November 1, 2024

Dear Editor,

In his advocacy for a Yes vote on Measure QS, ("Vote Yes on QS," October 30, 2024), Michael Dubin, Chair of the SMMUSD Bond Oversight Committee, does not address any of the issues that have been raised by Ms. Kolhoff and the community in opposition to the bond Measure QS.

It should be noted that the community is fully supportive of providing the absolute best learning environment for our students that the city can afford. The objections to the bond are entirely focused on how ineffectively the District is managing the resources the community is providing.

Sadly, Mr. Dubin’s entire argument relies on the unfamiliarity of the average voter with the standard financial controls that should be present, but that are completely absent, from the legal bond language and the SMMUSD’s facilities construction financial management process.

Mr. Dubin proposes the three familiar arguments to support giving the district $500 million (between $800 and $900 million with interest):

1. A meritless “blank check” argument around the absence of real spending constraints
2. Mandatory third-party audits and various oversight committees
3. Bond refinancing to lock in lower interest rates

The reality is that the bond process has been structured to provide the appearance of oversight activities rather than to provide real oversight activity.

Blank Check. The bonds’ legal language has traditionally been, and remains (in QS) dedicated to providing complete discretion that cannot be questioned in an audit or oversight process, eliminating project accountability. The bond language is specific on this point:

“The items presented on the following list are the types of projects authorized to be financed with voter-approved bond proceeds. Specific examples which follow the broader types of authorized projects are not intended to limit those broader types of projects described and authorized by this measure. (emphasis added)”

That’s why portables are still present on campuses but have, over the years, repeatedly been used as justification for new bonds. They never need to be addressed.

Audits and Committees. These entities can only review compliance with legal provisions included in the bond language. The only hard, accountable, legal requirement is that bond money must be spent on facilities construction projects and not operations.

Consequently, that is the only requirement oversight entities can legally opine on. So, if a project goes wildly over budget estimates, the District has the latitude to quietly cover those additional costs by new money from new bonds, if they so choose. That is not an exception that would concern any of the oversight entities.

In addition, the information provided to the oversight entities is vague and incomplete, preventing any meaningful issue identification. While project spends can involve more than one bond, reporting is by individual bond rather than the total (original) budget for each project. Thus, the full financial picture of any such project is unknown, and perhaps unknowable, from the provided reporting.

Compounding the problem is that there may not even be a final, approved and locked original project budget amount. While a “Budget Remaining” item is noted in the Facilities Finance reporting, there is no definition of what that means. It could be the umpteenth revised-for-overruns “budget”.

Refinancing. This is a normal activity for any debt holder. The absence of refinancing would be extreme negligence. So, this activity is the bare minimum that should be expected. And, given that $1.4 billion in bonds have been issued since 1998, total interest paid (from taxes that has not gone towards the students) would have been around $900 million, a $50 million savings would be about 6% of the total interest expenditures.

Further, Mr. Dubin omits the fact that with its 2021 credit downgrade, the District’s savings were reduced from what they could have been.

Financial Organization and Process. Finally, it appears that the District’s financial organization still lacks formal oversight over the finance staff tracking facilities expenditures despite this internal control weakness being identified and reported to them in 2021.

Facilities finance staff still report to the project management responsible for spending the bond money instead of the independent finance organization. A consequence of this arrangement is that Facilities Finance staff have not had any incentive to create the reporting processes that would allow for timely identification of project overruns, underruns, or spending diversions to unannounced projects

QS Marketing. Knowingly claiming to a non-technical voter audience that effective controls exist when in fact they do not is why this District’s Board and bond committee have degraded their credibility. This is the source of the community’s opposition to this bond.

If these issues did not exist, everyone would be in support of improving our students’ learning environments. But significant issues do exist. They are a feature, not a bug, of the District’s management.

That is why this bond should be defeated and resubmitted to the voters with all these issues satisfactorily addressed.

Marc L. Verville
Sunset Park