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Published in Print: May 4, 2005, as States Scrutinize School Construction Costs

States Scrutinize School Construction Costs

Concerns Lead to Audits, Moratoriums on Deals in New Jersey, Indiana

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With an eye toward cost overruns, questionable architectural features, and rising bottom lines, several states are taking a closer look at how districts manage their school construction projects.

New Jersey has even put a hold on new land deals, contracts, and change orders under its $8.6 billion facilities project for some of its neediest districts after a review by the state inspector general found “lax and/or nonexistent oversight and accountability” within the state’s School Construction Corp.

Meanwhile, Indiana is near the end of a 120-day moratorium on approving school construction projects. The halt was called by newly inaugurated Gov. Mitch Daniels in his State of the State Address in January to give the state time to review whether too much school construction aid was going to nonacademic frills.

Massachusetts recently formed a school building authority, which moves the audit process for construction projects from the state education department to the state treasurer’s office, partly to devote more people to routine audits of school construction.

And Ohio officials announced earlier this year that they would review and scale back school district plans under a $10 billion statewide building project after finding that some of the districts targeted for the project were seeing declining enrollments.

The increased focus on school construction comes during a time when states and districts often find themselves flush with construction money—typically the result of voter-approved bonds—but squeezed in paying for day-to-day operations. In addition, the fluctuating costs of building materials is complicating cost projections. ("School Construction Defies Fiscal Doldrums" March 17, 2004.)

“There’s so much money being spent on school buildings, and that opens up varying degrees of oversight,” said Judy Marks, the associate director of the National Clearinghouse for Educational Facilities, based in Washington. According to the most recent figures, some $27.7 billionwas spent nationally in 2004 on school construction projects.

Voters and state lawmakers tend to be more critical of school construction spending when budgets are lean and being cut in other areas, said Mary Filardo, the founder and executive director of the Washington-based 21st Century School Fund, a research and advocacy group. “The [concerns] that are being raised are classic school construction problems, not unique to this era or industry,” she said.

Because the costs of such projects vary widely across the country, and districts’ needs are so different, Ms. Filardo worries that some districts could be unfairly accused of wasting money. Further, sometimes districts are criticized for spending more for better-quality materials, she added.

“Some of what’s happening might be worth the extra dollars,” she said. “It’s a little hard looking at just the bottom line to know what you’re getting.”

Changes in New Jersey

The state of New Jersey, carrying out a 1998 ruling in the Abbott v. Burke school finance case, has allocated more than $8 billion over 10 years for school construction projects in some of its poorest districts. That total makes New Jersey one of the nation’s biggest spenders on school construction.

Earlier this year, though, officials with the New Jersey School Construction Corp., the agency charged with overseeing the massive construction program, announced that the agency could run out of money next year, four years before the slated projects were to be completed.

After appointing New Jersey’s first inspector general in January, acting Gov. Richard J. Codey, a Democrat, directed the new appointee, Mary Jane Cooper, to investigate the Abbott-related construction spending. News reports and anecdotal evidence suggested that the districts’ projects were more costly because of flawed contracts with builders and architects.

A series of articles in The Star-Ledger of Newark, for instance, found that Abbott districts’ construction costs were 45 percent higher than those of other school districts in the state.

Ms. Cooper’s report, released April 21, raised several concerns about the SCC.

In addition to repeatedly flagging examples of poor project oversight, the report raised questions over the roughly $113,500 in bonuses paid to employees of the construction agency in 2003 and again in 2004, and it also questions the assignment of state-owned vehicles to 17 agency employees.

One of the “particularly egregious” lapses in oversight, according to the report, was the $67 million that the SCC paid to local governments for land that was already publicly owned in those communities. It also notes that some $22.9 million in SCC costs were attributed to change orders that resulted from architectural-design errors or omissions.

The key recommendations from the New Jersey report include: hiring a chief financial officer from outside the SCC; increasing the role of the internal auditor; ending the bonuses; and eliminating management’s single-signature authority on large contracts. Last week, acting Gov. Codey ordered the SCC to add four board members and a financial officer to shore up its financial management, and submit a plan for making the other recommended changes within two weeks.

In a written response, the SCC’s chief executive officer, John F. Spencer, said the agency would implement the recommendations. He added that the agency, which was established in 2002, has successfully built dozens of new schools, but, “like any new start-up organization, there are always growing pains—lessons to be learned and procedures that can be done better.”

The land-acquisition moratorium and other recommendations will not affect schools that are already under construction, but they will have a major effect on new contracts being written and any change orders on existing construction sites, said Joan Ponessa, the director of research for the Education Law Center, the Newark-based advocacy group that represented the poor districts in the finance lawsuit.

“We are really, really concerned about the whole slowdown process,” she said. “There tends to be a domino effect.”

Indiana Scrutiny

School construction concerns are also making headlines in Indiana.

The Hoosier State has a long tradition of revering high school sports. But Gov. Daniels, expressing concern that districts are misusing state and local funds to build elaborate athletic fields and facilities and other sports-related features, called for a 120-day moratorium on approving school construction projects. The moratorium began in February.

When Gov. Daniels, a Republican, came into office that month, one of his first actions was to appoint a head to the Indiana Department of Local Government Finance and direct the agency to write a more stringent set of standards for reviewing school construction projects.

The new standards are to include factors such as the square footage of the proposed facility and local trends in enrollment. Although districts pay for their school projects entirely from local funds, they must receive approval from the finance agency.

“We’re not interested in slowing anything down,” Mr. Daniels, a Republican, said at a news conference in January announcing the review of school projects during the moratorium. “We have to be careful not to saddle property-tax payers with undue burden for facilities that may be more extravagant or more tilted towards non-academics than makes perfect sense.”

Jane Jankowski, a spokeswoman for the governor, said the finance agency was still putting together the additional guidance, and expected to release that document this month.

John G. Ellis, the executive director of the Indiana Association of Public School Superintendents, said the governor’s moratorium worried many districts.

“This is a lesson for schools in how they communicate the priorities they set,” Mr. Ellis said. “Schools need to slow down and make sure they have done everything public-relations-wise.”

Massachusetts’ Audits

The Ohio School Facility Commission this year directed several districts to downsize their construction plans in light of their declining enrollments. Commission spokesman Rick Savors said the state reviewed master plans for several districts— including Akron, Canton, and Cleveland—and found that because of declining numbers of students, they would not need as many schools as expected.

“Some of these projects have been so long in duration we have gone back and looked at enrollment projections and realized those are significantly off,” he said.

Elsewhere, the new Massachusetts School Building Authority, which will be under the authority of state Treasurer Timothy P. Cahill, an elected Democrat, will have more staffing than the state education department did to monitor school construction spending and investigate cost overruns, according to state officials.

The authority, which was authorized by legislation last year, plans to audit about 600 schools from a list of nearly 1,200 projects.

Heidi B. Perlman, a spokeswoman for the Massachusetts education agency, which up till now has handled that duty, said every school building project is routinely audited after completion. Auditors look at factors such as interest rates and contracts to make sure the state’s money was well spent.

The education department did not have the staff to complete some of the questionable audits quickly, Ms. Perlman said.

PHOTO: This six-school campus is scheduled to replace Lawrence High School in Lawrence, Mass., when it opens next year.
—Janet Knott/Boston Globe

Vol. 24, Issue 34, Pages 27,30

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