Christian school lease: key decision for 2013

As I mentioned last week, a City Council decision on whether or not to restructure a 10-year-old ground lease on a city-owned site planned for a 1,200-student private Christian High School likely will be the elected panel’s most important judgment of the year.

Basically, if a lower-cost lease is not approved, the 99-year agreement with Yorba Linda Friends Church will go into default due to the inability of school officials to attract funds for construction from lending institutions based on current lease provisions.

However, if the council accepts new terms, school leaders have voiced confidence work can begin on amenities promised under a 2005 pact allowing city use of recreational and athletic facilities on the 32-acre site at Bastanchury Road and Casa Loma Avenue.

New lease terms are expected to be presented to the council at a Feb. 19 meeting, when the latest of three extensions to a default notice delivered to the church in April expires. 

Council could accept the terms or continue negotiations with counter-offers.  If council members reject the terms, they could explore several options, including bids from other parties that have reportedly expressed interest in the site for a private school or other use.

Church officials are proposing a new lease with “a two-stage rent structure.”  One part is a basic rent based on independent appraisals of the property’s fair market value.  Another part would be a per-student fee that would increase as the school’s enrollment grows.

Of course, a new lease should provide a cure for past-due rent, which totals more than $1 million since the last payment was made in September 2012.  The revenue loss negatively impacted both the past and current years’ city budgets, according to city officials.

Through June 30, 2012, school officials report spending $12.8 million on the project:  $4 million in lease payments to the city; $6.1 million for project management (architect, engineering, consulting, legal and plan check fees); and $2.7 million on actual site work.

Certainly, council members can’t ignore those expenditures when making a decision on new lease terms, especially since so much of the funding came from local residents who attend Yorba Linda Friends Church and Rose Drive Friends Church.

So, when will residents see construction activity on the site for the school that was originally proposed to open five or six years ago?  That depends on whether or not council members accept new lease terms or continue with negotiations.

Although school leaders have expressed optimism that lower rent and other provisions will result in favorable action from lenders, additional time will be needed to negotiate the details and further prepare the site for actual building.

First up will be the joint-use facilities.  Mel Malkoff, the church-hired consultant who has been working with city staff on a new lease, reported to council members that creation of “new public recreational amenities now, ahead of school buildings” will be the priority.

The amenities, he noted, will include a tot lot, play field, tennis and basketball courts, with associated parking, all open to the public, even during the high school’s building period.

A decade long struggle for high school

Actions taken by past City Councils often come back to haunt later councils, and one good example is the near 10-year-old agreement with Yorba Linda Friends Church to lease a 32-acre city-owned property as a site for a private, Christian high school.

Mistakes were made by both parties that signed the 99-year ground lease for the parcel at the northeast corner of Bastanchury Road and Casa Loma Avenue, dated March 4, 2003, which includes ever-escalating rent on land leased for the intended 1,200-student campus.

First, the city should have taken bids on a lease to better determine the property’s market value and include in the bid process a review of the ability of each bidder to fulfill all the financial terms of the lease back in 2002-03.

And no, that’s not a case of 20-20 hindsight, because a large number of residents pressed for an open-bid process before council members awarded the lease to the Friends Church.

Second, former school officials didn’t do enough research on the actual costs of building a new campus on a problem-plagued parcel, and they didn’t have a realistic notion of the large amount of donations and bank loans required for success, based on the lease terms.

True, much has changed from the headier economic times of the early 2000s, but when I asked the now-departed school planners in 2003 about finances, I was told they wouldn’t release figures, but they had a solid fund-raising program with “big donor” commitments.

Through June 30, 2012, school officials report spending $12.8 million on the project: $4 million in lease payments to the city; $6.1 million for project management (architect, engineering, consulting, legal and plan check fees); and $2.7 million on actual site work.

The original lease was amended four times and a number of extensions have been granted for the conditional use permit, design review and tentative parcel map. The latest lease payment was made September 2011, leaving an unpaid balance of more than $1 million.

A city-issued notice of default was delivered to the church in April 2012, but since then, three delays--two for 120 days and one for 60 days--were approved by the council, with the latest expiring at an upcoming Feb. 19 council meeting.

Expected to be presented at the meeting is a new lease with lower payments based on independent property appraisals. School personnel noted last year that banks working with the church wouldn’t make construction loans due to onerous lease terms.

In addition to lower payments, the lease package is expected to include a revised joint-use agreement--first signed in 2005--that opened school buildings and athletic facilities for use by city residents.

Of course, a new agreement should provide a cure for the past-due payments. The revenue loss has negatively impacted both the past and current years’ city budgets.

Council’s decision on a new lease could be the panel’s most important in 2013. Certainly, the vote will be of intense interest to residents who’ve donated to the school’s fundraising campaigns.

Next week: more on a new lease, joint-use facilities and other options open to council.

Redevelopment, FPPC penalty, school lease

Let’s examine three topics this week:

--Since last year’s dissolution of the city’s Redevelopment Agency, more than a dozen local taxing agencies, including the Placentia-Yorba Linda school district, have shared what the state says are “excess funds” in the former agency’s accounts.

In a report heard at a Jan. 8 oversight meeting, a city-hired audit firm figured current “excess funds” at $832,633 for remittance to the county auditor for allocation. But a few days later, new data led to a statement that “no excess non-housing funds exist.”

Nearly $3.9 million was redistributed last July. Generally, funds are labeled “excess” if they weren’t committed for use before Feb. 1, 2012, and the state makes a final decision on whether or not “excess funds” exist.

Redistributed cash involves funds amassed under past state law allowing redevelopment agencies to retain increases in property taxes generated from project areas, including the 2,968 acres identified in this city in 1983 and 1990.

The local Redevelopment Agency’s total take was about $20 million annually for the past several years. At the beginning of the current fiscal year, the city had nearly $48.7 million in cash and assets from the former agency.

A Successor Agency to the Yorba Linda Redevelopment Agency--comprised of City Council members, as was the original agency--handles the assets, which include land parcels held for resale worth more than $11 million.

The auditors listed the former agency’s long-term debt as about $103 million on June 30, 2012. Just last year, a city official said it might take until 2040 to wind up agency affairs.

--The Yorba Linda Water District and elected director Mike Beverage, respondents in a complaint brought by the state’s Fair Political Practices Commission, settled a violation of the state’s Political Reform Act last month by paying a $2,000 penalty.

The violation involved the use of public funds to mail a newsletter to the district’s 22,271 customers that included a letter signed by Beverage and two pictures of the director. The newsletter, which cost $8,653 to produce, print and mail, was issued in June of 2011.

Beverage is one of the city’s longest-serving officials, as a water director first elected in 1992 and as a one-term City Council member, 1982-86. He also ran a developer-funded political action committee, Past and Present Elected Officials Representing Yorba Linda.

Maximum penalty for the violation is $5,000, but the FPPC and respondents stipulated to a lesser amount because only one newsletter was involved, cost to ratepayers was “relatively low,” no past infractions were noted and respondents cooperated in the investigation.

--Will the city recover more than $1 million in past-due lease payments from Yorba Linda Friends Church for the city’s 32-acre Bastanchury Road parcel proposed for a private Christian high school?

That question might be answered soon, perhaps as early as Feb. 19, when the latest default extension runs out and new, lower lease terms are expected to be viewed by the City Council. Last payment was made in September 2011.

More cuts seen for local schools

Sadly, more budget cuts will be necessary for the next school year in the Placentia-Yorba Linda Unified School District, according to a report presented to the district’s five elected trustees at a December meeting.

Reductions totaling $16.8 million for the 2013-14 school year--and an additional $1 million for 2014-15--are needed “to maintain fiscal solvency,” the report noted. The report was prepared by Director of Fiscal Services Joan Velasco.

Also, due to the large amount of cuts needed, the district is issuing a “qualified certification” to the county Superintendent of Schools on the district’s ability to meet financial obligations.

Issuing a qualified certification means the district is “not positive” it will have the resources to meet financial obligations for 2013-14 and 2014-15, the report stated.

The district, at latest count, enrolls 25,645 students at 34 campus sites and pays 2,670 permanent employees. This year the district saved $3.5 million in teacher pay through five furlough days and a delay in anniversary or “step” increases.

The state education code requires Superintendent Doug Domene to submit two interim reports each year to trustees “indicating whether or not the district will be able to meet its financial obligations,” Velasco’s report noted.

The first report, due Dec. 15, was viewed by trustees at their final 2012 meeting. Since the district issued the “qualified certification” in the first report, a third interim report is required to be submitted by June 1.

According to the first report, revenue for the current school year, 2012-13, will total nearly $189 million, with just over $198.7 million in expenditures, leaving a red ink mark close to $9.8 million, most of which will come from savings from prior years.

Projected ending balance on June 30 will be close to $6.5 million, or 3.26 percent of the total budget number. Expected reserve is 3.16 percent for 2013-14 and 3.11 for 2014-15.

Without the $16.8 million in cuts mentioned, expenditures for 2013-14 are estimated to rise to $206 million, with income dipping to $187.3 million. Projected for 2014-15 are expenditures of $210 million with revenue at nearly $191 million.

Also, on Jan. 1, Congress kicked automatic federal budget reductions down the road two months. Depending on the outcome of a future vote, the district might see an 8.2 percent reduction in federal funds, adding about $408,000 to 2013-14 cuts. About $10.6 million in federal cash is projected this year, $10.5 million next year and $10.7 million 2014-15.

A Final Note: So far this fiscal year, the district has accepted $337,664 in donations from individuals, PTAs, businesses and service clubs for use at school sites, including $15,000 from a family with a student in Valencia High School’s International Baccalaureate Program, which granted 50 diplomas last June.

Principal Jim Bell told me the donation duplicated an earlier contribution of the same amount from the family, who asked that $20,000 go to IB and $10,000 to the school’s highly regarded chemistry program. (The family’s name remains private, per request.)

New council faces will encounter old problems

The two new faces Yorba Linda voters selected to serve on the City Council late last year will encounter the same old problems that have challenged the city’s five governing body members for the past several years.

Here’s what residents can expect--and not expect--in 2013:

--Don’t expect predictable line-ups on any of the council’s potential 3-2 split votes this year, especially since the police contract issue is moot until at least 2016, when council could give a required two-year warning the five-year pact might not be renewed in 2018.

While some observers assume the former council’s three-vote majority (John Anderson, Nancy Rikel and Mark Schwing) has been replaced by a new three-vote majority (Gene Hernandez, Tom Lindsey and Craig Young), initial evidence indicates that’s not the case.

Obviously, Hernandez’ vote with Anderson and Schwing to not reopen police contract talks with Brea is a significant sign that voting alignments won’t be as predictable as in the past, with future 3-2 votes seeing a changing cast of characters on both sides.

One little-noticed vote to award a contract with up to $163,000 more than the estimated $400,850 for kitchen renovations at the Community Center to make the facility suitable for KemperSports to operate non-exclusive catering services is another indicator.

Hernandez, Lindsey and Schwing cast the majority “yes” vote to Anderson and Young’s minority “no” vote, and, in the coming year, residents can expect the council’s two most conservative members--Anderson and Young--to team up on a wide array of fiscal issues.

--With the demise of the city’s Redevelopment Agency nearly a year ago, economic planning for Town Center revitalization will be based on state decisions regarding how to use cash collected through the increased property taxes generated in redevelopment areas.

Every six months the city submits to the state a schedule of proposed expenditures, with the state deciding whether or not the expenses meet state-developed requirements. In the past, the state questioned outlays related to Town Center, Savi Ranch and administration.

A true conservative, private enterprise solution to Town Center would be for the city to auction its extensive holdings and allow developers to make market-based decisions on what will and will not succeed in the area, under city-approved zoning regulations.

But too many winning council candidates have promised to make completion of Town Center a priority to embark on a new strategy, so expect the council to continue to vote on business decisions for the area, based on input from numerous city-paid consultants.

--Issues related to the Landscape Maintenance Assessment District have been diverted to a citizen advisory committee, so expect council, finally, to make decisions to cut services later this year, under cover of a “citizens’ report.”

All property owners pay to maintain landscaping on 14 major streets in assessments on property tax bills, and more than half pay extra to maintain 21 local landscape zones. A subsidy from the city’s operating budget has been used in recent years to cover all costs.