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State audit finds some faults with BEST

A new state audit of the Building Excellent Schools Today construction program has a clear message to the people who run the program – “you need to tighten up your procedures.”

The performance audit, released by the Legislative Audit Committee Tuesday morning, made seven recommendations, all of which the Department of Education agreed to and is implementing.

The audit’s overall conclusion was that the Capital Construction Assistance Board “has awarded over $1 billion in state and local funds as part of the program without identifying critical public school capital construction needs and prioritizing those needs throughout the state.”

Created in 2008, the BEST program combines revenues from state school lands with local matching funds to fund construction of new schools and major renovations. The program also pays for smaller projects like new roofs with direct cash grants. Projects involving health and safety receive top priority.

The BEST program was launched with a $13 million engineering review of all school buildings in the state to determine and then rank the structural soundness and renovation needs of the state’s schools. (The audit also noted that needs assessment probably is out of date and should be updated.)

The thrust of the auditors’ recommendations seems to be that the Division of Capital Construction Assistance and the nine-member board that decides on grants should pay more attention to that building needs assessment as it makes its awards.

The program should “identify and prioritize critical school capital construction needs … and use the results as a basis for providing grants to school districts,” the auditors wrote.

Outside observers (and some board members) feel the audit doesn’t fully understand how the program works or the intricacies of the BEST law.

“It’s a complicated program,” said Matt Samuelson, director of special projects for the Donnell-Kay Foundation. Samuelson was involved in the research that led to passage of the BEST law and has followed the program closely since its launch. “It’s not as simple as having a [buildings] assessment and saying, ‘We’ll go down the list until we run out of money,’” he said.

“The other thing that seems to have eluded the auditors,” Samuelson said, is the fact that BEST is a competitive program. The state does not pick projects from a list to fund. Rather, the BEST board chooses among applications submitted by school districts, boards of cooperative education services and charter schools.

Applicants are “self-selecting and self-identified,” Samuelson said.

When it considers applications, the BEST board uses a variety of factors beyond building condition, including suitability for educational uses, its own construction guidelines, the quality and suitability of an applicant’s proposal and an applicant’s ability to provide matching money from local funds. (The BEST law requires matching, although that can be waived for particularly needy districts. The program also uses a complicated formula to calculate a district’s expected match.)

In addition to recommending greater reliance on the building needs assessment, the auditors also suggested:

  • Improvement of grant decision-making by use of a standard scoring tool to evaluate applications.
  • Clarification of requirements for matching funds. (The audit acknowledged this might require law changes by the legislature.)
  • Strengthening the board’s conflict-of-interest rules. The audit cited a possible conflict-of-interest violation by two unnamed board members in 2009. Conflict of interest is a tricky issue because the board is not a lay body. The BEST law requires board members to have specific professional backgrounds, such as being a superintendent, an architect, a construction manager and other experience.
  • Better oversight of projects by the division after grants are awarded. The auditors spot-checked five projects and found $1.7 million in “questionable” expenditures, such as on laptops.

The construction division is part of the Department of Education. In writing and in responses to the Legislative Audit Committee on Tuesday department officials said they agreed with the recommendations and would implement them, most of them by the end of this year. (State agency officials almost always agree with audit recommendations.)

“We take very seriously the recommendations that have been made by the audit staff,” said Leanne Emm, director of school finance.

Audit committee members urged BEST officials to work hard on the recommendations. “The audit speaks for itself, and a lot of work needs to be done,” said Rep. Angela Williams, D-Denver and chair of the panel.

Larger BEST projects are funded with a form of lease-purchase agreement called certificates of participation. Annual program revenues and local matches (usually provided through voter-approved bonds) are used to pay off those certificates over several years.

Discussion of changes in the BEST program is somewhat academic, in that state law caps annual payments on the certificates at $40 million a year. The program has basically reached that ceiling, meaning the large projects can’t be funded until earlier projects are paid off, or unless the legislative provides more revenue to BEST and raises the ceiling.

The program has provided about $1.1 million in grants since 2009 to fund 211 school projects, alongside $739 million in state funds and $330 million in local matches.

That’s a relatively small amount, given that state school renovation and replacement needs are estimated at anywhere from $13 to $18 billion.

Reflecting on the program, Samuelson said, “I think they’ve done a really good job,” adding, “It’s very difficult to make these hard decisions. … Every project is a needy project, but they only have limited funds.”

Concerning the audit, he said, “I think it will help the division, and it will help the board improve its process. There are a lot of good things that come out of the audit.”

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