CCUSD mopping up everything but its IRS violations

By Linda Bentley | March 10, 2010

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falcon field press boxThe Falcon Field Press Box, built in March 2008 by baseball parents Jay Sabanosh and Jim Manship, who donated all the materials and labor for the $3,000 project, has recently been torn down. Sources say Associate Superintendent Kent Frison ordered the structure removed, claiming it was built without permits.
Photo by Pete Mohr

Nearly six months later, district still hasn’t resolved bond problem

CCUSD – Back in September 2009, Sonoran News reported Cave Creek Unified School District taxpayers were repaying $15 million in bonds approved by voters in 2000 for the purpose of building a new high school. The CCUSD Governing Board voted to issue the bonds in September 2006, only because they would have expired and they had little hope voters would approve another bond measure anytime soon.

Taxpayers have been paying over $50,000 per month in interest alone on those bonds.
However, when tax-free bonds are issued, the IRS looks at whether the issuer “reasonably expects” to satisfy three tests: the expenditure test, the time test and the due diligence test as per 26 C.F.R. § 1.148-2(e)(2).

The expenditure test requires the issuer to spend “at least 85 percent” of the bond proceeds on “capital projects” within three years.

The time test requires that the issuer of bonds incur “within 6 months of the issue date a substantial binding obligation” to spend “at least 5 percent” of the bond proceeds on “capital projects.”

And last, the due diligence test requires that “completion of the capital projects and the allocation of the funds … to expenditures proceed with due diligence.”

As we reported in September, IRS regulations consider whether the issuer reasonably expected to satisfy the three tests “as of the issue date,” not whether it satisfied those requirements later.

The district has still not addressed the issue and continues to avoid discussing what its plans are to rectify its noncompliance.

It’s now been three and a half years and there is still no plan to build a new high school, although in an article by Katrina Poulos in the February 11, 2010 edition of “theCSPress,” the high school’s newspaper, Cactus Shadows High School Principal Steve Bebee says development will be underway this summer for an 83,000 square-foot expansion to the high school.

According to Bebee, the plan calls for, a dance room, a 250-seat mini auditorium, a bookstore and new administrative offices.

He also hopes to be able to expand the existing cafeteria and make it more “hip” by adding big screen TVs.

Poulos stated, “With a $12 million spending limit, funding for the new building is being pulled from the school’s ‘new building’ fund.”

She goes on to say, “The $12 million is being pulled from a bond originally intended for an entirely new campus. With not nearly enough money to even begin a new school, the money was transferred to the fund for the new building.”

Although former Senator Jim Waring drafted legislation specifically for CCUSD to use the bond proceeds from the 2000 bond program that were issued in 2006 for the purpose of building a new high school, to expand the existing high school instead, the legislature has no legal authority to usurp the will of the voters to appropriate bond proceeds for other purposes. If it did, it would have been able to balance the budget by now.

Last year the governing board approved the district’s application for federal stimulus funds under the American Recovery and Reinvestment Act, which would allow the district to shift part of its bonding to the federal government.

However, in order to do so the district must agree to comply with federal labor standards, which means paying higher wages for construction and making the projects more costly for taxpayers.

Also, rather than paying interest to investors on the money borrowed, the federal program is offering tax credits instead, making the bonds less marketable.

According to Gary Breuer, the district’s liaison at the school facilities board (SFB), although the district is approved for approximately $12 million in state funding toward building a new high school or expanding CSHS, there is currently no money available.

He also said it didn’t matter if the district was closing another school, since it is not a high school it is closing, and, therefore, it would still qualify for SFB funds, if funds become available.

So, according to Bruer, the 83,000 CSHS expansion is just part of a wish list right now and there are no funds to build this summer.

Apparently the expansion project will necessitate both SFB and bond funding, since it appears unlikely an 83,000 square-foot high school addition can be built for $144 per square foot.

However, the bonds cannot be used for expanding a school and may only be used to build a new high school, as per the voter-approved ballot measure’s language.

In the interim, sources, who asked not to be identified, said Associate Superintendent of Finance Kent Frison has been busy tidying up the district’s compliance with things apparently more important than IRS regulations and not only shoed the Hot Dog Guy away from operating on district-owned (taxpayer-owned) property, he also ordered the Falcon Field Press Box to be torn down, citing it was built without permits.

The press box was built in March 2008 as a donation to the district by baseball parents Jay Sabanosh and Jim Manship, who provided the materials and labor for the project at a cost of approximately $3,000.

While the project may not have been permitted, it was constructed by local contractors that could most likely have obtained an after-the-fact permit for an as-built design, if compliance is what Frison was seeking.

Neither Sabanosh nor Manship could be reached for comment by press time.