INTRODUCTION

In late 1999, Jim Coolican, the recently appointed Superintendent of the Peninsula School District asked this writer to investigate three issues concerning the $37.7 million bond approved by the voters in 1990 and to report back to him so that he could fully inform the current Board of Directors.; The following questions were posed:

1. What were the voters told the Bonds would purchase?
   
2. What did the School District purchase with the Bond Proceeds? 
   
3. How much of the Bond Proceeds are left? 

All of the information and financial detail needed to answer those questions and complete this report were obtained from the records of the Peninsula School District.  Those records are available to members of the public. The administration of the PSD cooperated completely in supplying all necessary records.  This report answers the three questions above.  This report does not answer any other questions about the finances or management of the Peninsula School District from 1990 to 1995, or any other period.   This report was not an audit.  For readability, this report rounds off most of the financial information to the nearest hundred thousand.  The actual numbers, down to the penny, have been checked and are available to the public through the PSD.  This report did not independently identify or verify fund balances or assets. Those issues have already been investigated by the Washington State Auditor’s Office or by The Pierce County Prosecuting Attorney. 

SUMMARY 

In 1989 the Board of Directors of the Peninsula School District passed a resolution approving language for a ballot title and placing a $37.7 million bond measure on the February 1990 ballot. The Peninsula School District made detailed representations to the voters about which projects would be funded with the 1990 bond proceeds.  The voters were told that  $10 million of projects approved by the 1986 bonds would soon be completed. The voters were told that projects costing   $43.5 million would be completed in the next four years and that state matching funds would supply $5.8 million.  The remaining $37.7 million was the amount of the 1990 bond request. The voters approved the bonds in an election held in February 1990. 

From 1990 to 1995 PSD spent significantly more than the voters authorized but did complete most of the identified projects.  Three significant exceptions are the failure to build a new middle school, the failure to build a gym at Evergreen, and the failure to build a new transportation center.  Some projects may have  included less than was anticipated. But other projects, such as the two high schools, were significantly expanded, due to increased enrollment.  PSD also completed some projects that were not part of the 1990 bond approval, such as the sewer project. The total amount spent and the funding sources of the projects were significantly different than what the voters approved. 

This report has not found any evidence that PSD did anything that is not authorized by law.  Neither this report nor the State Auditor's report nor the Pierce County Prosecutor's investigation has found any evidence that any funds were misspent or are missing. All of the money is accounted for. The PSD has, as of 12/31/99, approximately $9 million in bond proceeds available to fund capital projects.  It is clear, however, that the Peninsula School District suffered significantly from a lack of accountability and leadership and that, as a result, many voters lost confidence in the ability of that administration to properly manage a bond issue. 

WHAT WERE THE VOTERS TOLD? 

Prior to any vote being taken on the Bond resolution, the Peninsula School Board was given the Peninsula School District NO. 401 SCHOOL FACILITIES MASTER PLAN BUDGET ANANALYSIS. (The Master Plan.) The Master Plan identifies several projects for which bond funding is recommended.   The total of the bond recommendations is $37.767 million.  This is the exact amount that the school board presented to the voters. The PSD also prepared a brochure for distribution to voters.   The opening paragraph of the brochure states in some detail how the $37.7 million figure was determined and what the bonds would be used for.   The Master Plan and the brochure specifically identify which projects were to be primarily funded with the proceeds from the 1990 bonds; which projects would be wholly or partially funded with 1986 bonds; and which projects would receive $5.8 million in State matching funds. 

John Armenia and other members of the PSD administration are quoted in various newspaper articles of the time saying that the bonds would be used to build the projects identified in the Master Plan. Various mailings confirmed this.   

The original language of the ballot title passed by the board on December 14, 1989 was not specific about which buildings would be constructed.   Shortly after the resolution was passed, local citizen Ron Lopp filed suit against PSD in Pierce County Superior Court asking that the Bond title be re-written.   Nothing in the court file shows any subsequent action on the suit, but a short time later a revised Ballot Title was prepared which included the language, “including one elementary and two middle schools.”   This became the official Ballot Title. 

It is clear beyond doubt that the voters were told that there was a Master Plan and that the bond proceeds would be used to fund the projects in the Master Plan.   The projects to be built and the costs of those projects and the funding sources for those projects were specifically identified to the voters.   The only reasonable conclusion is that the voters approved the bonds to fund the specifically identified projects. Those projects are listed in summary fashion at pages 1-3 of the "Executive Summary" of the Master Plan. 

FUNDING SOURCES 

School districts have two basic budgets.  One is the general fund, which is used to pay for the day to day operation of the schools.  Salaries, supplies, utilities and repairs are paid from this budget.   The other budget is the capital projects fund.  This is the fund that pays for new buildings and other long lasting assets.   State and Federal laws prohibit intermingling the two funds.  This report is concerned only with the capital budget. 

The money in the capital budget comes from voter approved bonds, board authorized bonds, state funds, and interest income.  There are other sources such as mitigation fees and miscellaneous sales that can be included, but these amounts are not significant for purposes of this report. 

On August 31, 1989, the end of fiscal year 88-89, the PSD capital projects fund (CPF) had a balance of $3.9 million. From then until August 31, 1995, by which time the Board of Directors had stopped construction on all capital projects, PSD sold  $5 million of 1986 bonds and $37.7 million of 1990 bonds and added those funds to the CPF.  State matching funds of approximately $15 million were also added to the account.   Board approved bonds of $0.5 million were added along with interest and investment income of approximately $5 million. Whenever this report refers to "other funds," it is referring to the state matching funds, interest income and non-voted debt. 

Money was of course taken out of the fund to pay for the capital projects over the four year period. As of December 31, 1999, there is a balance of $9 million in the CPF. 

WHAT WAS BUILT AND WHAT WAS NOT 

In fact, the PSD did do most of what it told the voters it would.   Peninsula and Gig Harbor High Schools were extensively remodeled.  A new elementary school and a new middle school were constructed, furnished and equipped on a site on 38^th street. Artondale Elementary was remodeled and equipment and furnishings were upgraded.   Minter received new equipment and was upgraded.  Vaughn was remodeled and upgraded. Voyager received new equipment.   Other schools received upgrades and equipment and technology was upgraded throughout the district. 

Some projects were not built at all.  The new middle school is the most significant financially.   The new gymnasium at Evergreen was not built.  If this report were to list in detail each and every difference between what was budgeted and what was built for each project, the summary nature of this report would be lost.  Instead, this report gives a few specific examples, recognizing that other valid examples are not used. 

PSD built some projects that were never included in nor authorized by the Master Plan.  The sewer project and the purchase of portables are two examples. 

The following are examples give some details of some of the larger projects. 

ARTONDALE SCHOOL 

PSD spent $4.9 million constructing a new gymnasium, music room and classrooms and remodeling other areas of Artondale. The Master Plan authorized $1.3 million in proceeds from the 1990 bonds for that project. In fact, none of the 1990 bond proceeds were spent on those projects. $3.2 million came from 1986 bond revenues and $1.7 million came from other funds.   The Master Plan does show that $1.5 million would be funded from other funds but makes no mention of the 86 bonds. The overall cost and funding source of the project bears very little resemblance to the Master Plan. 

GIG HARBOR HIGH SCHOOL 

PSD spent $12 million to modernize and improve GHHS. The Master Plan authorized $7.99 million, all from 1990 bonds. The extra $4 million came from other funds.   It is entirely reasonable to believe that the additional expenditures were needed to meet increased enrollment. 

PENINSULA HIGH SCHOOL 

The PSD did follow the Master Plan somewhat closer for PHS.   The plan authorized   $8.7 million to be completely funded from 90 bonds. The total was increased to $11.3 million, with most of the extra coming from other funds.   The single biggest increase in the budget is an increase from $0.0 to $554,982.24 for sewer/storm drainage. This is discussed in more detail in the Sewer Project section. 

GOODMAN MIDDLE SCHOOL 

The Master Plan identified  $2.06 million in 90 bonds and $6 million in 86 bonds for a total of $8 million to build a new Goodman Middle School.   A new school was built and equipped on 38^th street.    This project was completed for approximately $9 million dollars, only $1million over budget. 

There is some confusion about the Goodman/ Harbor Height project.   For years, Goodman Middle School occupied the brick building on Prentice Street, above the Shorline Restaurant. The staff and students of that school were moved to the newly constructed Goodman building on 38^th Street.   The original Goodman building on Prentice Street is now occupied by what is now called Harbor Ridge Middle School. A small part of the increased spending can be attributed to the district's decision to keep the Prentice building open.   Keeping the building open and functioning as a school is obviously more expensive than just closing the building. 

HARBOR RIDGE/ M5 

The Master Plan authorized $7.78 million for a new middle school, known originally as M5/ Harbor Ridge. This is not the same school that now occupies the Prentice Street site. Harbor Ridge is the name that was first used to identify a new middle school that was to serve the Peacock Hill area but now identifies the school on Prentice Street. 

The Master Plan did not include any money for site acquisition for the new school.   PSD acquired a site for the new school for $1.35 million. That site is still owned by PSD and is available for construction of a school. This report was unable to locate any documentation of an estimate for the new middle school.   There is an undocumented assumption that M5 would cost about the same as Goodman.   Goodman was budgeted for $8 million. 

But the PSD did not build a new middle school.  Instead, prior to acquiring the site, it spent a little over $1.1 million on feasibility studies and design plans for a site that was not purchased. There is not enough information to know if a new middle school could be built for the $9 million of unspent bond proceeds. 

THE TRANSPORTATION CENTER 

The Master Plan included $2.4 million for a transportation center.   The Master Plan budget included all costs associated with the project.   PSD spent $826,000.00 without ever building a new transportation center including $554,000.00 that was spent on storm drain connections.  All of the funds were spent from 90 bond proceeds, with the exception of $11,209.87, which came from 86 bond proceeds. 

PURDY SEWER CONNECTION 

The Master Plan does not include any budget for a sewer connection.   PSD spent $1.3 million on a sewer connection.  This was funded with $1 million from 90 bonds and about $300,000.00 from other funds.   In addition to this, PSD added another $1 million (half a million each) to the capital project expenses of Peninsula High School and the Transportation Center.    These costs were identified as storm drain connections.  PSD also completed a project not on the Master Plan called the   "Purdy campus sewer connection.”  That project cost $336,000 from the 1990 bond proceeds.   The total amount spent on the sewer and drainage project was approximately $2.6 million.

WHAT HAS HAPPENED SINCE 1995

In 1995 the School Board stopped work on all pending projects.   There have been no significant expenditures from the Capital Projects Budget since 1995.   Some small projects have been completed but those have been paid for with mitigation fees.   The $9 million balance in the Capital Projects fund is available to the School Board to fund capital projects.

CONCLUSION

It is clear that the actual spending bore very little resemblance to the Master Plan budget. Some of the failure to follow the plan can be explained by changing enrollments or unexpected costs.  But strong leadership and competent administration would have kept the expenditures much closer to what the voters approved.   The plan was not followed because the administrators in place at that time failed to follow normal management practices and failed to keep the board fully informed.   In hindsight it is tempting to say that the board should have asked more questions. But the auditor’s draft report from 1992 cites at least one example of the president of the board asking in writing  for an assurance that the master plan was being followed and being misled by John Armenia's written  response.  Perhaps the board could have prevented what happened here by requiring better reporting and greater accountability. There should have been a system in place for the board to specifically approve or disapprove any requested departures from the master plan.  The current school board should implement such a system, if it has not already done so,  before submitting another bond request.

All of the money is accounted for. There is no indication that the School Board did anything at all that could be considered illegal.   There is $9 million available to partially fund a  new school or transportation center. 

Most important of all, the new administration has shown that it is willing to examine and correct the mistakes made by previous administrations. Authorizing this report by someone not affiliated with the district is a significant commitment to making sure that mistakes of previous administrations are acknowledged and not repeated.  If in the future PSD can give voters an accurate estimate of how bonds will be spent and an adequate guarantee that PSD will not depart from the estimate, there is every reason to believe that voters will return to their history of supporting bond issues for their school district.

March 8, 2000

Thomas A. Farrow