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Originally published December 12, 2011 at 10:05 PM | Page modified December 13, 2011 at 9:41 PM

Schools face 'glass palace' debt burden of $50M

A decade after Seattle Public Schools built a sprawling, three-story headquarters with the promise it would pay for itself, the district acknowledged Monday it still owes nearly $50 million on the building and doesn't know how it will pay the debt off.

Seattle Times education reporter

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A decade after Seattle Public Schools administrators built a central headquarters with a promise it would pay for itself, the district acknowledged Monday it still owes nearly $50 million on the building and has no serious plan for how to pay for it.

The district has until 2027 to pay off the debt. But the amount is so large that it will necessitate some hard choices for a school district already struggling with twin financial crises of state budget cuts and serious overcrowding at some schools.

The John Stanford Center for Educational Excellence, a sprawling, three-story building in an industrial area south of the stadium district, raised eyebrows when it was built in 2001. No specific plan has been advanced for repaying its $54.5 million price tag (plus an additional $52.7 million in interest on bond payments), and for years some community activists have been demanding an accounting of just how the district has been paying for the building.

Duggan Harman, the district's executive director of finance, delivered one during a presentation Monday at a Seattle School Board committee meeting.

In addition to detailing how payments have been made so far, Harman outlined potential options for repaying the debt, which is set up to require increasingly larger payments each year. While the board ultimately will decide what to do, Harman's report gave a preview of how bad the debt's impact will be on schools across the city.

He presented four main options for repayment; board members said a combination will be necessary.

• The district could make payments directly out of its general operating budget. This is seen as the least desirable option because the fund already has been battered by three years of state budget cuts.

• Voters could be asked to finance the debt in a future levy. This option is viewed as unlikely because voters probably would be reluctant to support it.

• Board members could transfer up to $18 million from funds already earmarked for maintenance and construction projects. This one is problematic because the district's maintenance calendar already is backlogged and capital money soon will be needed to reopen shuttered schools in response to an unexpected enrollment surge.

• Finally, the district could find another source that would generate a significant amount of revenue. But what that source might be is unclear.

"There are going to be some hard deliberations for the board to figure out which direction to head in," board President Michael DeBell said. "We have to solve this problem once and for all."

Story has changed

The options now before the board differ greatly from ones put forward by former superintendents John Stanford and Joseph Olchefske in the late 1990s, when they proposed a centralized headquarters.

Located just south of Safeco Field, the building was an unused postal-sorting facility that the district rebuilt into a combination of administrative offices, warehouse, kitchen, auto-repair shops and employee training center.

Olchefske repeatedly promised the district actually would make money off the move to a new headquarters by selling four administrative buildings and consolidating operations.

Opponents, who labeled the proposed building a "glass palace," said the plan was too vague to warrant the center's high price tag. Longtime activist Chris Jackins called it "the school district's Enron." But district financial analysts insisted the savings would be achieved.

Today — one decade, two recessions, three superintendents and many budgetary quirks later — the district's new financial analysts agree some minor savings indeed have occurred because of consolidation. But they say they have no way to know where, when or how much. And it doesn't really matter because the money all has been spent on other items in the budget, Harman said.

The lack of savings is one of the main reasons the district is in the position it's in, officials said.

Another major reason is that the district never set up a fund specifically to repay the debt on the John Stanford Center. Instead, the debt was paid via a hodgepodge of different parts of the budget, officials said.

"The staff was making the process up as they went," DeBell said.

In fact, it took analysts weeks to comb through documents to find out exactly where the approximately $42 million the district has spent came from. The result of their work was the report presented Monday.

According to the report, there were two distinct time periods of payments:

Between 2002 and 2005, the district paid the debt off primarily through revenue from selling administrative buildings and other sites, in addition to $4 million in transfers from the general operating budget — money that came at the expense of core district programs.

Since 2006, the debt has been paid through transfers from a pot called the capital eligible projects fund. That fund is based off of revenue from the sale of unused buildings and income from properties that the district leases to outside groups.

Its use for the John Stanford Center took away funds for other construction priorities.

And, with no more sales planned and with payments on the debt set to rise every year, that fund will not be a viable source after next year.

No immediate worry

Despite the grim set of choices now before the board, the district is not in danger of defaulting on the remaining $45.6 million in debt on the building, Chief Financial Officer Robert Boesche said at the meeting.

Board members also expressed relief at now knowing the full scope of the problem.

"This has been an item that has been a very, very long time coming," said Finance Committee chairwoman Sherry Carr, adding that she has lost sleep thinking about how the district was paying for the building.

Now that she and other board members have a grasp of the situation, they will have to figure out what to do about it. A plan to sell two assets — the gym of the old Queen Anne High School and the rest of the old Fauntleroy School — would net enough to fund debt payments until 2018, so the hard decisions appear to be in line for afterward.

Board members pledged to study Harman's presentation and consider the options at the board's next meeting.

"The first step to solving a problem is figuring out what it actually looks like," DeBell said. "We have this debt and we have a building, and we have to make the best of it."

Brian M. Rosenthal: 206-464-3195

or brosenthal@seattletimes.com

On Twitter: @brianmrosenthal

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