School board trustees at a special meeting Friday afternoon approved lease-leaseback agreements for air conditioning, classroom modernization and upgrades for the Mattson Gym.
A court case from earlier this year, though, has called into question the nearby Fresno Unified School District’s use of a lease-leaseback arrangement, according to media outlets. In light of the court case, San Benito High School staff officials and district trustees are looking at the topic further to make sure they set up the contracts appropriately.
A lease-leaseback plan allows a district to lease land for a small amount—a minimum of $1, according to state education code—to any person, firm or company constructing a building for the school on that site. The private party picks its own subcontractors to do the work and is responsible for delivering the project at a fixed, “guaranteed maximum price,” swallowing extra costs if expenses run over budget. Once the project is complete, the developer leases the property back to the district for a given amount of time.
Opponents of the process argue it shuts down the public bidding process, a key part of maintaining transparency with taxpayer funds. In a San Diego Union-Tribune story, Cory Briggs, a San Diego public interest attorney, described the Fresno ruling as “a bombshell that’s good for taxpayers.”
According to the Union-Tribune, the ruling narrows the way districts can use lease-leaseback arrangements.
Board President Ray Rodriguez along with Trustees Evelyn Muro and Bill Tiffany voted to approve three lease-leaseback contracts while Trustees Steve DeLay and Juan Robledo listened to the meeting via speaker on a cell phone.
John Perales, the district superintendent, told the board he was falling asleep Thursday evening reading the agenda packet, which is 464 pages and provides details for the projects and leases.
“But it seems like we covered any issues with the lease-leaseback issue that was brought to light in Fresno,” he said.
“There’s a payback plan scheduled for five years but we have the option to pay it back sooner,” said Roseanne Lascano, the district’s director of finance and operations. “But we really are leasing.”
The issue in Fresno was that the district never intended to lease their property back from the construction company, Perales told the Free Lance in a phone interview after the meeting.
“I don’t know the specifics of their contracts … But apparently from what I’ve read, the contracts did not even include a lease option,” said the superintendent. “So they were entering into a lease-leaseback, but in essence, they knew they had the money and they were going to pay it off once it was completed.”
For Perales, the concept of a lease-leaseback is a familiar one, as he used it in his former position as a principal at the new high school in the Gilroy Unified School District.
“We built Christopher High School under a lease-leaseback approach and my biggest fear when we build a school project or public project is when you go into an open bidding project, good or bad, you kind of roll the dice a little bit,” said Perales, who was the founding principal of the school. “You lean toward the least expensive bids and sometimes those aren’t the best for the job.”
Sometimes, the lowest bidders for contracts don’t have much experience or capital backing, the superintendent said. The lease-leaseback also gives districts some “flexibility with your cash flow,” he said.
The first project discussed was a lease-leaseback agreement with the developer, Blach Construction, for modernization of the 300 wing for a guaranteed maximum price of $579,789, which means the company is contracted to deliver the product at that price unless the school district asks to add or subtract work, which could affect the end cost. In this case, the lease amount is $40,586 with an annual interest rate of 3.25 percent.
Brad Fannin, of Blach Construction Company, mentioned the company’s push to hire local subcontractors. A trustee requested a list of local people working on the project.
“I asked all of our subcontractors if we have people locally, please put them on this job,” Fannin said.
The next project, a lease-leaseback that modernizes the 400 wing, had a guaranteed maximum price of $976,888 and will bring air conditioners to classrooms. The lease amount is $68,383 and the annual interest rate is 3.25 percent, according to agenda packet documents.
The expenses plan included a $25,000 allowance for “hazardous soil remediation,” based on a soil analytics report. Perales asked about the concerns with soil in the area.
“Obviously, we think there might be a concern given the contingency fund?” he said. “And when we had the soil tested, what did we find? Aliens or something?”
Rob Zimmerman, the district’s maintenance, operations and facilities manager, mentioned the site had formerly been the site of an orchard and a shop for tractors. Fannin added that the site had a pesticide, diesel and naturally occurring arsenic, though the level was “not bad” compared with other sites he had seen.
The last project discussed was improvements to the Mattson Gym, which had a guaranteed maximum price of $698,396 and will be paid for with the general fund money. The project involves refinishing the floor, adding an audio / video (AV) system and installing of an already purchased skylight to replace the existing one.
“I think $20,000 is a little light on the AV system,” said Muro, as she reviewed the list of costs. “But there’s a guaranteed that all of this will be done for $698,000?”
Staff officials agreed. Fannin added that items highlighted in orange were funds that could go back to the district if the money is not spent by the company.
For this project the lease amount is $48,888 and the annual interest rate is 3.25 percent, according to agenda packet documents.
Look back for more.
By the numbers:
300 wing modernization: $579,789 (bond)
400 wing air conditioning: $978,888 (bond)
Mattson Gym modernization: $698,396 (general fund)
