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Tim Myers: ‘Facilities Foundation redux’

Myers’ Musings

Posted: September 19, 2009 7:49 p.m.
Updated: September 20, 2009 4:55 a.m.
 

Recently, a local blogger “discovered” the Santa Clarita Valley Facilities Foundation and its connection to school site acquisition for the William S. Hart Union High School District.

A quick trip in the way-back machine reveals that this humble columnist wrote a three-installment summary of an examination into the foundation’s public financial filings in June 2005.

This immediately brings two things to mind. First, I can’t wait to read this blogger’s take on the fall of the Berlin Wall and how the Soviet Union will never allow a reunification of Germany.

It also reveals a need to review the purpose of the 11-year-old foundation and its mechanisms for operation.

One can summarize the original purpose of the foundation in a simple phrase: Maximization of state matching funds for school construction.

During the fiscal season that saw the building of West Ranch and Golden Valley high schools and Rancho Pico and Rio Norte junior high schools, the foundation assisted in this undertaking.

A simple example:
Let us address the issue of a developed pad for the construction of a comprehensive high school. (A developed pad includes proper grading, streets and utility service connections.)

The school district can acquire the approximate 50 acres necessary from a friendly property developer for $1 million per acre or a total cost of $50 million, with the state covering $25 million of the cost and the remainder covered by local bonds.

Alternatively, the district can develop its own property by purchasing unimproved land for $200,000 per acre and spending $600,000 per acre for the costs of grading, streets and service connections.

That’s a total cost of $40 million, with the state covering $20 million, effectively leveraging the nonprofit status of the district in that it does not need to generate a profit from the effort of development.

The second alternative seems great — and it is — because it saves the district taxpayers $5 million and the aggregate taxpayers $10 million.

But consider a third way: The foundation buys the property, spends the money to develop it, and then sells it to the school for the private-developer market value of $50 million, placing the $10 million in developer profit in a kitty dedicated to the acquisition of future school facilities. And it receive $25 million from the state.

This truly results in a $10 million “windfall” for the district, since it collected an incremental $5 million from the state and still keeps $5 million of local taxpayer money without the necessity of throwing the bucket into the bond well again.

An extra benefit: The federal and state income tax payable by a private developer evaporates, too!

Now one can reasonably disagree on whether this constitutes a good idea or not. Those who take advantage of this third way marginally claw more money from the state than districts that don’t, so one might consider a district negligent if it did not maximize the goodies.

However, if everyone engages in the strategy, it only increases the aggregate cost of school construction.

Back in 2005, certain constituencies in the SCV, including the entire editorial board of the Mighty Signal, thought the principals of the Facilities Foundation must have benefited directly and significantly from the school construction with so much money sloshing around.

I found no evidence of wrongdoing, but a continuum exists.

The unschooled in financial matters think one can open a file and find a red invoice detailing a bribe payment, but one finds actual benefits more nuanced.

People who own adjoining property benefit from the introduction of streets and service connections, but that also happens in a commercial development.

The school district’s ability to bypass certain local planning rules like a ridgeline ordinance also benefits adjoining property owners.

What about contractors who may receive slightly more for their work than otherwise but still within a reasonable range?

One can argue about this all day long and it generally boils down to one’s view of the principals of the foundation and its honesty and veracity.

The foundation certainly did not constitute some grand and dark conspiracy to prevent high school construction in Castaic.

If anything, one could argue that without the foundation, Golden Valley High School might not exist today, and Hart’s football team might actually possess a CIF ranking.

So this concludes my five-year review of the Facilities Foundation. I look forward to more edifying remarks from the local blogger when he finds out the Rams moved to St. Louis and the British lost the Crimean War.

Tim Myers is a Valencia resident and CPA who thinks numbers hold the key to everything. His column represents his own views and not necessarily those of The Signal.


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