Guest column: The Oak Ridge High School debt chronicles

The Oak Ridge High School Debt Chronicles—How a $40 Million Project Will Cost Taxpayers Over $126 Million (So Far) 

It appears that the nearly three-year long debate between the Oak Ridge City Council and the Board of Education (BOE) over who owes what on the high school renovation project—the single largest financial expenditure that this city has ever made—is about to be resolved once and for all (or so some hope). To many, this will provide a welcomed relief. For all, it will once again extend and increase a debt obligation far beyond what anyone ever imagined.

Just over one week after the initial public revealing, council will vote on a resolution to end the debate on the high school mortgage issue. The root problem that this resolution will address is not ambiguity in the 2004 referendum or in any “gentlemen’s agreements.” No, the reason that this resolution is necessary, according to the fifth “Whereas,” is “changing community economics and increasing educational needs.”  The need for this resolution, which will violate the original understanding and intent of the 2004 referendum, boils down to an implied need by the Oak Ridge schools for more money.

If passed, this resolution will allow the BOE to retain the portion of the half-cent sales tax revenues collected outside of the City of Oak Ridge and will accomplish the following:

1. From 2012 forward, the BOE will retain about 1/3 of the annual sales tax revenue (equaling roughly $284,000-$300,000) generated specifically for the high school project. According to the city finance director’s best projections, with interest, this will create an additional burden  to the taxpayer in the amount of $10,300,000.
2. The BOE will retain one-third ($513,333) of the funds that they’ve been withholding ($1,540,000 according to Mark Watson)  since initially announcing the issue in 2011.
3. Though city manager Mark Watson has stated that the UPF project and new Kroger sales tax will make up the $10.3 million difference, the resolution in no way binds him to those claims.
4. The total principal cost of the high school project was originally projected to be around $40 million. According to memo 12-03 dated January 26, 2012, from the city attorney, the actual principal peaked at $67 million. Calculations based on the October 2013 Debt Summary, appear to show that principal and interest balances totaled $106 million. As best as I can tell, debt payments made to date total at least $10.4 million. However, with the passage of this resolution, one can deduct that the total cost of this project to the tax payers will easily exceed $126 million ($106M + $10.3M + 10.4M).

Though I won’t be supporting this resolution, I expect it will pass since the majority of both bodies have publicly pledged their support. Aside from the final vote, all that I can do is provide the public with the best information I can so that we may learn from our mistakes and endeavor to avoid repeating them.

The following chronicles the Oak Ridge High School renovation debt debate from the time of the 2004 referendum through February 25, 2014. Supporting documentation will be directly hyperlinked into my post on my website, trinabaughn.com. I will also request that this document be entered into the minutes of the March 3, 2014, Oak Ridge City Council meeting to serve as a permanent record.

 

2004

Members on council at that time were: David Bradshaw, Tom Beehan, Leonard Abbatiello, Louise Dunlap, Jane Miller, Willie Golden, and David Mosby. On the BOE were John Smith, Keys Fillauer, Angi Agle, Jenny Richter, and CPA Tracy Larabee.

After over two years of both documented and undocumented discussions, on May 17, 2004, council voted in favor of an ordinance to allow an increase in the local sales tax by a half cent to appear on the August ballot. According to a May 4^th article published in the Oak Ridger, “The additional funding would go solely toward paying off new high school debt that could run as high as $58 million.”

In August 2004, Oak Ridgers residing in Anderson County generously voted to increase the local sales tax rate from 2.25% to 2.75% in order to fund the high school project. The verbiage of that referendum states that “…the revenue from such increase shall be appropriated and expended for the purpose of funding and paying for construction, renovation, purchase of capital equipment, and/or retirement of school construction debt service for the Oak Ridge High School, and at such time as the high school debt service is paid in full, the sales tax proceeds collected as a result of this increase shall be distributed as prescribed by state law, except as modified or limited by statute become operative”

 

2005

Members on council: David Bradshaw, Tom Beehan, Leonard Abbatiello, Lou Dunlap, Jane Miller, Willie Golden, and David Mosby. BOE members: John Smith, Keys Fillauer, Angi Agle, Jenny Richter, and Dan DiGregorio

An article entitled, “School bids $10 million over expectation” runs in the Oak Ridger on November 10, 2005 stating that, “The lowest bid for the Oak Ridge High School renovation project came in almost $10 million over what officials thought would be needed to build the new school.” The cause was attributed to Hurricane Katrina.

A November 17, 2005 Oak Ridge article entitled “New ORHS still waiting in the wings“ states” states that “Bids for the $40.6 million construction, which is part of a $55 million total project budget, were opened last week.”

A November 29, 2005 Oak Ridge article entitled “ORHS debt repayment extended” states that “The city staff on Monday said they plan to fund the increased construction cost at the new Oak Ridge High School by increasing bond repayment times. Some bonds will now be repaid in 30 years instead of 25.”

 

2006

Members on council: David Bradshaw, Tom Beehan, Leonard Abbatiello, Lou Dunlap, Jane Miller, Willie Golden, and David Mosby. BOE members: John Smith, Keys Fillauer, Angi Agle, Jenny Richter, and Dan DiGregorio

On May 30, 2006, as expected, Anderson County passed a referendum superseding the Oak Ridge sales tax increase effectively elevating the tax rate for the entire county to the same rate as Oak Ridge (2.75%).

As the past BOE vice chair had previously stated, this action was to benefit Oak Ridge in that the revenues collected from outside of the city would also help pay for the high school debt:

In a video dated May 17, 2004, and uploaded to the city website, at approximately 37 minutes in, Tracy Larabee says in reference to the anticipated county move to supersede, “Half of this debt won’t even be paid by residents of Oak Ridge….a lot of the funding will come from people outside of the City of Oak Ridge.” In that same video at approximately 44 minutes in, then-Chair John Smith says that the BOE “fully supports the proposed funding model.” That funding model included monies collected from outside of Oak Ridge after the county superseded and is demonstrated on page 8 of Exhibit H also uploaded to the city website, where those monies were represented by the blue portion of the bar graph entitled “New Sales Tax Schools” and began in 2010 when the superseding was expected to occur. A link entitled “See ORHS Bond Issue/Sales Tax Referendum Info” provides additional supporting documentation from the city at our home page, oakridgetn.gov.

 

2011

Members on council: Tom Beehan, Jane Miller, David Mosby, Tom Hayes, Ellen Smith, Anne Garcia Garland, and Charlie Hensley.

BOE members: Keys Fillauer, Angi Agle, Jenny Richter, Bob Eby, and Dan DiGregorio.

During the May 9, 2011, City Council meeting, BOE Chairman Keys Fillauer, makes the first announcement that they no longer feel obligated to pay any monies towards the high school debt, “The close of FY2007 should end annual payments. It was the BOE’s understanding that this was to be a temporary arrangement with funding from this source returning to the schools after five years…” Mr. Fillauer did not provide any evidence of his claims during this meeting or any time thereafter. The meeting minutes are paraphrased in the June 13, 2011 council meeting agenda and video footage containing the precise quote is available on the city’s website as well.

 

2012

Members on council: Tom Beehan, Jane Miller, David Mosby, Tom Hayes, Ellen Smith, Anne Garcia Garland, and Charlie Hensley. BOE members were: Keys Fillauer, Angi Agle, Jenny Richter, Bob Eby, and Dan DiGregorio.

On February 6, 2012, a joint work session between council and the BOE was held. Note: Minutes were not kept of this meeting. These following comments represent what I personally heard stated and were at least partially reported on by the local press. The school attorney and the BOE publicly acknowledged their responsibility and conceded that they did, in fact, owe the city money for the high school project and that it was simply a matter of putting it in writing. The meeting concluded with an understanding that City Manager Mark Watson, Mayor Tom Beehan, Superintendent Tom Bailey, and BOE Chairman Keys Fillauer would all hold another joint, but private, meeting to hash out the details.

The meeting between Watson, Beehan, Bailey and Fillauer occurred in private over a month later and the results were provided to city council in an untelevised work session on March 26, 2012^ (agenda linked here).  Mr. Watson and Mayor Beehan both stated that the schools had explicitly agreed to the same terms as before. Mr. Watson explained that the schools would resume making the same level of payments and would repay the past due amount in full upon finalization of the new written agreement. Again, minutes were not kept of this meeting. These comments represent what I personally heard stated and were at least partially reported on by the local press.

In the April 9, 2012, city council meeting (video is viewable here), Mr. Watson and Mayor Beehan reaffirmed that the schools were agreeable to the original terms of the referendum and assured council that a final agreement would be forthcoming. The mayor stated that the schools would “uphold the terms of the referendum…in essence will follow the ballot….the ballot rules.” When pressed by council as to why an agreement hadn’t been reached if all were agreeable, neither Watson nor Beehan responded.

Less than five days later, Mr. Watson sent out an email to council informing them that two additional meetings about the matter had since been held: one on April 11, 2012, with Mayor Beehan and Mr. Fillauer and one on April 12, 2012, with Councilman David Mosby and BOE Secretary Angi Agle. In the end, Mr. Watson states that “No final resolution was made, but the attached document is a final version that is potentially approvable with the School…Please note that the dollars available from the .25% Anderson County sales  for debt reduction would be reduced, thus causing a cost shift to the city.”

On April 23, 2012, the BOE passed the proposed resolution. However, on April 24, 2012, council discussed the proposed resolution in an untelevised work session (agenda and the resolution can be found at oakridgetn.gov), and it was learned that the impact of the resolution would essentially shift $10 million of the schools’ obligation over to the city. A majority of council rejected the resolution and it was never brought forward for a vote.

During a May 29, 2012 meeting, council voted unanimously to attribute a portion ($766,470) of their annual contribution to the schools to pay the school’s obligated portion of the high school debt since they had yet to turn over those funds. The BOE responded with threats of going to the state comptroller.

 

2013

Members on council: Tom Beehan, Jane Miller, David Mosby, Chuck Hope, Trina Baughn, Anne Garcia Garland, and Charlie Hensley. BOE members: Keys Fillauer, Angi Agle, Jenny Richter, Bob Eby, and Dan DiGregorio.

At the September 9, 2013, regular city council meeting, BOE Chairman Keys Fillauer addressed council during the public forum. He asked that council address a Maintenance of Effort (MOE) problem with their budget. He stated that the school system would close down if council did not give them $250,000 by October 1, 2013. He provided no documentation nor had council received any communications regarding a problem with the MOE prior to his statement. Note: This amount is approximately the amount in question that the schools have claimed entitlement to out of the $766,470 that council withheld.

Over the next few days, a flurry of columns were published in the  local press by past and present BOE and council members, with both sides acknowledging that the problem was linked to the high school mortgage issue. The crux of the BOE argument, as stated by BOE treasurer Angi Agle on her website, citizennetmom.com in a January 5, 2012, post and re-stated by Dr. Bruce Borchers in a September 10, 2013 press release was a “gentleman’s agreement” as well as a “handshake agreement.” To directly quote Ms. Agle, the gentleman’s agreement was “between the mayor of Oak Ridge (at that time, David Bradshaw) and the Anderson County mayor (at that time, Rex Lynch) about when or if the County planned to supersede the sales tax. That particular gentleman’s agreement was that the county would not do  so for at least five years….if the county superseded the sales tax rate before five years elapsed, that the school system would remit its portion of the new dollars from the county share of sales taxes to the city, to go toward bond repayment on the high school. But only until the five-year period was up, when the city had assumed they’d lose that money anyway.  This too, was a handshake deal—there was never a board vote, nothing signed.”

The gentlemen in question have never publicly affirmed these claims. Both men are still here in the area, are very aware of this problem, and yet, since Ms. Agle first attributed this agreement to them two years ago, neither have verified her claim.

The reason these men have not spoken up could be that doing so would prove self-incriminating. According to the Oak Ridger article dated June 5, 2006, entitled “Schools won’t lose money?” the BOE fully expected the county to supersede: “Oak Ridge schools won’t really lose money—at least not from the general operating budget—because of the county’s newly-increased sales tax. ‘I really don’t see that money coming into the school’s general operating fund,’ Superintendent Tom Bailey said last week. ‘Most of the money that would have been designated for schools has been deferred,’ Bailey said, to help pay off debt incurred by the city and its financial plan for the Oak Ridge High School project. City and school officials knew the county sales tax might someday increase, Oak Ridge Board of Education Chairman John Smith Jr. said Wednesday, but they thought it would happen a few years down the road. ‘We knew they’d supersede us eventually. We just didn’t think it would be this soon,’ Smith said of last Tuesday’s voter approval of a half-cent sales tax increase in rural parts of Anderson County.’”

On September 11, 2013, City Council met in executive session with the city attorney and city manager to discuss the MOE issue. (NOTE: Executive Sessions are legally private meetings. No minutes of the discussion were kept.) During this meeting, Finance Director Janice McGinnis explained that the reason that the MOE was out of kilter was because until this year, the schools had been recording the high school sales tax monies in a liability account that is not factored into the MOE equation. This year, however, the schools chose to record those monies in their revenue stream. The result artificially impacted the MOE formula, which provided the spark needed to send our community into a state of panic.

Council directed the city manager to immediately send a certified or hand-delivered letter to the school superintendent, Dr. Bruce Borchers, indicating our willingness to cooperate upon receipt of a written response validating their claims that the state would permit the BOE to shut down the schools and that they would withhold $1.87 million per month if we did not provide them with the $250,000.

On September 16, 2013, the city received a response (contained within the agenda packet located at oakridgetn.gov) from Dr. Borchers. The documentation included a letter from the Department of Education dated September 11, 2013, and stated that the school budget did fail “the MOE test” and that they had until October 1 to submit a budget that would pass that test. It did not specify that the state would withhold $1.87 million per month nor did it reference a school shutdown. However, in an email to all of council dated February 24, 2013, those claims were finally and explicitly confirmed by  Maryanne Durski from the Tennessee Department of Education.

At a special-called meeting held on September 17, 2013, council voted on a resolution authorizing a one-time transfer of $250,000 to the Oak Ridge Schools. Mayor Tom Beehan stated just prior to the vote, “We will allocate this money.” It passed 4-1-1 with Beehan, Hope, Miller and Hensley voting “Aye,” Baughn voting “Nay” and Garcia Garland abstaining. Mosby was absent. While the resolution stipulated a one-time funds transfer, because of MOE laws, it further obligated the taxpayers to an indefinite increase in funding.

Near the end of the October 14, 2013, city council meeting (the minutes are available, as is video, at oakridgetn.gov), a discussion ensued regarding courses of action that the city could pursue regarding the MOE debacle and the high school mortgage debate. Those options were as follows: Pursue legislative changes regarding MOE; pursue charter changes that would give council some ability to hold the schools accountable for their budgeting practices; and/or pursue arbitration or remedy through the courts. Baughn and Garcia Garland pushed for the legal route given the definitive case that our city attorney had made. Hensley pushed for binding arbitration. Council instructed the city manager to set up a special meeting to discuss the matter further.

On November 22, 2013, City Council met again in executive session with the city attorney and city manager. During that meeting, the options that had been previously discussed were dismissed by most of council. Instead, Mayor Beehan directed the city manager to once again resume discussions with the school superintendent and bring back a new resolution.

 

2014

Members on council: Tom Beehan, Jane Miller, David Mosby, Chuck Hope, Trina Baughn, Anne Garcia Garland, and Charlie Hensley. BOE members: Keys Fillauer, Angi Agle, Jenny Richter, Bob Eby, and Dan DiGregorio.

On February 19, 2014, a public notice is issued that a joint meeting between the BOE and City council would occur on February 21, 2014 with one of the agenda items being a review of a new resolution on the high school debt financing. The agenda packet was published to the city website making it the first time that the resolution was made available to the public.

On February 21, 2014, the joint meeting occurred and was attended by all council members and four BOE members (Jenny Richter was absent). The meeting was also heavily attended by various staff, press, and citizens. The meeting was audio recorded.

Mark Watson and Dr. Borchers talked about “moving forward” and how they’d spent 100s of hours crafting this resolution (found in the same agenda packet). Watson explained that the resolution would allow the BOE to retain about 1/3 of the annual sales tax revenue generated outside of the city limits by the half-cent increase from 2012 forward. That amount will fluctuate, but equates to roughly $284,000 per year. Councilmember Trina Baughn asked how much that equaled when compounded with interest over the life of the bonds, but neither the city manager nor the finance director could provide an estimate. Baughn stated that by her calculations, the principal alone would amount to nearly $8 million. Watson claimed that the UPF and new Kroger sales tax would make up the difference.

Concluding the discussion, most of the BOE expressed their support for the resolution as did Mayor Beehan, Council Members Chuck Hope, Jane Miller, and Charlie Hensley citing their desire to “move forward.”

The resolution passed by unanimous vote of the BOE on February 24, 2014. City Council will vote on it on March 3, 2014.