Report 2009-116 Summary - June 2010
San Dieguito Union High School District:
Its Expenditures for Community Facilities District 94-2 Were Generally Appropriate, but It Did Not Fully Disclose Some of Its Financial Issues
Our review of the San Dieguito Union High School District's (school district) use of Community Facilities District 94-2 (facilities district 94-2) funds revealed that the school district:
- Issued more than $93 million in revenue bonds since 1998 to pay for school construction and improvements.
- Has allocated about $29.1 million in bond-related funds to facilities district 94-2.
- Spent facilities district 94-2 funds in appropriate ways except for certain relocatable facilities and for housing and demographic studies costing in total $451,000.
- Did not clearly communicate to the public the significant financial difficulties it encountered in early 2008 associated with its bonds, including the risk that funds to make bond payments would run out within a year.
- Did not disclose certain required financial information concerning the economic gain or loss resulting from bonds it issued in 2006, and the potential risks from a key financial agreement associated with the bonds.
RESULTS IN BRIEF
Since 1998, in financing the purchase and improvement of certain school facilities, California's San Dieguito Union High School District (school district) has generally spent funds for Community Facilities District 94-2 (facilities district 94-2) in appropriate ways. The school district established facilities district 94-2 in 1994 in accordance with the requirements of the Mello-Roos Community Facilities Act of 1982 (Act), which authorizes local governments in the State of California, including school districts, to set up community facilities districts to finance the acquisition of capital assets. To pay for school improvements and the construction of school facilities, the school district has issued more than $93 million in revenue bonds since 1998, and it has allocated about $29.1 million in bond-related funds to facilities district 94-2. In early 2008 the school district encountered significant financial difficulties with its bonds, but it did not clearly communicate these problems to the public. In addition, the school district did not disclose certain required financial information associated with bonds that it issued in 2006. Finally, although the school district's responses to public requests for records usually met legally mandated deadlines, deficiencies in the school district's records often prevented us from determining whether the school district provided the requested documents.
To finance the purchase and improvement of school facilities, the school district's public facilities authority issued bonds in 1998, 2004, and 2006. To pay off the bonds, the school district levied special taxes on the owners of property located within the boundaries of the nine community facilities districts. The school district now receives about $1.8 million annually, and since 1994 it has collected a total of $14.9 million in special taxes from property owners in facilities district 94-2. The school district has used these special taxes primarily to pay principal and interest on the bonds.
With three exceptions, projects and expenditures for facilities district 94-2 have been appropriate. More specifically, between 1998 and 2009, a large majority of expenditures for facilities district 94-2 were for school facilities specified in the resolution of formation that created this facilities district. For example, the school district spent $9 million for projects at La Costa Canyon High School and $1.9 million for projects at Oak Crest Middle School; the resolution of formation lists both as approved schools on which the school district may spend facilities district 94-2 funds. The first exception we noted concerns about $294,000 in payments for relocatable classrooms on the property of Sunset High School that the school district has used as district administrative offices since the classrooms' installation. The resolution of formation for facilities district 94-2 does not allow the facilities district to pay for such facilities. The second and third exceptions concern the school district's charging facilities district 94-2 approximately $157,000, or 49 percent, of the $322,000 in costs for housing and demographic studies. The school district did so even though the studies pertained to all nine of the school district's community facilities districts and to the school district as a whole. We believe that the charges to facilities district 94-2 were inappropriate because the school district did not allocate study costs reasonably across all community facilities districts and to the school district as a whole. After 2007 the school district began using a district-wide fund to pay for its housing and demographic studies, according to the school district's director of planning and financial management.
In early 2008 the school district did not communicate adequately to the public that interest costs on bonds for its community facilities districts had increased substantially and that the school district faced a risk that funds to make bond payments would run out by March 2009. Despite this serious financial situation, the agendas and minutes for meetings of the school district's board of trustees (school board) did not reflect the problems that the district was facing or its plans for addressing them. Because the school district did not provide detailed information, members of the public who did not attend school board meetings had little access to the information necessary to provide comments and recommendations to the school board and to hold it accountable.
Further, for fiscal year 2006-07, the school district did not make certain disclosures required by applicable financial reporting standards related to bonds and other financial instruments. For example, the school district did not include information in its financial statements concerning the economic gain or loss resulting from its refunding bonds, which are the bonds issued in 2006 to redeem the school district's outstanding 1998 and 2004 bonds. Moreover, the school district failed to describe the potential risks from a key financial agreement associated with the bonds. Because the school district's financial statements lacked these disclosures, interested citizens were less able to assess the financial position of the district.
Between 2007 and 2009, the school district received 19 requests for information regarding facilities district 94-2. Nearly all of the requests came from a citizens group concerned about the school district's management of facilities district 94-2. The school district's responses to the requests generally complied with the deadlines in the California Public Records Act (records act), but a lack of documentation frequently prevented us from determining whether the school district provided all the requested documents. In three of the 19 instances, the school district exceeded by three to six days the initial 10-day deadline for responding to requests. However, the district often did not maintain a record of the documents that it had deemed responsive to a request, so we could not determine for eight of the 19 requests whether the information that the school district made available met the requests.
Using facilities district 94-2 funds, the school district purchased land known as the La Costa Valley site in 1999 as a potential location for a middle school in the northern part of the district, but the school district has not yet built a school there. Since that time, at meetings of the school board and at public meetings with local groups, the school district has indicated consistently that enrollment projections have not supported the need for a middle school and that it has not been clear when a school would be needed. However, a facilities task force that has been updating the school district's facilities plan recommended to the school board in March 2010 that the school district build a middle school on the La Costa Valley site.
To ensure that it uses facilities district 94-2 funds for appropriate purposes only, the school district should either reimburse the facilities district $451,000 for the erroneous payments for administrative facilities and demographic studies, or it should adjust the charges to this facilities district so that the charges reflect only appropriate expenditures.
To provide members of the public with information that they can use to participate in the school district's decision-making process and to hold school board and other school district officials accountable, the school district should do the following:
- Ensure that descriptions of the school board's meeting agenda items and minutes contain sufficient information to convey the substance of the items accurately, and post to the school district's Web site all relevant documents and presentations related to agenda items.
- Make certain that it follows all relevant standards for financial reporting.
To enable the school district to demonstrate its responsiveness to requests submitted under the records act, the school district should maintain a record of documents that it makes available to requesters.
The school district generally agreed with our recommendations and says it is taking steps to implement them.