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Citizens' Oversight Committee - Reports - February 28, 2005

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THE MEASURE K CITIZENS' OVERSIGHT COMMITTEE OF THE BEVERLY HILLS UNIFIED SCHOOL DISTRICT OVERSIGHT REPORT FEBRUARY 28, 2005
The Citizens' Oversight Committee (COC) respectfully submits to the citizens of the City of Beverly Hills, the third oversight report on the activities of the Measure K Bond fund Program. This report is also being presented to the Board of Education ("BOE") and the Beverly Hills Unified School District ("BHUSD or District"). The financial information received by the COC from the District and JCM that is included in this report covers the period from October 23, 2003 through February 28, 2005. On June 23, 2004 the members of the first Citizens' Oversight Committee held their last meeting. The new members of the Citizens' Oversight Committee held their first meeting on October 12, 2004.

Therefore, the current Citizens' Oversight Committee will only discuss information and render an opinion on information received by the COC after October 12, 2004.
BACKGROUND Since the issuance of the last report on November 19, 2003, there was one significant personnel change in the administration of the Measure K Program. Karen Christiansen replaced Allen Rubenstein as Director of Planning and Facilities for the BHUSD.
TOTAL EXPENDITURES
Based on the financial information provided by the District to the COC, the total expenditures as shown in the Measure K Project Status Report dated 2/28/05, (Exhibit 1) through the period ending 2/28/05 were:
- Measure S Shortfall Expenditures - $13,171,535
- Measure K Expenditures - $13,991,000
- Total Measure K Expenditures - $27,162,535
As of February 28, 2005, as shown on Exhibit 2 - Monthly Detail of Revenue and Expenditures provided by the District, the cash balance in the Measure K account was $20,312,061.42. Per The District, this balance matched the Los Angeles County Bond fund balance as of February 28, 2005.

PROJECT BUDGETS AND EXPENDITURES
The following is a summary of the Measure K projects as of February 28, 2005, as derived from the Measure K Project Status Report provided by the District, and included in this report as Exhibit 1.

JCM Project Number	Project	Approved Budget	CashExp to Date	Balance
001,002,003	Measure S Shortfall	$13,251,011	$13,171,535	$79,476
	MEASURE K
000PM	JCM Prog Mgmt Fees	$1,765,195	$2,780,969	$(1,015,774)
	Beverly Hills High School
004HS	HS Sound System	$383,200	$255,901	$127,299
006HS	HS - Make Ready	$102,300	$25,737	$76,563
012HS	Science & Tech Center	$27,740,131	$1,550,676	$26,189,455
013HS	Hand Rail - Ramp E	$73,629	$86,704	$(13,075)
015HS	Central Plant	$6,894,158	$456,670	$6,437,488
016HS	HS Waterproofing	$167,030	$134,341	$32,689
023HS	HS Window blinds	$55,232	$48,052	$7,180
024HS	HS Furniture	$369,572	$323,563	$46,009
025HS	HS Exterior	$755,389	$20,994	$734,395
026HS	HS Mod Bldgs C&D	$906,754	$513	$906,241
027HS	HS Modernization	$3,606,565	$198,166	$3,408,399
		$41,053,960	$3,101,317	$37,952,643
	Beverly Vista
009BV	BV Playground	$1,297,679	$78,837	$1,218,842
029BV	BV Building B	$12,300,000	$854,986	$11,445,014
030BV	BV Furniture	$199,050	$128,748	$70,302
		$13,796,729	$1,062,571	$12,734,158
	El Rodeo
034ER,008ER	ER Mod & Playground	$3,089,219	$1,483,669	$1,605,550
019ER	ER Fences/Gates	$135,890	$159,901	$(24,011)
022ER	ER Wallpaper	$23,425	$23,428	$(3)
031ER	ER Furniture	$207,226	$181,011	$26,215
032ER	ER Locker Repair	$15,000	$0.00	$15,000
033ER	ER Window Blinds	$33,618	$28,768	$4,850
035ER	ER New Classrooms	$3,948,213	$0.00	$3,948,213
		$7,452,591	$1,876,777	$5,575,814
	Horace Mann
005HM	HM -Charleville Fence	$34,000	$36,119	$(2,119)
007HM	HM Playground	$1,346,034	$1,317,993	$28,041
017HM	HM Roof Repair	$64,686	$63,429	$1,257
021HM	HM Wallpaper	$28,661	$28,757	$(96)
041HM	HM Furniture	$191,832	$163,099	$28,733
042HM	HM Locker Repair	$15,000	$0.00	$15,000
043HM	HM Window Blinds	$0.00	$597	$(597)
044HM	HM Modernization	$4,571,543	$432,049	$4,139,494
		$6,251,756	$2,042,043	$4,209,713
046DP	District Admin	$2,784,614	$1,009,911	$1,774,703
	TOTAL K AND S PROJECTS	$94,304,124	$27,162,535	$67,141,589

The Project Status Report dated February 28, 2005 is a detailed listing of the above information by project. This report also includes any budget revisions approved by the BOE, as well as, actual and accrued expenditures for each project. Note that the budget total for all projects listed on this Project Status Report exceeds the $90 million Measure K bond issue. Sources of the additional funds have been, or are anticipated to be, provided by The City of Beverly Hills, Deferred Maintenance and Developer Fee accounts held by the BHUSD, Salter Family Funds and the Site Safety Fund

The three largest projects in the Measure K Program are:

High School Science and Technology Center (STC)
High School Central Plant and HVAC distribution system (Central Plant)
The Beverly Vista Building B reconstruction and new classroom additions (BVB)

Table 2 - 3 largest projects (From Project Status Report dated 2/28/05)

Project	Current Board Approved Budget	Actual Expenses to Date	Balance in Project
Science & Tech Center	$27,740,131	$1,550,676	$26,189,455
Central Plant	$6,894,158	$456,670	$6,437,488
BV Bldg B	$12,300,000	$854,986	$11,445,014
Total of 3 main projects	$46,934,289	$2,862,332	$44,071,957

49.8% of the total budget of $94,304,123 in the Measure K Program is concentrated in the above three projects.

Table 3 - Other Projects and Expenditures (From Project Status Report dated 2/28/05)

Project	Approved Budget	Actual Expenses to Date	Balance
Measure S Shortfall	$13,251,011	$13,171,535	$79,476
JCM Prog Mgmt Fees	$1,765,195	$2,780,969	$(1,015,774)
Remaining High SchoolProjects - (w/o Central Plant and S&T	$6,419,671	$1,093,971	$5,325,700
Remaining Beverly Vista Projects (w/o Building B)	$1,496,729	$207,585	$1,289,144
All El Rodeo Projects)	$7,452,591	$1,876,777	$5,575,814
All Hawthorne Projects	$7,948,268	$2,117,412	$5,830,856
All Horace Mann Projects	$6,251,756	$2,042,043	$4,209,713
District Admin	$2,784,614	$1,009,911	$1,774,703
Total of Other Projects	$47,369,835	$24,300,203	$23,069,632

Table 4 - Summary of above two tables

Project	Approved Budget	% of TTL	Actual Expenses to Date	Balance
Three Main Projects	$46,934,289	49.8%	$2,862,332	$44,071,957
Other Projects and Expenditures	$47,369,835	50.2%	$24,300,203	$23,069,632
Budget Grand Total	$94,304,123	100%	$34,728,097	$59,576,026

MEASURE K PROGRAM UPDATE -
The following information has been provided by the BHUSD. A discussion of the Science and Technology Center, Beverly Vista Building B and the modernization Projects at the K-8's and the High School follows under Recent Program Developments

High School
Peters and Salter Theaters Sound Systems - Project #004

All equipment has been installed and is operating. The project is complete.

Make Ready - Project #006

The first portion of the make ready project has been completed and the temporary trailers will be removed in the next couple of weeks. The remaining portion to be completed is still with DSA and may be included in the modernization project.

Central Plant - Project #015

This project is underway. It is still anticipated by the district that this project will be completed on time in Mid-September of this year.

Peters' Auditorium Waterproofing - Project #016

The work on this project has been completed.

El Rodeo
Playground Restoration - Project #008

The playground project has been completed and the District is still negotiating with the contractor regarding the various construction related issues that occurred.

Horace Mann
Charleville Fence - Project #5

Work on this project has been completed.

Playground Restoration - Project #7

Closing out this project is in progress.

Roofing Repair - Project #17

The project is complete.

Corridor Painting - Project #21

This project is complete.

Beverly Vista
Playground Restoration - Project #009

District Staff is preparing the bid packages for this project and anticipates bidding the project for construction over this summer. The bid package is structured with the main project being artificial turf and fencing but will include an alternate for completing the entire playground.

Hawthorne
Playground Restoration - Project #010

This project has been completed. Bidding has begun on the ball wall and fence and should be completed before school begins in the fall.

AUDIT
Attached as Exhibit 3 are the December 31, 2003 Performance and Financial Audits. The auditors issued an unqualified opinion. The only audit comment made was that the Citizens' Oversight Committee did not have an active member of a bona fide Taxpayer's Organization.

RECENT PROGRAM DEVELOPMENTS
On March 17, 2005, the BOE and the District held a study session to discuss recent developments in the Measure K Program. Distributed at that meeting, and at the COC meeting the previous day, and attached as Exhibit 4 is a report entitled Facilities Program Report ("The Report") prepared by the Business Services Division - Gary Mortimer, Assistant Superintendent, Business Services and the Facilities Department - Karen Christiansen, Director of Planning & Facilities.

The primary purpose of this study session was for the District to present to the BOE an overview of the proposed plan for the completion of the major projects in the Measure K Bond Facilities Program. Over the past year or so, the cost of construction materials in California has been escalating. Furthermore, a glut of school construction work in California has resulted in labor shortages. Both costs and resource issues have caused project bids in school districts to be over budget.

Due to these market conditions, the District has re-evaluated the delivery methods and financial overview of the Measure K Program. In conjunction with this re-evaluation, the District has developed The Report. This Report outlines three separate parts that together constitute a plan for the completion of the major Measure K Bond Facilities Program. This plan utilizes alternative and additional sources of funding, staffing requirements and an alternative construction delivery method.

PART I The Financial Status Overview
Part I addresses the effect of increased labor and raw materials costs on the scope and budget of the projects in the Measure K Program, specifically focusing on BVB, STC and the modernization projects at the three K-8 campuses and the High School. As stated in The Report, District staff is recommending that bidding occur on the STC and BVB before bidding occurs on the remaining modernization projects. This is a modification to the Measure K Program schedule in order to temporarily create a larger financial contingency to insure these two projects are completed.

Current status of the two key projects, as outlined in The Report, - STC and BVB are as follows:
BVB is expected to be out of DSA plan review and ready to bid in late spring 2005. Scope modifications in the project have been accomplished; however there is an anticipated budget shortfall of between $1.34 million and $2.34 million. Based on an analysis of a variety of alternatives, District staff recommends that the scope of the project continues to be modified with cost-cutting alternatives and augment the budget to reflect current estimated costs.

STC should be out of DSA and ready to bid by summer/fall 2005. Scope modifications in the project have been accomplished; however there is an anticipated budget shortfall of between $1.47 million and $4.97 million. Based on an analysis of a variety of alternatives, District staff recommends that the scope of the project continues to be modified with cost-cutting alternatives and augment the budget to reflect current estimated costs.

The District has identified "a number of funding sources that either currently exist or have a reasonable probability of becoming available in the relatively near future."

The attached charts, prepared by the District and included in The Report, illustrate existing and prospective funding sources, current funding balances and the possible funding transfers that could be implemented to assist in the funding of the BVB, STC as well as the modernization projects.

Chart A-1 - Construction Cost Estimate Overview (Construction Costs only - no soft costs)

Project	Current Budget	Estimated Range - High	Estimated Range - low	Difference
BVB	$9,260,000	$11,600,000	$10,600,000	$2,340,000 - $1,340,000
STC	$22,330,000	$27,300,000	$23,800,000	$4,970,000 - $1,470,000
Total	$31,590,000	$38,900,000	$34,400,000	$7,310,000 - $2,810,000

Chart A - Existing Funding Sources

Funding Sources	Budget	Prospective Transfer
Measure K Program Contingency	.$500,000	$500,000
Program (legal)	$700,000	$700,000
Measure K interest earnings	$1,700,000	$1,200,000
Adjustments in scope of other projects (Chart C) within the Measure K Program (max) (BV Administration/Classroom Building)	$18,400,000	$4,100,000
Deferred Maintenance Fund	$700,000	$0.0
Developer Fee Fund	$2,400,000	$1,200,000
Sub-Total Chart A	$24,400,000	$7,300,000

Chart B - Prospective Funding Sources(available/not available within the next 12 months)

Funding Source	Budget	Prospective Transfer
State Facility Hardship Fund (estimate) of qualified components within BVB reconstruction project	$2,000,000	$2,000,000
State Modernization reimbursements (BVB Construction)	$2,500,000	$1,500,000
Possible refunding of Measure S Bonds	$1,500,000	$1,500,000
Future Measure K interest earnings	$2,000,000	$2,000,000
Sub-Total Chart B	$8,000,000	$7,000,000

Summary of Chart A and B

Funding Source	Budget	Prospective Transfer
Sub-Total Chart A	$24,400,000	$7,300,000
Sub-Total Chart B	$8,000,000	$7,000,000
Total of Chart A and B	$32,400,000	$14,300,000

Chart C - Suggested maximum adjustments in scope of other projects yet to be bid

Funding Source	Budget	Prospective Transfer
K- 8 Modernization Projects	$14,930,000	$3,350,000
BHHS Interior Modernization Project	$2,810,000	$750,000
Total	$18,440,000	$4,100,000

The District has identified other possible funding sources, not listed above, including an energy program and state modernization applications for the three K-8 and BHHS schools.

Per the Facilities Program Report, "District staff and JCM are in the process of evaluating specific modernization scope adjustments that may be necessary if the BVB and STC project funding are augmented by the existing modernization budgets."

PART II Facilities Program Staffing Plan
As stated in The Report, the District is at a critical juncture in the Measure K Program. "Over the next 24 to 30 months, the District will complete projects that have a high probability of costing in the neighborhood of $83 million." As bidding and construction begins in this intense construction phase of the program, the District feels that it is imperative that the current staffing structure be modified from existing levels to reflect the labor requirements necessary to properly manage the program through completion.
District staff is suggesting the addition of the following:
- One or two Construction Management companies to manage the construction of STC and BVB including possible multi-prime project delivery method.
- Project Manager who is a district employee - in-lieu of JCM Project Manager
- Clerical support for multiple-prime clerical requirements.
JCM would assist in managing the overall Measure K Program that targets the completion of the modernization and playground projects, and thus their current contract would have to be modified.
PART III Program/Project Management Component
The District is in the process of selecting Construction Management firm(s) that will manage construction of the STC and BVB. In addition to the traditional design-bid-build project delivery method, the District is considering using the multiple prime contracting delivery method for these two projects. With multi-prime the District establishes an agency relationship with a construction manager ("CM"). The project is managed and scheduled by the CM firm on behalf of the District. The District holds separate contracts and has a fiduciary relationship with each of the trade contractors.
DISCUSSION
On March 15, 2005, the District presented its Facilities Program Report which outlined the challenges and recommendations to the BOE for the completion of the Measure K Bond Facilities Program.

The implications of the current commercial construction market conditions and their potential impact on the remaining projects of the Measure K Facilities Program have prompted the District to recommend to the BOE that it reevaluate the combination of project budget and scope adjustments, additional funding resources, project scheduling, personnel requirements and alternative project delivery methods specifically, multiple prime construction management for the completion of the Measure K Facilities Program.

The District identified specific potential cost escalations associated with the STC and BVB projects. The District's estimated increase in construction costs over the existing budgets for these two projects range from $2.81 million to $7.31 million. As a result, the District is recommending that the BOE consider scope modifications for both STC and BVB that will reduce the projected construction costs for both projects while retaining their design and functionality. In addition to scope modifications that would reduce the costs of these two projects, the District has determined that both the STC and BVB projects will require budget enhancements that reflect the current estimated construction costs of both projects.

To this end, the District has identified $7.3 million of existing funding sources as well as $7.0 million of prospective funding sources to pay for the cost escalations for STC and BVB and the balance of the program. The use of these funding sources would require the approval of the BOE.

The largest component of the existing funding sources could come from adjustments (cost reductions) to the scope of the three K-8 grade school site modernization projects and the BHHS interior modernization project. Assuming the BOE agrees with the staff recommendation to re-order the STC and BVB projects, the District is recommending the BOE consider transferring up to $4.1 million from the four modernization projects to cover the increase in costs for the STC and BVB projects. If the BOE decides to augment the STC and BVB with funds from the existing four modernization budgets, this would require scope adjustments commensurate with a 22.2% reduction in available funds for the four modernization projects. The balance of the $7.3 million would come from transfers from the contingency, legal and earned interest accounts in the Measure K program and a transfer from the Developer Fee fund.

Additionally, the District has identified four prospective funding sources totaling $7.0 million. These potential sources are State Facility Hardship funds for BVB, State modernization reimbursements, refunding Measure S bonds and future Measure K interest earnings. Except for the future Measure K interest earnings, estimated at $2 million, there is no guarantee that these prospective funds will be available.

In light of the foregoing, the District has recommended that scope modifications for all remaining Measure K projects in the design and approval phases be finalized so that each of these projects (STC, BVB, and the four modernization projects) can be put out to bid based on a schedule recommended by staff. The District will also continue to pursue alternative prospective funding resources. Once the project bids are received by the District, budget adjustments and/or transfers for these projects can be decided on by the BOE based on available funding as necessary.

In terms of prioritization, the District has recommended that the existing program schedule be modified to bid the STC and BVB projects before the four modernization projects. Deferring the four modernization projects would result temporarily in a larger program contingency that would create a "financial safety valve" in the event that construction costs for the STC and BVB projects escalate beyond scope modifications. Once the construction costs for the STC and BVB are finalized, the BOE will be in a position to finalize these two project budgets and then make the scope modifications, budget adjustments and or transfers necessary for the remaining four modernization projects after evaluating all of the existing and prospective funding sources available to complete the Measure K program.

Deferring the four modernization projects will also minimize the impact that a multi-campus construction program will have on the instructional programs at each school and give the District staff greater control in managing the program.

In an effort to optimize the bidding and construction phases of the STC and BVB projects, the District has recommended the BOE consider changing the current program management system to the Construction Management ("CM") project delivery method for these two projects. A CM firm would contract with the District to manage the bidding and construction stages of the STC and BVB. In conjunction with a CM, the District is also evaluating using the multiple prime contracting delivery method for both the STC and BVB. The primary reasons for considering the use of a multi-prime construction management system includes a greater degree of control over the project schedules, attracting higher quality contractors, direct control of the contractors and the potential for lower project costs.

Implementation of the multiple prime construction management delivery method may have a direct impact on the scope of work performed by the current program manager, JCM as well as the District's staffing requirements. The District has recommended that JCM's role be modified to assist in managing the overall Measure K program and manage the bidding and construction of the four modernization and remaining playground projects. Adoption of the multiple prime construction management delivery system will put a much greater administrative burden on the District. As such, the District has recommended the hiring of a project manager and additional clerical support to handle the additional financial reporting, accounting and bookkeeping requirements.

The challenges facing the District and the BOE to complete the Measure K Facilities Program are significant.

With the BVB and STC projects expected to be ready to bid during the spring of 2005 and the late summer of 2005 respectively, the BOE must decide whether to adopt the District's recommendations as soon as possible. If the BOE adopts the construction management multiple prime contracting delivery method for the STC and BVB, the District must hire a new construction management firm or firms for both of these projects. The District may be required to renegotiate and modify the existing contractual relationship with the current program management company, JCM. The District Staff has recommended retaining the services of JCM's and their current Measure K program manager, Howard Weissberger. This should provide consistency to the completion of the program due to his considerable familiarity and involvement in the design, development and bidding phases of the STC, BVB and the four modernization projects.

Should a multi-prime delivery method be approved by the BOE this new program delivery method will significantly increase the administrative burden on the District and according to Staff recommendations, may require the hiring of at least two full time District employees, a project manager and a clerical/financial employee.

The District staff separate the actual cash expenditures from the accrued expenditures on the Project Status Report, so that the BOE, the District and the COC can ascertain the actual expenditures on a project basis and for the entire program. While the true expenditures can be obtained from this report, the actual financial picture of the Measure K Bond Program can not truly be determined or analyzed until the District changes the budget numbers of the remaining projects to reflect their true costs.
The current numbers that the District has been including within their reports do not reflect current market conditions (commercial construction cost increases). It is imperative that these numbers be updated as soon as possible so that all of the parties analyzing and making decisions based on these numbers have an accurate picture.
The Board of Education approve the re-allocation of the approved expenditures for each individual project, after the project has been closed, and all accounts are reconciled in a more timely fashion.

CONCLUSION
The Oversight of this Committee relies exclusively on the information received from the District, Board of Education, JCM and the independent performance and financial audits. Therefore, the scope of our oversight is limited to our reliance on these information sources. This Committee does not have any staff of its own, and relies entirely on the information provided by these sources. Despite this limitation and based on the information the Citizens' Oversight Committee has received from District Staff from the period beginning October 12, 2004 through February 28, 2005 the Citizens' Oversight Committee believes that the actual expenditures and commitments of Measure K bond funds appear to fall within the parameters of the bond measure and were expended and/or committed solely for construction, reconstruction, rehabilitation or replacement of school facilities, including the furnishing and equipping of school facilities.

Citizens' Oversight Committee

April 20, 2005

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