School will use redevelopment funds to repay construction loan

By Rebecca Ray

When construction workers encountered unexpected and costly problems during renovations at Los Gatos High School, district officials wondered how they could afford to finish the job. Now they know.

At a recent Los Gatos-Saratoga Joint Union High School District board meeting, board members unanimously authorized the district to sell $5 million in certificates of participation on May 8. The purchasers of the certificates will, in effect, loan the district $5 million, and the district will repay the purchasers with revenues received through the town of Los Gatos' redevelopment agency.

The agency has given the district money generated within the Central Los Gatos Redevelopment Project since the agency and district signed the Pass-Through Agreement in November 1991. Under the agreement, the district receives tax revenue from the redevelopment agency for 30 years, which means the district will receive money for about 20 more years. The agency, in turn, receives money from other taxing agencies that receive it from local property taxes.

The $5 million the district will borrow will be used for improvements to the field house, which district officials hope will be finished by June; a science/home economics building; a classroom building; and a girls' locker room.

Construction workers have begun to dig the foundation for the science/home economics building. Construction on the classroom building is scheduled to begin in January 2003 with completion in January 2004, while construction on the girls' locker room is scheduled to begin in October 2002 and end in September 2003.

Original estimates for all 23 construction projects at the school were calculated at a total cost of more than $47.5 million. That estimate has since grown to more than $56.6 million, according to Geoff Teall, the district assistant superintendent for administrative services.

Construction prices seem to change daily, due to inflation and unexpected costs, said Los Gatos High School Principal Trudy McCulloch. District personnel were caught by surprise when workers uncovered fixtures in the ground that weren't on the district's current maps. In one case, an electrical wire was discovered about four feet from the school's swimming pool--a potentially dangerous situation in the event of an earthquake. If the pool had cracked, the water could have been electrified by the wire, which has since been encased in concrete.

Other funding sources for construction projects for both high schools in the district include $600,000 from the state in deferred maintenance funds; about $9.2 million in state modernization funds; and the money from Measure B. Voters passed the $79 million Measure B bond, which funds construction and renovation projects at Los Gatos and Saratoga High schools, in June 1998.

At the April 17 meeting, Trustee Phil Nielsen asked what would happen if the district didn't get $5 million from town redevelopment funds. According to Teall, the district should expect to get at least that much, because the district's revenue from redevelopment funds is projected to be substantially higher than the amount it will owe on the certificates of participation.

For the 2001-2002 fiscal year, from July 1, 2001 to June 30, 2002, the annual revenue the district will receive from the redevelopment agency is estimated to be $491,698. The revenue is projected to increase each year for the next 20 years. The annual lease payments are estimated to be about $375,000, to be paid over the next 20 years, Teall said.

The total amount of redevelopment funds the school expects to receive is $15 million, according to Teall. The district will most likely receive even more money because of inflation, he said.

Teall added that, even if the district didn't receive $5 million in redevelopment funds, it could still repay the loan because of the surety bond, or $5 million, in backup money it purchased on April 18.

Los Gatos High School gets redevelopment moneys because it is located in a redevelopment zone. Redevelopment projects must include new construction or reconstruction that will eliminate blight and enhance the community. Because the district is undertaking those projects, the town gives the district a certain portion of its redevelopment tax revenue each year. The district must spend the money only on Los Gatos High. Saratoga High School is not in a redevelopment zone and, therefore, doesn't qualify for this type of funding.

The district board members also unanimously approved forming a financing corporation with board members, and acting as the lessor, rather than contracting with an outside agency. A lessor typically assigns all duties, including collection of lease payments and payments to the certificate holders, to a trustee--in this case, U.S. Bank Trust National Association. The district's choice to form its own corporation eliminates the need to pay for an outside agency's services.

Board members also approved David Casnocha of Stradling, Yocca, Carlson, Rauth L.L.P., with whom the district worked to develop the financing plan for board approval, as legal counsel. E. Wagner and Associate Inc. is serving as financial advisor that creates and circulates financial documents to potential buyers.

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