At its last meeting, the School Board authorized a complicated lease financing arrangement that would allow the District to borrow $12 Million. According to the approved resolution, the monies are needed to fund the construction of gymnasium facilities and school modernization projects such as roofing, electrical and pavement improvements, science labs, lockers upgrades, painting, and related site work.
Gymnasium facilities and the aforementioned school improvements were previously listed among those projects that would be completed with funding from the nearly $200 Million voter approved bond measures T and U passed in 2014.
In addition to the listed projects, the monies may be used to fund a reserve fund. District reserves have plummeted in recent years as TUSD deficit spending has soared. As recently as Fiscal Year 2013-14 the District had a budgeted $46.1 Million in reserves. Shortly after receiving a qualified certification from the California Department of Education last June, the District released a budget showing the reserve amount was expected to drop to only $5.2 Million by FY 2019-20. That figure was $2.3 Million below the state mandated minimum.
TUSD Deficit Spending – June 2017 Budget
Per the approved resolution, the terms of the lease financing agreement shall not exceed 30 years and true interest costs shall not exceed 4.50% per annum. The transaction will cost TUSD approximately $417,374 in fees. The total payment amount of the $11,870,561 loan was calculated to be $19,148,454.
As part of the complicated financial transaction the District authorized a ground lease of the Levy Adult School, and the Griffith Adult School (including the Gene Drevno Community Day School) to the Torrance Unified School District Public Facilities Corporation. If the valuation of those properties is deemed insufficient, then the District authorized that J.H. Hull Middle School and the District offices could be added to the Lease Agreement. The District will then sublease the property back from the Corporation.
Per one resource, an advantage of the complicated financial instrument is that it allows a government body to fund a project without incurring a debt that might normally be subject to voter approval. Potential risks include high interest rates and risk that the government body could lose its accumulated equity in the leased property if it cannot make the lease payments and is forced to return the leased property to investors.
The District will be obligated to make the payments owed due to the lease financing agreement from its General Fund. The School Board passed the measure without discussion.