Has Jeffco’s $705 Million Capital Program Really Spent $173 Million on Cost Overruns and Undisclosed Projects?

At last night’s Jeffco Schools Board meeting, Director Mary Parker tried to argue that Jeffco’s Capital Program was doing just fine, and that claims it had overspent by more than $170 million were false.

Let’s look more deeply at this claim.

In 2018, Jeffco voters were asked to approve the issuance of $567 million in bonds to fund a $705 million Capital Improvement Program (CIP). The remaining $138 million was to be provided by the annual transfer of $23 million to the district’s Capital Fund from its General Fund for six years.

Voters were issued a “Flipbook” which detailed how much of the $705 million would be spent at every school in the district. The total added up to $563 million. Of the remaining $142 million, $56 million was transferred to Charter Schools and $86 million was for “Program Contingency”.

The budget every project at a district run school contained a 10% “Project Contingency” for possible cost overruns. This is a normal contingency percentage for capital program projects (note, in the past I was the CEO of an engineering firm that constructed large units as part of new LNG projects around the world).

Jeffco’s “Program Contingency” was in theory an extra level of protection against cost overuns on individual projects over the six year life of the Capital Improvement Program. If a project had cost overruns in excess of its 10% Project Contingency, the excess would be charged to the CIP’s Program Contingency.

When they passed Prop 5B (by a scant 0.24% of the total votes cast), Jeffco voters approved a total amount of money that could be spent to repay bond principle and interest. Because interest rates dropped between when Prop 5B was approved in November 2018, and when Jeffco later issued bonds, it received more bond proceeds than $567 million. Specifically, it received an additional $118 million. This is known as “Bond Premium”.

As an aside, state laws treat bond premium differently. Some states don’t allow it, and require that, even if interest rates have declined, only the amount of bonds approved by the voters (i.e., $567 million) can be issued. Other states require that any bond premium be contributed to the debt service fund, which reduces the amount of taxes that must be imposed to repay bond principle and interest. Colorado has no such provisions, nor any laws that specify who must decide how the bond premium will be used (e.g., a school board).

Back to our story.

Following questioning by Jeffco Board Director Susan Miller, the district transferred about $12 million of bond premium to Charter Schools (technically, 11.8, given Charters’ 10% share).

Finally, Jeffco has earned $12 million in interest on bond proceeds.

So what was the total amount of money that Jeffco had available to spend on district-run schools?

• Start with the total $705 million Capital Program that was described to Jeffco voters when they approved Prop 5B ($567 million in bond funding, and $138 million in funding from transfers from the General Fund to the Capital Fund for six years).
• Add to that $118 million in Bond Premium and $12 million in interest earnings.
• That gives you $835 million to spend.
• Of that, $56 million went to Charters from the Bond Proceeds, and a further $12 million from the Bond Premium (charters didn’t get any of the interest earnings.
• That left $767 million for Jeffco to spend on district-run schools.

Based on the latest district data, how much of that $767 million has not yet been spent or committed (including the $30 million plus that was recently set aside to cover anticipated cost increases driven by rapidly increasing inflation)?

• An estimated $31 million.
• You read that right.
• With three years still left on its six year Capital Improvement Program, Jeffco has already blown through through not only the 10% contingency on the projects it has completed, but also the $86 million in Program Contingency that was supposed to cover the full six year program, as well as nearly all the $130 million in Bond Premium and interest earnings it received.

The original Capital Improvement Program budget presented to Jeffco voters in 2018 showed original project budgets totaling $563 million.

Contrary to what Director Parker believes, Jeffco’s Capital Improvement Program really has spent or committed $173 million more that its original $563 million budget (767 minus 563 minus 31).

That is both shocking and depressing.

To be sure, some of the scheduled projects to which funds have been committed but not spent could be cancelled in the future, which would increase the amount of unspent funds. But given the information available today Parker’s claim is clearly wrong.

So where has $173 million gone? It appears to have disappeared down three holes:

• The first hole was cost overruns. For example, the Alameda High School project had overruns of more than $10 million, or at least 70% of the original budget (it is hard to calculate the actual overrun, because Jeffco has started to spread Alameda costs across multiple projects — e.g., multischool constracts for asbestors removal and paving).
• District management would like the public to believe that all these cost overruns were due to inflation. But CIP spending started in 2019, and inflation didn’t take off until this year (2022). Many times since 2018, Jeffco management has bragged to the Board and the Capital Asset Advisory Committee about the great pricing they were getting from suppliers in a market where construction labor and materials demand had been severely reduced by COVID (it’s all on the videos of Jeffco Board meetings). In point of fact, inflation is not the reason for all the cost overrns.
• What then is? When she took over, new Superintendent Tracy Dorland ordered an independent review of the CIP by by Moss Adams, which is a leading provider of Independent Performance Audits of school bond programs in California, where they are required by law.
• Moss Adams findings (and note that they only did a review, not a more thorough performance audit, as they do in California) hint at some possible explanations for the CIP’s cost overruns.
• For example, bids received by Jeffco for different CIP projects were not retained by the district (which is a legal requirement in other states), nor were the criteria used for the award of the bids specified. Moss Adams also found that on many projects the low bidder later submitted change orders (which raise the project cost if the district agrees to them) in amounts that were unusually high percentages of the original bid. All these change orders were approved by district management. In other cases, contractor bids came in well above Jeffco’s budgeted cost for projects.
• The second hole was spending on projects that had not been disclosed to the voters in the Flipbooks they received ahead of the November 2018 election. Perhaps the most egregious example was an estimated $50 million in spending on expensive new athletic fields and facilities for the districts’ affluent high schools.
• Jeffco’s own polling ahead of the 2018 election showed that one of the reasons the 2016 bond election failed was because of the large amount of proposed spending on athletic fields. The poll found that these were voters’ top priorities for the proposed capital improvement program (source: “2019 NSPRA Gold Medallion Entry Bond/Finance Campaign” produced by Tammy Schiff, Communications Director for Jeffco Public Schools):

Findings from 2018 Jeffco Poll on Voters’ Capital Program Priorities

Defenders of Jeffco’s Capital Improvement Program (including some current and former Board members, who had a fiduciary duty of care to effectively oversee its activities) have lately taken to claiming that the original Flipbook distributed to voters in 2018 (and the displays in each district school showing how much Capital Program money would be spent on it) were “just marketing documents” that didn’t provide the full picture of all the projects on which money would be spent.

There are two responses to this:

If that was the case, then why did the budgets for the projects in the original flip book add up to $563 million?

Second, the claim is contradicted by Jeffco’s “Gold Medallion” entry to the National School Public Relations Association’s contest for best 2018 Bond/Financing Capaign, which includes these statements:

• “The flipbook…summarized what every school was going to receive in terms of renovations or new construction from the bond program”.
• “In all, we estimate over 150 “Mill Levy and Bond Factual Information” presentations where made morning, noon and night over the eleven weeks between the board vote to approve the questions and election night. These presentations were fact-based.”
• “The efforts to build a collection of targeted, transparent, and comprehensive materials positioned the district as a trustworthy resource of election information — the published and online materials became the “truth” all supporters referenced, the schools’ and district’s community outreach efforts spoke those truths, and the community responded positively.”

The third hole was overstatement of the actual size of the transfers from the General Account to the Capital Account.

• The $23 million/year for six years failed to deduct $2 million per year from the Capital Account that was already committed to repay Certificates of Participation (COPS) that were issued in the past to pay for the construction of new schools.
• The annual capital transfer was further reduced by an additional $2.5 million, which is the amount that will be deducted from the Capital Account over the next three years of the Capital Improvement Program for payments related to Jeffco’s decision to pay for half the construction cost of a new “Olympic Natatorium” for the City of Arvada. The district will not end up with any ownership interest in this facility, which is a scandal in itself (for more on this, see my article here).
• Thus, $4.5 million of the planned $6 million annual transfer from the General Fund to the Capital Fund will not be available to pay for the Capital Program, as Prop 5B voters were originally told in 2018. The missing money must come out of bond premium.

There is one final outrage related to Jeffco’s Capital Improvement Program that should not be overlooked. In other Colorado school districts, the Board of Education decides how bond premium should be spent. But not in Jeffco, where the Chief Operating Officer and district facilities management team made these decisions.

There were plenty of worthwhile district projects that could have been built with Bond Premium funds.

For example, Fletcher Miller School is Jeffco’s facility for severely disabled children. Today, it is in decrepit condition, and badly in need of replacement. That would have been a great use for bond premium funds.

Another possible use of bond premium funds (and another scandal in itself) would have been to construct new elementary schools to facilitiate the closure and consolidation of Jeffco’s large number of schools that are operating far below their capacity (which drives up district costs). Jeffco’s enrollment has been declining for years:

• In 2011/12, Jeffco enrolled 78,997 non-charter students. Overall capacity utilization of district-run schools was 83%. District projections forecast declining student enrollment in future years.
• At the 10 January 2011 board meeting, district staff recommended closing 10 elementary schools: Campbell, Glennon Heights, Kullerstrand, Parr, Pleasant View, Red Rocks, Martensen, Stober, Thompson, and Zerger. Since then, only two of these have been closed (Martensen and Zerger). Pleasant View was briefly closed (and its students sent to Welchester and Shelton), then quickly reopened to accomodate a charter that had agreed to convert to Innovation status and become a district-run school.
• In 2014/15, Jeffco had three schools operating at less than or equal to 50% Capacity Utilization, a cumulative six schools at 60% or less, and twelve at 65% or less. Moreover, the district forecasted continuing enrollment declines in district-run schools.
• At the time of the Prop 5B Bond Election in November 2018, 16 schools were operating at less than or equal to 65% capacity utilization, which is the district’s standard for “Low Utilization” schools. Yet the Capital Program included no provision for constructing larger and more efficient new elementary schools to facilitate the closure and consolidation of the districts’ small, underutilized, and inefficent schools.
• Since Prop 5B was passed, capacity utilization has continued to worsen. by 2020/21, Jeffco had 12 schools operating at less than or equal to 50% capacity utilization, 32 at or below 60%, 50 at or below 65%, and a whopping 87 below the industry standard for low utilization, which is 80% or less of capacity.
• Since January 2011, only four elementary schools have closed, even as enrollment in district-run schools fell by 8,376 students between 2011/12 and 2020/21 (to 70,621students). Overall capacity utilization of district run schools fell over this period from 83% to 72%, in part because, despite falling enrollment, Jeffco kept building new schools!
• Millions of dollars in Capital Program funds have been spent on schools that district management knew, or should have known, were destined to close (note that since 2011 Jeffco’s annual enrollment projections, which are publicly available, have continued to forecast a falling number of students in district-run schools).

A fair and painful question to ask — which must be answered — is how could this excess spending happen, in spite of all the checks and balances and controls that the district claimed were in place. These include:

• Jeffco’s Facilities Management Group, which managed the CIP;
• Jeffco’s Chief Operating Officer, to whom Facilities reports;
• Jeffco’s Internal Audit group;
• Jeffco’s Chief Financial Officer;
• Jeffco’s Superintendent (i.e., Chief Executive Officer);
• Jeffco’s Citizen Capital Asset Advisory Committee (the ‘independent citizens committee” that former Superintendent Jason Glass assured voters would review all CIP spending);
• Jeffco’s Financial Oversight Committee (which provides, among other things, independent oversight over the district’s internal controls);
• Jeffco’s external auditor, Clifton Larson Allen;
• Jeffco’s Board and Directors;
• And last but not least, the Jeffco, Colorado, and national K-12 media, some of whom have been aware of this story for a long time (to its credit, the Jeffco Transcript did attempt an investigative series, but it was inexplicably cut short). As investigative reporting into the failure of Colorado’s READ Act by Chalkbeat Colorado’s Ann Schimke has shown, the K-12 media can play a critical role in improving district performance when it chooses to do so.

To be sure, Jeffco isn’t the only district where massive cost overuns have occured on school bond programs. For example, that is why California changed its state constitution to requite annual independent performance audits (not just financial audits) of all bond-funded school capital programs.

But that doesn’t excuse all the apparent failures that have allowed it to happen here too.

At this point, the most important questions are whether anyone will be held accountable for this debacle, and whether anything will change.

The fact that the key players are still employed by Jeffco, and that neither district management nor a majority of the school board has yet to take any action to implement the recommendations in the Moss Adams report provides — for now at least — the depressing answer.

Tom Coyne is a business executive, former member of the Jeffco District Accountability Committee, and former Chair of the Wheat Ridge High School Accountability Committee. His wife, Susan Miller, was elected to the Jeffco Board of Education in November 2019. These are solely Coyne’s views.