My Goal: Improve the financial management of our $1.4 billion school district budget and $800 million Capital Program.


Problems with the Management of our Operating Budget

I'll start with a very telling point: Until the arrival of Jeffco's new CFO, the district had been managing a $1.4 billion budget using a series of spreadsheet models. And research has found that spreadsheet models typically contain many errors. Unfortunately, that is just what the new CFO found in Jeffco's. The good news is that the new CFO is in the process of replacing Jeffco's spreadsheets with a modern financial management system.

Here's another telling point. Despite falling enrollment (due to both a declining birth rate and more students choicing out of district-run schools), for years Jeffco has kicked the can down the road and refused to close and consolidate schools. As a result, today we have a stunning 57 schools operating at under 65% of capacity. If we applied the industry standard for low capacity utilization of 80%, Jeffco would have far more.

In preparation for community discussions about closing elementary schools, Jeffco compiled a large set of public data that you can access here. When you look at it, a number of things jump out.

Did you know that Jeffco spends an average of $16,177 per year per elementary student? Neither did I. That's one of the benefits of having a new financial management system and a CFO who has been digging into the district's costs.

Unfortunately, all that spending (and the very high staffing levels you can also see in the data set) have not produced great academic results. On the 2019 CMAS assessment, 54% of Jeffco 3rd graders didn't meet state standards in reading, and 65% of 6th graders failed to meet them in math. And that was before COVID learning losses.

There is no doubt in my mind that there are many opportunities to improve the financial efficiency of our $1.4 billion school district.

Recently, I was the only board member to vote against the district's budget for the fiscal year beginning on July 1, 2022. Let me explain why.

This budget will draw down about $28 million in reserves, as the economy heads into what could easily become an extended downturn.

The reserve drawdown was needed for two main reasons.

First, falling enrollment (due to a combination of a declining birth rate, and more students choicing out of district-run schools) is placing downward pressure on our revenues.

Second, the budget allocated millions for a substantial increase in teacher pay. Depending on how current negations with the teachers union turn out, the actual amount we need to spend on compensation may become even higher. Given that teachers typically increase salary steps over time, compensation costs will further increase in the years ahead.

Critically, the budget strains we face are poised to become much worse.

Colorado calculates state aid on the basis of school districts' rolling five year average enrollment. As Jeffco's previous enrollment declines continue to reduce the average enrollment used by the state, we will face further reductions in state funding.

Moreover, the unprecedented federal aid that districts received because of COVID (e.g., ESSER funding) will run out in the next few years. Some of this aid has been used to pay for recurring rather than one-time costs. In the absence of higher enrollment or other new sources of revenue, when the federal aid runs out, other costs will have to be cut to pay for these recurring costs.

Based on all these factors, the district currently forecasts that in fiscal year 2024 (which begins on July 1, 2023), we will have to draw down a further $44 million in reserves, which will put us below the minimum level of reserves recommended by the Government Financial Officers' Association.

Last but certainly not least, I believe that the district's current budget does not allocate sufficient funding to meet our most important challenge: Recovering students' learning losses, and substantially increasing the percentage of our children who graduate able to proficiently read and write, and do math and science.

In my work, I hold an SEC Series 50 Municipal Financial Advisor license. This obligates me to act at all times with a fiduciary duty of care towards my clients. As such, I could not recommend that a client of mine accept the financial and educational risks that Jeffco is taking with this budget. I therefore could not vote in favor of having Jeffco's children and taxpayer take them.

Problems with the Management of our Capital Improvement Program

Regarding the district's capital program (which the voters approved in 2018 by an extremely slim margin of 1/4 of 1% of the votes cast), current estimates place it at least $173 million over the budget presented to voters in 2018.

Here are the details:

In 2018, Jeffco voters were asked to approve the issuance of $567 million in bonds to fund a $705 million Capital Improvement Program (CIP). The remaining $138 million was to be provided by the annual transfer of $23 million to the district’s Capital Fund from its General Fund for six years.

Voters were issued a “Flipbook” which detailed how much of the $705 million would be spent at every school in the district. The total added up to $563 million.

(Some have claimed that the information in the Flipbook was just "marketing spin." Moss Adams disagreed with that (see below). So too did former district communications director Tammy Schiff, who in the district's application for a national public relations award noted that the Flipbook "summarized what every school was going to receive in terms of renovations or new construction from the bond program…In all, over 150 “Mill Levy and Bond Factual Information” presentations where made morning, noon and night over the eleven weeks between the board vote to approve the questions and election night. These presentations were fact-based.”)

Of the remaining $142 million, $56 million was transferred to Charter Schools and $86 million was for “Program Contingency”.

Each project at district run schools included a 10% “Project Contingency”. Total project contingency equaled 10% x $563 million = $56.3 million.

If a project experienced cost overruns of greater than 10%, the excess would be charged to the “Program Contingency.”

If a project experienced cost overruns of less than 10%, the remaining project contingency would be added to the Program Contingency.

When Jeffco later issued bonds, it received an additional $118 million in “Bond Premium”.

So what was the total amount of money that Jeffco had available to spend on district-run schools?

Start with the total $705 million Capital Program that was described to Jeffco voters when they approved Prop 5B ($567 million in bond funding, and $138 million in funding from transfers from the General Fund to the Capital Fund for six years).

Add to that $118 million in Bond Premium and $12 million in interest earnings.

That gives you $835 million to spend.

Of that, $56 million went to Charters from the Bond Proceeds, and a further $12 million from the Bond Premium.

That left $767 million for Jeffco to spend on district-run schools.

Based on the latest district data, how much of that $767 million has not yet been spent or committed (including the $30 million plus that was recently set aside to cover anticipated cost increases driven by rapidly increasing inflation)?

An estimated $31 million.

You read that right.

With three years still left on its six year Capital Improvement Program, Jeffco has already blown through not only the 10% contingency on the projects it has completed, but also the $86 million in Program Contingency that was supposed to cover the full six year program, AND nearly all the $130 million in Bond Premium and interest earnings it received.

Contrary to what some people believe, Jeffco’s Capital Improvement Program really has spent or committed $173 million more that its original $563 million budget (767 minus 563 minus 31).

Moreover, despite the district's projections for accelerating enrollment declines, the Capital Program has spent millions of dollars on schools that we will now have to close.

An independent review of the Capital Program commissioned by Superintendent Dorland found multiple problems with its management and governance. It was conducted by Moss Adams, which is the leading provider of School Bond Capital Program Performance Audits in California, where they are required by law. The Moss Adams Review (and note that a review is less rigorous than a Performance Audit) confirmed the many criticisms of the Capital Program that have been made by outside analysts (see here and here).

Shockingly, the district has failed to implement any of the Moss Adams report's recommendations for improving the management and governance of Jeffco's Capital Program.

Other Capital Projects I've Voted Against

$17 Million to Give Arvada a Big Gift: The Meyers Pool

I was the only board member who voted against Meyers Pool, in which Jeffco will take $17m (or more, after cost overruns) out of classrooms across the district to build a new pool for the City of Arvada. And Jeffco Schools will have no ownership interest in the pool. You read that right. In essence, the board voted to use the district's balance sheet to give Arvada a gift. I warned that this sets a precedent for the future, in which every other city and Recreation District will expect Jeffco to help finance their new athletic facilities too. Time will tell whether I'm right about this. But what I am am right about today is the money coming out of Jeffco classrooms is money that won't be available for recovering our students' learning losses.

$8 Million for Adding Unproven In-Line UVC Disinfection Technology to HVAC Systems

I was the only board member who voted against spending $8 million to add UVC light disinfection technology to some schools' HVAC systems. In line with my facilities work with school districts across the nation, I have written extensively about indoor air quality. For example, in October, 2020, The Thomas B. Fordham Institute published my article, "Are We Ready to Close Schools' Windows?" Based on the evidence, I have been a strong advocate of improving school buildings' ventilation and filtration systems as the most effective means of lifting the risk of COVID infection.

In June 2021, I published "Should We Force Children to Wear Masks Again When Schools Reopen? A Risk Analysis", which weighted the incremental infection risk reduction benefits of various types of masking (cloth, surgical, and N95 respirators) after improvements to ventilation and filtration systems had been implemented. In this article, I also raised doubts about both the infection reduction benefits and the cost-effectiveness of the in-line HVAC UVC light disinfection systems that many vendors have been trying to sell to school districts, based on claims not supported by high quality evidence.

In October 2021, I published a longer briefing for school boards around the country on the many uncertainties still associated with in-line HVAC UVC disinfection technology: "Adding Ultraviolet Disinfection Systems to Schools’ COVID Defenses: A Background Briefing." It covers scientific, engineering, operational, safety, and financial uncertainties associated with the use of of UVC technology for in-line virus disinfection in HVAC systems' airflow. I stressed that, "As the FDA has stated, “the effectiveness of UVC lamps in inactivating the SARS-CoV-2 virus is unknown because there is limited published data about the wavelength, dose, and duration of UVC radiation required to inactivate the SARS-CoV-2 virus (FDA publication, “UV Lights and Lamps: Ultraviolet-C Radiation, Disinfection, and Coronavirus”)…Given the considerable uncertainties that still surround the use of UVC radiation to protect against COVID infections, the risk of a school district making a disappointing investment in this technology is still high."

The questions I raised about the effectiveness of UVC in-line HVAC were later confirmed in this independent lab test comparison of UVC with various HVAC filtration levels. It found that, "UVC viral deactivation is comparable to a MERV-8 filter, approximately 20% reduction." Greater reduction can be achieved by increasing the filters used in schools' HVAC systems to MERV 10 or higher. Moreover, "when ventilation is included in the analysis, it can be quickly determined from basic arithmetic that the impact of UVC technology is negligible. Although it may offer approximately a 20% reduction in viral deactivation when coupled with lower MERV rated filtration, this impacts would be further reduced when taking into account dilution of the airstream with outdoor air." The analysis concluded that, "UVC technology should not be installed in Roof Top HVAC equipment due to high initial cost and lack of substantial deactivation of virus."

Despite all this evidence, Jeffco is still apparently going ahead with the installation of unproven and cost ineffective UVC disinfection technology in the HVAC systems of a number of schools, some of which are likely to be closed. It is also doing this without contracting with an outside testing service to verify the actual effectiveness of the technology. Instead, we will apparently just have to take either the vendor's or the Jeffco facilities' team's word for it. In the meantime, we will have $8 million less to spend on tutoring to recover our students' COVID learning losses.