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SDA CONTINUES SPENDING SPREE ON ADMINISTRATIVE OVERHEAD

Agency Fails to Start and Complete Construction of Any New Urban Schools in Four Years 

January 21, 2014

An updated analysis by Education Law Center of financial records since January 2010 shows the New Jersey Schools Development Authority (SDA) has now spent over $148 million on agency staff and administrative expenses over the past four years, representing 18% of the $831 million in SDA expenditures over the same period.

Almost half of the $831 million in SDA spending represents grants to support projects in non-urban districts, or “Regular Operating Districts” (ROD). The NJ Department of Education (NJDOE) reviews and approves ROD grants, and the SDA performs the clerical task of issuing checks to districts for the eligible State share of projects. 

In urban, or “SDA” districts, the SDA directly finances and constructs all school facilities projects, including emergent repairs, capital maintenance, and major new or renovation projects. The SDA has not completed construction of any new schools in SDA districts that were started after Governor Chris Christie took office in January 2010. The SDA did complete several projects where shovels were in the ground before 2010. The SDA is also following up on 70 emergent projects, identified by the SDA districts in 2011, that the NJDOE was required to turn over to the SDA for remediation under a 2013 court order.

Students in the most dilapidated buildings, such as Trenton Central and Camden High Schools and in Newark’s Ironbound section, have been forced to endure unsafe, unhealthy and overcrowded building conditions, even though the SDA is well aware of the dire need and directly responsible for remediating these conditions.

“For four years, the SDA has spent tens of millions on executive pay, lawyers, office space, and public relations with almost nothing to show for it,” said David Sciarra, ELC Executive Director. “Even more tragic is the situation of thousands of school children consigned to deplorable buildings the Christie Administration has failed to repair or replace.”

This past year, the SDA, under CEO Marc Larkins, changed its accounting method to obscure its high level of overhead spending. For the first eleven months of 2013, ELC’s calculations show that the SDA’s total administrative and general expenses, including all employee salaries and benefits, come to $30.9 million, or 20% of the agency’s $155.7 million expenditures for that same period. For accounting purposes in 2013, SDA reallocated a portion of its salary and benefit costs from operating expenses to school facility project costs. By charging $12.7 million of its own staff's time to individual projects, SDA's financial statements show staff and administrative expenses of only 10% of its total expenditures for the first eleven months of 2013. However, when the $12.7 million in SDA overhead is added back to the agency's administrative expenses, those expenses jump to $30.9 million.

"While SDA staff and administrative costs should be included when calculating the full cost of school facility projects, lawmakers and taxpayers need to understand the true cost of running the agency as a whole, so that its effectiveness can be evaluated," said Mary Filardo, Executive Director of the Washington, D.C.-based 21st Century School Fund. "Communities will never adequately support the level of public infrastructure spending needed unless public school construction agencies come clean on their true costs and ensure good value for capital funds borrowed. Moving SDA costs into the individual project cost worksheet, which drives up the soft costs of each individual project, just moves the same problem around.”

Ms. Filardo said that “SDA costs for staff and overhead continue to be way out of line with the administrative expenses of well run school construction agencies in other states."

Ms. Filardo is one of the nation's leading experts on the impact of school facilities on student learning and has served as a consultant and advisor to state and district school facilities planning and construction programs.

Despite the enormous need for facilities projects, the SDA currently has $2.9 billion available in unspent bonded financing for SDA districts. While the SDA has just recently broken ground on a handful of projects, there is new evidence that SDA will continue on its present course of undertaking as little work as possible in order not to spend down the available funds.

Evidence of the continuing construction slowdown can be found in the amount of the SDA's Builders Risk insurance policy. Builders Risk insurance is a special type of property insurance that protects the SDA from unexpected losses during construction of a school facilities project. In December 2009, the SDA approved a four-year policy at a cost not to exceed $2.9 million that was based upon an estimated building construction Total Insurance Value (TIV) of $1.9 billion for that period of time. However, at its December 2013 board meeting, SDA's director of risk management and vendor services, Karon L. Simmonds, reported that, as a result of projects that were placed on "extended hold," it became apparent by early 2012 that "the anticipated actual construction TIV was going to fall below the expected $1.9 billion upon which the policy was priced."

According to Simmonds' December 4 report, the aggregate TIV for the four-year policy term was projected to be approximately $382 million, rather than $1.9 billion, representing a whopping 80% drop in estimated building construction for the four-year period from January 2010 through December 2013.

Moreover, Simmonds projected that for the SDA's new three-year policy term, the estimated construction TIV will be $362 million."This construction TIV is based upon SDA's estimated construction costs for projects currently scheduled to enter construction during the three-year policy term commencing on December 31, 2013," wrote Simmonds in her December 4 report. The SDA’s current estimate averages out to $121 million in construction each year, as compared to the $475 million each year that had been projected in December 2009.

“Students in the SDA districts have a right to attend school in buildings that are safe and adequate for teaching and learning,” said Elizabeth Athos, ELC senior attorney. “We call on the Legislature to demand that Charles McKenna, designated by Governor Christie to replace Mr. Larkins as CEO, present a specific schedule to increase the number and pace of construction projects. It is shameful that the SDA continues to spend precious taxpayer dollars keeping the agency running, without addressing the dire facilities needs in urban districts in the most cost effective and timely manner.”

 

Related Stories:

SDA ADMINISTRATIVE OVERHEAD TOPS $110 MILLION SINCE 2010

 

Press Contact:

Sharon Krengel
Policy and Outreach Director
skrengel@edlawcenter.org
973-624-1815, x 24