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After Announcing Property Sale, OUSD Proposes Borrowing Funds

By J. Douglas Allen-Taylor
Friday June 23, 2006

Two days after releasing details on a proposed downtown properties land sale that is supposed to help pay off $65 million already owed by the Oakland Unified School District to the State of California, the state-appointed OUSD administrator has proposed putting the district $35 million more in debt. 

On Monday, the district posted a Letter of Intent with east coast developers Terra Mark and Urban America calling for a $60 million purchase price for 8.25 acres of Lake Merritt-area property owned by the district, including the Paul Robeson Administration building, three schools, and two early childhood development centers. 

The developers are proposing putting up five high-rise residential buildings on the property, as well as 100,000 square feet in commercial space. 

The total purchase price is not scheduled to be paid for five years, and the Letter of Intent calls for reductions in that amount depending on the developers securing concessions from the City of Oakland. 

Negotiations on the final deal are currently being held between the district and the developers, and are not scheduled to be announced until September 13. 

Meanwhile, at a Wednesday Board of Education meeting, OUSD Administrator Randy Ward proposed borrowing the remainder of the district’s $100 million line of credit from the state to finance the move of the district’s administrative headquarters from the Paul Robeson Building to Carter Middle School in North Oakland, remedying problems in the district’s financial software, and re-establishing a 2 percent reserve fund that was wiped out when the district nearly went bankrupt three years ago. 

The district currently spends close to $4 million a year to pay off the $65 million currently borrowed from the state.  

OUSD Public Information Officer Alex Katz said he did not have an exact figure on the administration building relocation costs, adding that “it is still under discussion” between Ward and State Superintendent Jack O’Connell over “whether that money would come from a draw-down on the state line of credit” or from the $435 million in Measure B bond money passed by Oakland voters in this month’s election. 

In telephone interviews following Wednesday’s meetings, trustees said that borrowing the full $35 million was not in the best interests of the district, but since the state takover of Oakland Unified in 2003, the board of trustees functions as an advisory body only, and has no power to affect decisions made by the state-appointed administrator. Ward said only that he was considering the borrowing option, and would make an announcement at a later date.  

Trustee Dan Siegel, who chose not to run for re-election and is leaving his seat on the advisory board at the end of the year, said that borrowing any of the $35 million was a bad idea. 

He said that return to local control was contingent on restoring the district’s fiscal health, “and borrowing more money makes it more difficult to do that.” 

Siegel added that when local control is returned, “the new board will be saddled with an extra $2 million a year in debt payments on top of the $4 million” already in the budget. 

Trustee Greg Hodge said that he had mixed feelings about Ward’s proposal. 

“Even though return to local control is not contingent on paying off the loan from the state, there is a perception in the state legislature that this is one of the criteria, so I would be wary of adding to the debt,” Hodge said. 

“Still,” he added, “we’re only paying a 1.6 percent interest rate on the loan, so it’s cheap money, and maybe borrowing it is not a bad investment.” 

But Hodge said that under any circumstances, he would not borrow money for the renovation of Carter Middle School for the relocation of the district’s administrative offices, since, he said, that money should be factored into the proceeds from the proposed sale of the current administration building. 

Board President David Kakishiba said that it was “absolutely ridiculous” to use the state line of credit money for administrative relocation costs, saying that the loan money should be “reserved for its original purpose only, addressing the fiscal mismanagement from the past. It should not deal with current or future financial concerns, no matter what those concerns are.” 

Kakishiba said that the only money he would suggest borrowing from the remaining $35 line of credit would be to restore the district’s 2 percent operating reserve. 

“That’s appropriate,” he said, “because loss of the reserve resulted from the mismanagement problems in 2002 and 2003.” 

Meanwhile, Kakishiba said that even though the board has no power to block the sale of the Lake Merritt area properties, trustees are scheduled to give their recommendation on the sale in September following public hearings scheduled for July 12, August 16, and September 6. 

Kakishiba said that he expects presentations at the July 12 hearing from district staff members on the exact cost of relocating the three schools and two early childhood development centers from the Lake Merritt properties, as well as the cost of relocating the administrative offices. In addition, Kakishiba said, he wants the district to present enrollment projections for the district. 

Both Kakishiba and Siegel were concerned about the affect of the proposed sale on the existing schools on the Lake Merritt properties, particularly La Escuelita. Kakishiba represents District 2 where La Escuelita and the administrative offices are located. 

Under the Letter of Intent between the district and developers Terra Mark and Urban America released early this week, the district reserves the right to keep the schools on 3.2 acres of the property if suitable replacement sites cannot be found. 

Siegel said flatly there is no replacement site for La Escuelita. 

“There are no parcels of two acres or more within a mile of the administration building,” Siegel said, adding that a new La Escuelita could not be built on property two acres or less. 

In addition, he said that the 90 day window given by the district to either find new school sites for the five schools or keep them on the current sites is not enough time to secure new property. 

Siegel is also calling for a new appraisal of the 8.25 district property parcel to determine if the $60 million asking price is a good deal. 

Kakishiba said that the Letter of Intent “does not satisfy my concerns about La Escuelita.” 

He agreed that he does not see any property available in the Eastlake area to relocate the school “and even if there were, it would cost a lot of money to do so. I can’t see the value in that, because a big chunk of the revenues coming from the property sale would be eaten up by relocation costs.” 

Kakishiba also said he was concerned that the district “currently has no business plan for moving the administrative offices.” 





Letter of Intent Details OUSD Land Sale Deal 


By J. Douglas Allen-Taylor 


Under the proposed Letter of Intent, Terra Mark and Urban America pays an unrefundable $200,000 to the Oakland Unified School District for negotiating rights to purchase OUSD’s Lake Merritt-area properties. 

The developer also agrees to pay a $5 million option to purchase once a deal has been reached, which can be refunded if the developer backs out of the deal within 90 days.  

If all of the property is purchased by the developer and the developer is able to win all of the concessions within the proposed deal, the developer will pay another $55 million for 8.25 acres of district-owned land that include the Paul Robeson Administration Building, La Escuelita Elementary School, Dewey and MetWest High Schools, and two early childhood development centers. 

This would bring the total purchase price to $60 million if all of the concessions and conditions are met. However, the Letter of Intent does not specify how low the actual purchase price could go if all of the concessions are not met, and says only that “the parties will negotiate a more precise allocation of the Property value” under those circumstances.  

In addition, the bulk of the payment for the property is not due until five years after the developer exercises its option to begin purchasing the property. 

The developer is proposing to build five high rise residential towers on the property with a total of as high as 1,388 residential units, as well as building 100,000 square feet of unspecified commercial development. 

Other details of the proposed OUSD Lake Merritt properties agreement are: 

• The district has until September 13, 2006 (90 days from the signing of the Letter of Intent) to decide whether the 3.2 acres containing the three schools and two early childhood development centers will be included as part of the deal. 

• The property will be sold in five separate parcels under the following schedule (details on the location of the parcels were not included in the Letter of Intent): Parcel One for $7.8 million due within six months of the approval of the project’s building permit, Parcel Two for $9.3 million due no more than two years following groundbreaking for Parcel One, and Parcel Three ($12 million), Parcel Four ($11.1 million), and Parcel Five ($14.7 million) all due no more than five years following the developer’s exercise of its option to purchase the first parcel.  

• The $60 million purchase price is dependent upon the developer getting approval from the city to put 1388 residential units on the total property to be purchased. 

If the city approves less than that, down to 1,000 units, the purchase price for the property will be reduced by $20,000 for each unit the developer is not allowed by the city to build. (If the developer can only build 1100 units instead of the 1388, for example, the purchase price will be reduced by $5.8 million.) 

• The entire development proposal is also dependent on the developer being able to purchase “at market value” what is only called “property presently owned by the City of Oakland in the Lake Merritt Channel Area, which property will be made available by the realignment of 12th Street.” 

The actual site of that city-owned property to be purchased by the developer is not identified more specifically in the Letter of Intent.