             failed to meet those goals.

Training Efforts:
   • While the Buffalo Building Trades Development Partnership (BBT) remains
      ultimately responsible for increasing the number of women and minorities in the
      construction trades, JSCB should recognize that the weaknesses in the training
      model used thus far require the Board to take other actions to ensure that this
      mandate is met.




                                                                                        41
     •   It is essential that BBT immediately secure a new service delivery/management
         mechanism capable of adequately ensuring its full accountability for the funds
         expended (from both the contributions of its member unions, per provisions of the
         PLA, as well as public monies, especially those from the State) in the provision of
         the training it agreed to provide for in its contract with JSCB’s program manager.
     •   No later than September 1, 2004, the program manager, BBT, and those involved
         with related training efforts should submit a report to JSCB on these efforts. This
         report should:
              o Clearly identify the organization, board of directors, and staff who are
                 accountable for helping BBT and the program manager meet the diversity
                 goals;
              o Provide a schedule of planned activities that include goals, with specified
                 timeframes, for the number of people to be trained and placed. Such a
                 schedule should be carefully coordinated with the needs of the program
                 manager and contractors for employees;
              o Explain the protocols to be used in the effort to recruit, train, place, and
                 follow-up with women and minority candidates who are seeking to take
                 advantage of the construction employment opportunities created by JSCB
                 projects;
              o Describe how the training efforts used will support achievement of the
                 union membership goals for women and minorities;
              o Project forward from the baseline census, showing how the training and
                 placement goals will be reached;
              o Present a balanced financial plan for operations, including identification of
                 revenue sources, and an expenditure plan that identifies salaried positions
                 and other expenses of the training effort;
              o Identify the individuals responsible for day-to-day operations and financial
                 management of the training effort (if different from those identified
                 above); and
              o Provide a schedule for the financial review of the training efforts used
                 that includes specific dates for both reporting by accountants and/or
                 outside auditing entities, and the submission of such reports to JSCB.
     •   Annually, BBT should provide a report, authored by an independent monitoring
         firm with specific expertise and experience in the evaluation of vocational
         training programs, that details the criteria and process the program used to select
         its students, the program’s graduation rate (by race and gender), and the extent to
         which the program’s graduates are able to remain in the field and gain union
         membership. This report should provide an understanding of both the program’s
         successes, as well as areas for improvement.
     •   Independent monitoring, of the type currently provided in connection with
         contractors working on JSCB projects, should be extended to include the
         operation of any training program that receives contributions, per the PLA. Such
         independent monitoring can assist BBT and JSCB to identify problems early.
     •   The board and/or management of the training center should include a person with
         strong academic/professional credentials in program evaluation, and specific
         experience in achieving diversity goals.


42
   •   An additional funding stream for the training effort is clearly needed. However,
       additional funding should not be provided without the assurance that management
       and accountability will be improved. Therefore, the Legislature should put in
       place requirements, such as those described above, either through special funding
       legislation or the authorization of JSCB’s Phase II projects.

Union Membership:
   • The PLA’s requirement that BBT provide an annual census of its members is a
      vital part of ensuring that the agreement’s diversity goals are ultimately met. The
      baseline census provided should be updated semi-annually.
          o At a minimum, JSCB should convene an annual public meeting to discuss
              the results of each year’s census.




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