LAUSD SHELL GAME? $400 MILLION LOAN NEEDED TO FINISH WORK.

Byline: Helen Gao Staff Writer

Six years into a multibillion-dollar campus modernization program, the Los Angeles Unified School District has run out of money - so officials want to borrow $400 million to complete projects promised under the $2.4 billion Proposition BB bond.

Facilities officials want the school board to issue certificates of participation - a form of debt financing generally repaid through the operating budget - to cover part of a $600 million deficit.

First disclosed in November 2001, the deficit was attributed to mismanagement, inflation, exorbitant consultant fees and miscalculation of project costs.

When voters approved Proposition BB in 1997, district officials had promised to complete 12,000 improvement projects in 700 public schools. Today, just about 8,000 projects are finished. About 1,050 are in progress, and 2,800 remain to be done.

If the district does not borrow money, the modernization program - already behind schedule - would grind to a halt in October.

``Once we get to October, we won't be awarding new contracts, if we don't get the budget,'' said Deputy Chief Facilities Executive Jim Delker, who proposed issuing the certificates. ``I have looked at it from the perspective of the most prudent thing to do.

``There is no advantage to delaying it. There will be more cost increases because of inflation. It's going to stretch out the project management time for supervising the contract. That costs more money for people to oversee and manage the projects.''

Delker proposes repaying as much as $320 million of the debt using future school construction bond funds, if LAUSD wins passage for another bond next March - its third in seven years. But if the bond fails, the debt would have to be repaid through the district's already strained general fund budget, which directly affects the classroom.

Some school board members and watchdog groups immediately condemned the borrowing plan, with one calling it ``credit-card'' spending.

``It sounds like a shell game that the taxpayers are guaranteed to lose,'' said Jon Coupal, president of the Howard Jarvis Taxpayers Association, which quit the BB citizens oversight committee in protest four years ago.

``After everything they have gotten, they are coming back with unvoted bonds. That's outrageous. ``(Certificates of participation) are used by local government for one purpose and one purpose only: that is to avoid voter approval for long-term debt.''

In addition to Proposition BB, voters last November approved Measure K, a $3.35 billion bond, to pay for school construction. Superintendent Roy Romer promised not to use those bond dollars to cover the BB deficit.

LAUSD also received hundreds of millions of dollars in matching funds from the state and federal government to make up a $3 billion modernization budget.

In a two-page memorandum requesting the certificates, Delker offered no explanation of how the money has been spent and scant details on what projects would be covered and when they would be done.

``I am not comfortable with asking the voters to pass another bond to clean up a mess that was created by a lot of individuals who didn't have the district's best interests in mind when this deficit was created,'' said Paul Escala, spokesman for school board member Mike Lansing.

However, Escala argued that the district could further alienate voters if it doesn't borrow the money needed to fulfill the promise made by BB.

``I understand the point of view of not paying for these things twice, but the needs are still there. The schools are still in disrepair. We still have an obligation to perform our work.''

The district already has $804 million in outstanding debt from issuing the certificates, or COPs, including covering much of the cost of the controversial Belmont Learning Center. The annual debt payment from the general fund is $80 million.

``Because COPs are paid out of the general fund, you are attacking the books and supplies of a school,'' said school board member David Tokofsky.

Board member Jon Lauritzen, who represents the San Fernando Valley, said using the general fund to pay for construction shortchanges instruction and the education of current students.

``It's not fair to sacrifice these kids for future kids. We do have to fund programs that are going to be beneficial to today's kids,'' said Ed Burke, spokesman for Lauritzen.

Romer attributed $90 million of the deficit to the cost of upgrading 3,400 bungalows installed on campuses after Proposition BB was passed. He also said that BB did not provide the $50 million of electrical upgrades needed in order to make safety and technology improvements the bond called for.

His plan is to have the March bond cover those costs, but not the remainder of the $600 million deficit, of which $180 million is attributed to inflation alone.

``That we believe is legitimate to be considered for a future bond,'' he said. ``It's new work.''

Romer said borrowing an additional $400 million would not jeopardize the financial health of the district since experts have told him the district could carry up to $250 million in annual debt payment.

``Interest rates have never been lower,'' he said. ``This is a bargain. What we are doing is taking money at the cheapest price possible and putting it in the service of kids.

Helen Gao, [phone]

helen.gao(at)dailynews.com