Fifth Ward School Financial Disarray
Did Raymond James lie to the District 65 School Board? Did the School Board do even a modicum of financial due diligence?
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I have written extensively about the District 65 Fifth Ward School funding twice before:
Most of my arguments come back to slides presented to District 65 by Raymond James in March 2022. To summarize my argument; I believe the District made false statements on the lease certificate regarding the savings and costs. To date, they have been unable to justify the numbers on the lease certificate to me or to Larry Gavin at the Evanston Roundtable. Even when Board Member Hailpern asked about this in a meeting, former CFO Obafemi punted the question to 2024 (and subsequently quit).
Why does this matter? This matters because every penny that the District is not able to recover as savings comes out of the general fund -i.e. children’s educations, teacher’s salaries, support staff, building maintenance, and so on. My math indicates that number is around $1 million dollars per year.
Technically, this is against the law - construction of a new school that that will cost money out of the general fund requires a referendum.
In the controversial March 2022 presentation, the District’s financial advisor, Raymond James shared this slide with the Board.
I requested copies of lease certificates from all Districts on this list. The ones annotated with red did not use lease certificates.
Let’s go through the list!
Wheaton District 200
This is the most interesting of the cases. District 200 tried to use a lease certificate to build a preschool and was sued. The District backed off and held a referendum. According to the reports, in 2018:
Jan Shaw, who lives in Wheaton, filed the lawsuit against District 200 in early August. The lawsuit asserts that district officials violated Illinois law when they moved forward with plans to fund the proposed new Jefferson Early Childhood Center with lease certificates without getting voter approval.
The complaint states that "when a school district desires to build a new school building or to borrow money for that purpose, it must first obtain voter approval to do so, through the referendum process," Suburban Life reports.
The district ended up holding a referendum, which passed and the preschool was built.
Skokie District 69
I requested a copy of a lease certificate for construction of a middle school in Skokie, and they replied with a copy of a bond from 2020. A bond is not a lease certificate. I emailed the Skokie School Board and communications department and received no reply.1 I did some searching and found no records indicating they used a lease certificate to do any construction.
North Shore School District 112
I submitted a FOIA request to District 112 regarding this and they replied with a “No Responsive Records” reply. This can mean that I made a poorly worded request or it wasn’t clear what I was asking for. I emailed the Superintendent, Michael Lubelfeld, and got the following reply:
As we shared in the response to the FOIA, there are no responsive records. District 112 has not used Lease Certificates.
OK, so of the 8, that’s 3 Districts that Raymond James cited to the District 65 Board as using lease certificates which definitively did not (37.5%!). That seems bad?
What about the other Districts that did use lease certificates:
District 29 Sunset Ridge
Sunset Ridge, who very clearly lets you know they are a “feeder school to New Trier” used three lease certificates called 2015 ($9,540,000) and 2016A ($9,140,000) and 2016B ($5,690,000).
Financial Advisor: PMA Securities
Lessor: Zions Bancorporation
Funding Date: 2015-16
Completion: September 2017 (21 months)Total Amount: $24,825,000 (over three lease certificates)
Purpose: Replacing Sunset Ridge School (Grades 4-8)
According to the article on the new school:
The 70,000-sq. ft. facility, which will replace an existing building, is designed to serve approximately 300 children in grades 4 through 8. It is expected to open in August 2017.
The cost was slightly more than $25m because the District also claims to have added $2m from their general fund to fund construction.
District 146 Tinley Park
This is a pretty old one, dating back to 2008.
Financial Advisor: William Blair & Company
Lessor: New York Trust Company
Funding Date: April 2008
Completion Date: August 2009 (16 months)Total Amount: $14,080,000
Purpose: Replacing K-5 School
According to the certificate
Proceeds of the Certificates will be used to (i) build and equip a school building on the site of the existing Fulton Elementary School Building, including in connection with said work, site improvements, demolition of the existing Fulton Elementary School Building
The school was completed in 2009.
District 37 East Moline
This District, way over in the Quad Cities area used a lease certificate to build a preschool and facility for special needs students.
Financial Advisor: Raymond James
Lessor: Zions Bancorporation
Funding Date: January 2021
Completion Date: August 2022 (20 months)Total Amount: $13,035,000
Purpose: Build a Preschool
The school was completed and opened for preschoolers in 2022.
District 63 East Maine
East Maine obtained two certificates at the same time; a lease certificate for a new preschool and a general debt certificate for an addition to the junior high school.
Financial Advisor: PMA Securities
Lessor: Zions Bancorporation
Funding Date: October 2018
Completion: February 2020, August 2021 (17 months and 23 months)Total Amount: 2018A $14,570,000
2018B: $19,970,000Purpose: Build a Preschool (2018A) and an addition to the Junior High (2018B)
The 40,000 square foot preschool was opened in August 2021 and the Junior High additions were completed just in time for COVID in February 2020.
District 65 Lease Certificate
Now let’s share some facts about the District 65 lease certificate in comparison.
The D65 Lease Certificate is for $38,315,000. It is about twice the size of any lease certificate on the list or ever issued in Illinois.
It seems unlikely that the District can build a massive K-8 School for that price but smaller buildings do seem feasible. Sunset Ridge recently built a grade 4-8 School for about $25m.
The D65 Lease Certificate was signed in May 2022. It is currently October 2023 and we haven’t laid a single brick or dug a single hole. We are 15 months in. At this point, most every other District was finishing up construction on their new buildings. Tinley Park had a new K-5 school done in 16 months and that included demolition of the old one!
D65 is already paying interest on the lease certificate while the money just sits in an account accumulating interest, which by the way, is another financial product the District purchased (the “arbitrage product”).2
In the District’s haste to achieve an equity win, I believe the Administration and Board lied to take out an anti-democratic bad loan, did absolutely no due diligence on what Wall Street was telling them, gave everyone an award for that, and now have nothing to show for it except an account with $40m in it, 18 years of $3.25m interest payments (ie a debt of $58.5m), an uncertain set of future costs with massive budget deficits, and angry parents as the District backs out of all the promises they made because they effectively did no due diligence.
The 2021-22 D65 Board Members should be ashamed at this mess and absolute lack of even the most modest financial awareness. When they drive the public school system into financial disarray, it is the very kids the purport to help with the “equity” causes who will suffer the most - large class sizes, dilapidated buildings with safety issues, no support staff. But hey, at least they can pad their resumes and move onto the next thing, right?
This is increasingly a problem with my journalism and it is frustrating that public bodies are just as complicit in “access journalism” as big companies. If you’re a journalist and writing anything other than a fluff piece, expect no response.
It is unclear to me how much various third parties make on the interest that D65 is currently collecting on the arbitrage of between interest rates. Are we effectively holding a giant pile of money so that PFM Management can collect interest? Perhaps a future story.
Oh I so very much wish that Evanston residents cared. They care about equity, marginalized people and social justice. They don’t expect competency in any one connected to the Board of Education or the administrators. Your dogged uncovering and explaining of complicated issues seems to fall on deaf ears. There are a few of us who are outraged at how these school districts are being run into the ground. I cannot imagine how to wake up our residents. I wish the anti Trump fervor could be harnessed and instilled in our community when it comes to school issues
It is sad that Evanstonians don’t pay attention to D65. I certainly agree with those who recognize that the board hangs the equity sign on so many actions, effectively blocking criticism.
Thanks for your work!
Vikki Proctor