Did the District 65 School Board Breach their Fiduciary Duties?
Can you buy a time machine for $38,315,000?
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Those Who Excel Awards
The finance team was, “nominated for its relentless pursuit of a lease certificate process that would fund the new school being built in Evanston’s Fifth Ward.” You can read the letters below:
Nomination letter from former HR Director Khelghati dated 12/7/2022. Mr Khelghati resigned from District 65 over the summer to be Superintendent in Oswego.
Nomination letter from Sarita Smith. Ms. Smith runs the Student Assignment Plan and associated committees.
I will focus on the nomination letter from Mr. Hernandez, although you can read the ones from Horton and Khelghati too - they all repeat the same talking points.
The letter from Mr. Hernandez is notable, unlike the Administrative staff, Mr. Hernandez is a fiduciary to District 65 and is required, by law, to attend fiduciary training.3 As a fiduciary, he is obligated to act in the best interests of the district, especially with respect to financial decisions. He is also the current Board President.
Lies in the Letters
Mr. Hernandez writes in his undated letter, which I believe to be from November or December 2022,
No longer would children have to be bused to further away schools and the historic busing of Black and Brown children to predominately white schools since the 60s would end. This would create a savings of approximately $5 million a year in transportation costs.
All three letters repeat the same talking point, that it would save the District $5 million a year annually to build a new school. This claim is absurd, prior to 2022 the District had never spent that much on all transportation for the entire district!
This is obviously made up non-sense.
Again, the number the District said publicly in 2022 is $3.0 million. In August of 2021, Dr. Horton claimed in an email to parents that the savings were $2.3 million.5 Now in 2023, it is evident they have no idea what the real number is - perhaps because they just made up the old ones and are now backed in a corner. My analysis of bussing data suggests the number to be around $2.0 million dollars.
The problem? $2.0 million in savings only gets you a $30 million lease certificate and they needed more to meet the promises they made, like the Bessie Rhodes school-inside-a-school thing.6
Mr. Hernandez goes on,
Many efforts to build a neighborhood school in the Fifth Ward have failed. Most recently, voters defeated a building bond referendum in 2012 and an operating rate increase in 2017. History was made in April 2022 when the Board of Education voted 7-0 to approved building the Fifth Ward School under the team’s finance plan.
Surely a Board Member and fiduciary should know that the referendum in 2017 passed by an extraordinary 60% margin. Mr. Khelghati’s letter repeats the same lie.
The letters tell a story that goes something like this;
The District assembled a committee of citizens and a Student Assignment Planning (SAP) team of citizens in favor of the new school.
They recommended a K-8 school and the cost would be around $40m.
The Board and Admin knew or strongly believed a referendum would fail and asked the finance team to do something “creative”, “unique” and “herculean”
The CFO came back with “miraculous” savings numbers such that they could take out a $38,315,000 lease certificate.
Wall Street was happy to oblige such a large certificate. The District will pay $58.5 million over the course of the certificate. 7
The Board and ISBE gave the finance team an award to thank them for this.
To date, nobody has justified any of these “miraculous” savings numbers but they are there, right on the $38,315,000 lease certificate.
Anti-Democratic Breach of Fiduciary Duties
I gasped when I read these letters, because I believe, this demonstrates that Mr. Hernandez and the Board breached their fiduciary responsibilities.
Consider the two cases below:
The Board meets (in public) and says “we want to build a new school and here are all the different options we’ve considered: referendums, bonds, lease certificates. We’ve decided to use a lease certificate because it is the most cost effective strategy with respect to time and long-term rates for the District”
The Board meets (in private) and says something like “we want to build a new school but we do not want a referendum because know it will fail. Therefore, we will do whatever it takes to avoid a referendum and we instruct the finance team to do something miraculous”
Option #1 is the correct fiduciary action. Option #2 is what I believe the evidence suggests happened.
This whole thing is so anti-democratic - the law literally calls for a referendum when you build a new school. The board and administration went out of their way to specifically deny the voters that right. I believe democratic principles are a key platform of the modern progressive movement, but I guess the ISBE and District 65 Board disagrees.
If you read my story on the other Districts that used lease certificates, it tells a story about legitimate uses of this financial instrument. Suppose you have a school that is old and a hazard and can’t wait 18 months for the next referendum. Or suppose you’ve had a sudden change in population and need a new building immediately. The fact you can move quickly versus a referendum is what makes this a useful tool.
But that’s not what happened here: the reality is that the Administration and the Board couldn’t wait 18 months
for a referendum to pad their resumes. They needed to, as Dr. Horton put it, “Not let a good crisis go to waste” and seize the moment. And for this, the ISBE gave them an award and then almost everyone involved bounced for better jobs: Dr. Horton, Mr. Obafemi, Mr. Khelghati, and former Board President Tanyavutti.
Meanwhile, it’s clear they took the money with no idea what to do except to give each other awards in an empty field.
This is not the subject of the post today, however it is fun to read the nomination letter for the DEIB team, written by a consultant and facilitator paid by the DEIB team. I wonder if the time to write that letter was considered billable hours?
I would like to note that I have nothing against administrative employees of the finance team, particularly Business Manager Zalewski who appears to have the hardest job in Illinois right now.
“Every voting member of a school board … the first year of his or her first term, shall complete a minimum of 4 hours of professional development leadership training covering topics in education and labor law, financial oversight and accountability, fiduciary responsibilities of a school board member, and, beginning with the 2023-2024 school year, trauma-informed practices for students and staff.”
It should be noted that in 2022, the D65 Board had three members who do professional “equity work” either as facilitators or staff - Mr. Hernandez, Ms. Lindsay-Ryan and Ms. Tanyavutti.
“The district could use the potential savings in transportation costs along with operating savings to pay back approximately $2.3 million annually in lease payments over the 20 years life of the lease certificate. This figure is based on the assumption that a new school total cost is approximately $36M." - Dr. Horton August 2021 Email to Parents
Including the following promise in Mr. Khelghati’s letter “In addition, the Bessie Rhodes School of Global Studies would move to the Fifth Ward building as a “magnet school within a school.”" - A promise they’ve already started backing out on.
This is an enormous lease certificate. The second largest one in the state of IL (that I am aware of) is only about $26m