By David M. Greenwald
The DJUSD, in response to public concerns expressed by the Measure M Oversight Committee and its chair Donna Neville, is relying on a September 30 memo as their continued position.
“After careful consideration and discussion, including the engagement and consultation of legal counsel, the District’s position is described in this memo, which is titled Board Policy on Interfund Borrowing,” Public Information Officer Maria Clayton told the Vanguard in an email on Thursday.
An email to Superintendent John Bowes was not returned and Board President Joe DiNunzio advised in a text that he would have to consult with legal counsel but did not get back to the Vanguard on Wednesday.
On Tuesday evening, the Measure M Citizen’s Oversight Committee unanimously backed a recommendation and letter from Chair Donna Neville, alleging that the school district is in violation of the law for failing to repay loans made from the Measure M fund to the district General Fund without paying interest on those loans as required by state law.
“The law here is clear. In attempting to address this issue with the district I consulted with more than a half dozen legal colleagues who work in public finance and bond compliance, and they all confirmed that interest must be paid on these loans,” Neville said in a letter that was to be sent to the district.
“Over the life of the Measure M program this failure to repay the loans with interest could amount to as much a half a million dollars in lost interest, depending on the amounts borrowed, interest rates, and the length of the loans,” she continued. “This is not only illegal; it is a betrayal of the voters’ trust.”
According to the memo dated September 30 from Superintendent John Bowes, the Citizens’ Oversight Committee “requested that the Board of Education consider whether it should amend Board Policy No. 3110 (Transfer of Funds) to prohibit temporary borrowing of Measure M bond proceeds, and if not, whether it should amend the Policy to require the transfer of an amount equal to interest when the borrowing is repaid.”
Bowes said, after conferring with bond counsel and municipal advisor, “we determined not to recommend any changes to BP 3110 at this time.”
In their view, “The advice we received is that our temporary borrowing practices are not prohibited by law and are consistent with Generally Accepted Accounting Principles (‘GAAP’), rules of the Governmental Accounting Standards Board (‘GASB’), and the aforementioned CSAM and SACS.”
Instead they argue, “Education Code section 42603 gives broad latitude to a school district governing board to temporarily transfer funds from one fund or account to another under specified conditions.”
They note, “Interfund borrowing is distinguished in school district accounting from an interfund transfer, which describes a flow of assets from one fund to another without equivalent flow of assets in return and without a requirement for repayment.”
They add, “Although bond funds are deposited to the credit of the Building Fund and often also the Bond interest and Redemption Fund, all district cash is commingled in the County Treasury and merely accounted for as distinct funds, with each fund balance accorded its pro rata share of earnings.” They further argued, “Temporary borrowing between funds does not affect the fund balance of either fund, but does affect the cash balance. In the case of our district, such borrowing of cash from bond proceeds does not impair the ability of the district to perform bond projects and pay related expenses.”
It is their position, “There is no requirement that a temporary borrowing be repaid with interest.”
The California School Accounting Manual states the borrowed funds should be repaid by interest “if there are interest requirements related to those programs or funds.”
He adds, “There is no requirement for the Building Fund.”
Neville in her letter responds, citing points and authorities which she argues finds that “both state law and the legally binding bond covenants explicitly require that the interest earned on the Building Fund must remain with that fund. So, based on the case law, the district must repay loans from the Building Fund to the district’s General Fund with interest.”
Committee member Bret Hewitt explained, “It is a fundamental proposition that a dollar a week from now is not worth the same amount as a dollar today without an interest component. It’s called time-valued money.”
“If the school district is paying back $15 million and $12 million before that without interest, we are by definition diminishing the purchasing power of the bond funds,” he said. “There is no other way to look at that.”
He said, “It is clear to me that it is our duty, as champions of the bond fund, we need to push this matter.”
On Tuesday, the committee asked the full governing board to take up the issue. Neville in her letter noted that she first raised this concern to district staff and no action has been taken to get the full board to address it.
She wrote, “At a non-public meeting of the two-person policy subcommittee on September 14, 2020, the policy subcommittee decided not to recommend any changes to the district’s current policy related to interfund borrowing.”
She continued, “Because the two-person advisory subcommittee decided not to recommend any changes to the district’s interfund borrowing policy, the full board has never considered this issue at an open, public meeting.”
Instead, a statement was made during the “trustee announcements” portion of the meeting, indicating that the subcommittee was not recommending changes to the district policy.
—David M. Greenwald reporting
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