Citizens' Oversight Committee - Reports September 2003 Exhibit 1 (a)
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    MEASURE K FINANCIAL REPORT

  1. BACKGROUND:
    It is necessary to effectively manage the delivery of capital facilities projects funded by Measure K General Obligation Bonds through close monitoring of these funds and other facility project funding sources. The in-depth analysis of the Measure K Bond Fund ("Fund") began under the leadership of Michael Clear and consultant Catherine Pettiti has been expanded. The analysis covers the time-line February 13, 2002 through July 31, 2003, and is structured to effectively communicate timely financial information to the Superintendent, Board of Education, Citizens Oversight Committee ("COC"), and District staff. This analysis constitutes the next step in an on-going review and communication process that will end after the last Measure K project is brought to completion.

  2. SCOPE OF ANALYSIS:
    The initial budget established within the Measure K Bond Program ("Program") to complete the Measure S and Measrue K project list was over $90.0 Million. Within this budget, it was estimated that approximately $9.0 Million would be required to complete the Measure S project list. After further review by JCM, the amount of funding required to complete the Measure S project list increased to over $13.3 Million. Because of the increase in funding required to complete the Measure S project list, coupled with a number of large construction and modernization projects, the Board of Education, COC, and District facilities staff need financial management tools designed to accurately track revenues and expenses on a program and individual project level. This analysis is designed to address these issues, and provide data in an accurate and timely manner.

    The scope of the analysis includes:

    • Confirmation of the Measure K Bond Fund ("Fund") beginning balance as of February 13, 2002.
    • Confirmation of all revenue deposited in the Fund between February13, 2002 and July 31, 2003.
    • Confirmation of all withdrawals from the Fund between February 13, 2002 and July 31, 2003.
    • Confirmation of all Measure S project completion expenses between February 13, 2002 and July 31, 2003.
    • Confirmation of the Fund ending cash balance as of July 31, 2003.
    • A review of the status of the Measure K Bond Program as of July 31, 2003, including the Program budget and how it is tracking.
    • Prospective project adjustment options that can be used to maintain a balanced budget.
    • Project budget variables and how they may effect the management of the Program and specific projects within the Program.
    • Current and future challenges that will have to be managed to affect a positive financial outcome.
    • Implementation of an on-going data entry and Fund management process.


  3. DATA SOURCES:
    The following sources were used to assist in the analysis:

    • Los Angeles County Superintendent of Schools "People Soft" budget system.
    • Detail of Measure K Revenues and Expenditures (completed by Catherine Pettiti - District consultant and District staff).
    • Various invoices, requisitions from the District Accounting Office.
    • Verbal and written information and reports from facilities and District accounting office staff.
    • JCM monthly Bond Measure K Program Management Reports.


  4. OVERVIEW AND FINDINGS:

    • INITIAL REVIEW (February 13, 2002 - May 31, 2003)
      Revenue - The beginning balance of the Measure K Bond Fund was $7,034,667.40 and consisted of a Certificate of Participation (COP) purchased by the District to cover facility project expenses until the sale of the first series of Measure K Bonds was sold. After the sale of the Bonds, the County Superintendent of Schools subtracted the outstanding COP from the proceeds of the first series of Bonds and deposited $37,965,292.28 into the Fund. During the first year of the Fund, interest was accrued, and various financial transactions were accomplished that increased the net revenue within the Fund to $46,168,374.12. Some of the financial transactions included non-Measure R funding sources. Future management of the Fund will necessitate that all non-Measure K revenues within the Bond Fund be transferred to a special facilities fund and accounted for separately as a part of the Measure K facilities program. This is an accounting function and will have no effect on the amount of funding available for project and project-related expenses.

      Expenses/Fund balance - Expenditures were $16,007,462.53. This number included Measure S project completion expenditures totaling $13,329,181.60. This left a Bond Fund Program balance of $30,160,911. The balance was confirmed by insuring that it matched the County of Los Angeles Superintendent of Schools Bond Fund balance as of May 31, 2003.

    • JUNE AND JULY 2003 UPDATE:
      The February 13, 2002 - May 31, 2003 financial information was carried forward, and all revenue and expenditure transactions during the months of June and July 2003 were added to the base data. The July 31, 2003 balance of $29,561,146.88 was then used as a "base" to perform an analysis pertaining to the management of the Program budget and project delivery. Additional revenue sources that have been identified as part of the Program were added to present a more accurate snapshot of the total revenue available within the Program.

    • MEASURE S PROJECT COMPLETION:
      The financial data within the Detail of Measure K Revenues and Expenditures (detailed District financial data) was reviewed to establish the total expenditures used to fund the completion of the Measure S project list. The number was determined to be $13,329,181.60.

    • ANTICIPATED PROJECT COMPLETION BUDGET ESTIMATE:
      A review of completed, partially completed, and future projects within the Measure K project list was verified to determine the "anticipated Project completion estimate." This number represents the amount of money that will be necessary to complete the project list if the budget established for each project is not exceeded. It was determined that this number, as of July 31, 2003, was $80,535,206.00. This number includes a variety of contingencies that are incorporated into every project designed to address inflation, change orders, and unanticipated costs. However, it is important to consider that not all of the project contingencies will cover the cost of every project, and other methods, such as strategic budget transfers and managing the scope of each project, will have to be used to insure that the Program budget is kept on target.

      It was also determined that, as of July 31, 2003, the $94,102,059.21 budget has a negative balance of $352,697.09 and will require a budget transfer and/or change in project scope to bring it into balance. This report includes discussion of a number of prospective budget and management alternatives to accomplish this task.


  5. EXAMPLES OF PROJECT ADJUSTMENT OPTIONS & BUILT-IN PROGRAM FLEXIBILITY:
    A number of projects within the project list are completed or nearing completion. In some cases, total project costs are less than the anticipated budget. This is good news in that it gives the District flexibility to use this additional source of funding to "round-out" the budgets of other projects that may be in need of funding above the original budgets established in 2002. The analysis has identified eight projects that may be examined by the Board of Education with this strategy in mind. The initial funding available from these projects is $3,545,683.00. It is anticipated that a number of other projects will be added to this list over time. Conversely, a number of projects will most likely present challenges to keep them within the original budget.

    In addition to "Project Adjustment Options", each project contains a 7.0% market contingency and a 10.0% change order contingency. The inclusion of these contingencies constitutes "smart" business sense, and may present the District with additional options as the program progresses.

  6. PROJECT BUDGET VARIABLES:
    The Measure K Program is a multi-year, complex construction and modernization program that includes small easily managed projects and larger multi-story construction projects with budgets that approach $20.0 Million. A number of factors will affect the ultimate financial outcome of the program. Some of those factors include:

    • The time it takes to design, obtain approvals, and initiate and complete the construction of the project.
    • The ability of the organization to properly scope each project to achieve an acceptable outcome that is within budget - coupled with the ability to make inter and intra-project budget adjustments if necessary.
    • Changes in market conditions that will have a financial impact on the prices received through the competitive bidding process.
    • Unanticipated structural and other project conditions that will necessitate changes in scope and project cost.
    • Increased overhead costs resulting from splitting existing projects into more than one project.


  7. CHALLENGES AS OF JULY 31, 2003:
    With some projects, there has been an increase in the amount of time over what was originally anticipated that it would take to implement the construction phase. Some reasons for this extended timeline include:

    • Delays in Division of State Architect ("DSA") approvals.
    • The verification of all remaining Measure S projects.
    • Additional time taken to implement an effective cash accounting system.


    The Measure S project completion stage is very close to completion with a budget of only $277,509.57 left to complete out of the $13.3 Million project list. Also, the District has completed over $2.0 Million in new Measure K projects. Therefore, in addition to a number of smaller projects such as playground restorations, the District is now positioned to continue with a large project pre-construction phase that will result in the timely design, approval, bidding and construction of a number of large projects. A few examples of the larger projects include:

    • The Beverly Hills High School Science and Technology Center.
    • The Beverly Hills High School Central Plant and HVAC Project.
    • The Beverly Vista Building B restoration and associated construction of additional school facilities on the campus.


  8. ON-GOING PROGRAM FINANCIAL MANAGEMENT:

    • The Assistant Superintendent, Business Operations is responsible for the management of the Measure K Bond Program. This employee insures that the cash resources (Bond and other facilities funds associated with the Bond Program) are properly managed by the Accounting Department, and that the Director, Planning & Facilities properly manages the Program (all accounting processes within that department - including the financial aspects of the Program under the responsibility of the construction management firm under contract with the District (JCM).

    • The Director, Business Operations is responsible for receiving and processing all budget and budget/accounting-related work from the Director of Planning & Facilities. This includes all posting of financial data into the county financial system and producing ad-hoc, monthly and quarterly reports necessary for proper review and management of the Bond program.

    • The Director of Planning & Facilities is responsible for the direct management of the Measure K Program. The financial responsibilities include collecting and processing financial data, and forwarding the data to Business Operations. To assist in this complex process, the District is in the process of hiring a support position (Planning & Facilities Assistant) that will be responsible for the on-going financial recordkeeping, data entry and clerical duties necessary for the financial management of the Measure K Bond Program. The position will report directly to the Director of Planning & Facilities, and will coordinate directly with the Director of Business Operations and/or a designee. This recruitment should be completed by early October 2003.

    • Monthly financial reports designed to communicate the financial status of the program will be submitted to the Board of Education and the COC. These reports will be one-month in arrears to accommodate the processing and posting of financial information within the County computer system.

    • Quarterly Bond Fund updates that coincide with the District General Fund Quarterly Reports will be submitted to the Board of Education as a part of the District General Fund Quarterly Report. These reports are public information and will be made available to the COC upon request.


  9. OTHER ISSUES AND TASKS:

    • The final amount of the Measure S Project Completion should be reconciled with revenue/transfers into the Measure K Fund that may be associated with Measure S revenues. Examples of transfers include the lawsuit settlement, State Portable Reimbursement, and the FEMA reimbursements. This reconciliation may reduce the final amount of the Measure S Project Completion budget.

    • A final determination should be made pertaining to the allocation of the FEMA reimbursement balance ($204,771.00).

    • A financial accounting system should be put in place that reconciles the month-by-month budget status of all Measure K project costs by project. The JCM monthly Program update includes detailed project financial information that may satisfy this requirement.

    • The "Net Transfers" into the Measure K Fund should be analyzed to determine if they should be maintained in the Measure K fund or transferred to another categorical facilities fund (for accounting purposes only). This will enable the District to accurately account for Measure K-specific revenues and expenditures, including interest earnings.

    • As soon as the next phase of project approvals is approved by the Board of Education, District staff will work with JCM to review the Program timeline. This is needed to track (and adjust, if necessary) Program overhead, project scheduling, and the timing and amount of future Bond sales.

    • The amount of Measure S project completion list is set at $13,329,181.60. Of that amount, $13,051,672.03 has been spent and fully accounted for, and $277,509.57 is budgeted to complete the Measure S projects. The $277,509.57 should be accounted for within the monthly JCM Project Report using a new project line. Board of Education approval will be required to implement this change.

    • There is a basic difference between the "Budget" and "Commitments" columns within the monthly JCM Project Management Report. This analysis used the "Budget" column to determine how much it will cost to complete all of the projects on the project list. JCM uses the "Commitment" column to determine this cost. The District should review JCM's assumptions on a regular basis to confirm these informed estimates.



  10. WHAT IS NEXT - PROJECT DECISIONS BASED ON FINANCIAL INFORMATION:
    The following items are scheduled to be addressed by the Board of Education at the September 29, 2003 Board Study Session (4:00 pm) (reports - no action items) and Regular Board of Education Meeting (7:00 pm) (reports and action items).

    • Measure K Financial Report - Findings.

    • Beverly Hills High School Central Plant - Amendment to the architects contract to include mechanical and structural engineering services (discussion in Board Study Session only).

    • Beverly Hills High School Science and Technology Center - Recommendation for approval to proceed into the Schematic Phase by (a) Finalizing the program, and (b) Deciding whether vehicle parking accommodations shall remain within the building structure.

    • Beverly Vista Building B - Recommended approval of contracts to retain a historic consultant and a geologic consultant, and short discussion on DSA structural standards.

    • El Rodeo Playground - Recommended approval to implement the bidding process (including an 8-10 vehicle staff parking modification).

    • El Rodeo Modernization - Recommended approval to proceed into the Design Development Phase.


    A number of the Agenda Items include discussion, review, and important decision-making factors based on the financial information obtained from the data sources within this report, and the analysis performed to determine the status of the Program Budget. Therefore, the Report will be presented prior to the discussion of the projects. Within the study session, staff is prepared to present specific Program and project information designed to facilitate project planning and implementation in the fall of 2003 and well into 2004.

  11. FUTURE CHALLENGES:
    As the program continues into the next project stage, a number of challenges will present themselves that are common to many complex construction and modernization programs. In Beverly Hills, these challenges include the restoration of historic buildings, reestablishing the Program timeline - as much as possible - to minimize extended/higher Program overhead costs, and the continuing challenge of communicating and debating design/scope/budget and construction issues between all stakeholders.

    End of Report
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