Dr. Grossi's Memo on District 65's Dire Financial Condition

He suggests considering a pause on the Foster School and D65 was or is considering a referendum

On October 15, 2024 I wrote about a Special District 65 Board Meeting, where the board had a lengthy discussion about whether to pause construction on the Foster School. In this meeting, there were conversations with District 65 financial consultant, Dr. Grossi and Cordogan-Clark (the architects).

In this meeting two memos were discussed. I FOIA’ed copies of these memos and they are available below;

• Dr. Grossi’s Memo dated September 12, 2024

• Cordogan Clark Memo dated September 28, 2024

Dr. Grossi’s memo should not be a surprise to anyone who has been following his public statements, and in fact, most of the memo contains statements that he has already read in public;

As the District’s financial advisor, I cannot stress enough the magnitude of the financial and academic crisis this District will be facing if it doesn’t immediately take action to truly balance the budget. I have been appointed twice by the Illinois State Board of Education in my career to oversee school districts that have been taken over by the State due to fiscal insolvency. Unless decisions are made that are both bold and immediate, it my assessment the District is headed in that direction.

However, he makes some statements regarding the Foster School that were not part of existing public commentary. In his memo, he suggests the option of pausing the Foster School and confirms that “misinformation”¹ regarding the financing and the financial health has led to the budget crisis;

Due to the urgency of this decision, my first alternative for the Board of Education to consider in the solution package is to pause on the construction of the Foster School until the financial condition of the District is stabilized. Misinformation that understated the financial impact of the project led to the pivot to a smaller building and now I believe that misinformation that overstated the District’s financial health makes it now prudent to pause on the project. The District does not have the financial resources necessary at this time to continue with the construction of this building.

In response to this memo, in the October 15th meeting, the Board took a unified position that pausing the Foster School was not an option. The consequences, Dr. Grossi describes in the memo;

Once built, the District will lose approximately $6 million more of fund balance reserves due to project costs exceeding proceeds from the borrowing. The District will also be forced to commit in excess of $3.2 million annually in district-wide evidenced-based funding dollars through 2041 to make debt payments.

He’s referring to the $3.25 million lease certificate payments, plus the additional $6 million needed to pay for non-construction costs related to the the Foster School.

Cordogan-Clark Memo and a Referendum?

Not referenced in the Grossi memo but referenced in the Cordogan-Clark memo is the suggestion that District 65 is or was considering a referendum in April 2025 for the Foster School project.² The plan appears to be that they were considering a pause, in order to hold a referendum on the project in next year’s municipal elections.

The memo begins;

As requested, we have prepared a list of project impacts should the Board of Education decide to pause the Foster School project at the end of October 2024 and pursue a Referendum in April 2025 for a restart of the project in May of 2025

The rest of the memo is bit more technical and describes the consequences of pausing or cancelling the Foster School project, which may be quite significant, including;

• Additional costs of $3-4 million due to construction cost escalation.

• Significant timeline delays, pushing the school opening to Fall 2027 at the earliest, with the project restarting in May 2025 after a potential successful referendum.

• Administrative and regulatory challenges, including the need for permitting extensions, potential concerns from the City Council, and additional Right of Way Permits with possible penalties.

There are also discussions of opportunity cost, which you can read in the memo but I omit that here.

District Comment

The District provided a comment in the FOIA reply. I strongly disagree with their exemption claims, however I appreciate them providing these records. ³

Enclosed are the two predecisional memos you requested. These records were prepared by District consultants to provide internal advice and opinions directly to the Board. Therefore, these records are predecisional records exempt from disclosure under Section 7(1)(f) of the FOIA and the District had the legal discretion to not provide them in thisinstance. 5 ILCS 140/7(1)(f). While they were mentioned at a Board meeting, they were not publicly cited and identified by the head of the public body, as that term is defined in the FOIA. As such, the District never waived the 7(1)(f) exemption as it applies to these memos. The District, however, in this unique circumstance and in the interest of transparency is providing the memos.

They go on, to discuss the memos themselves and provide some context;

The District, however, does wish to provide some context to the financial advisor’s predecisional memo. In the paragraph discussing the deficit reduction plan, based on the tentative budget available, the deficit budget plan was required. The final approved budget did not require the submission of the deficit reduction plan, but the District prepared and submitted one anyway. Also, in the predecisional memo, the financial advisor states that the “District does not have the financial resources necessary at this time to continue with the construction of this building.” As the memo later provides, that sentence should include the context that it will not have the resources only if it does not make significant cuts to the District’s budget. Based on the Board’s continuing commitment to the construction of Foster School, administration and the Board are determining those necessary cuts to be further discussed in open session at the Board’s January meeting. The District does have sufficient funds to pay current construction costs and is committed to making the necessary financial cuts to construct Foster School.

It is worth noting in that last sentence that the phrase “current construction costs” is doing a lot of work here. The District is correct in that they have enough for current construction costs. According to public records (Bid Packages 1-2, Bid Packages 3-6), the current costs look something like this:

They have about $40 million in lease certificate funds, which they can use for construction costs. So sure, they have enough for current costs. But it’s not clear to me how much it will cost after this phase or how many more bid phases there are. If you are an expert on this (and I know I have a few readers who are), please comment on what % of costs on a project like this should go towards site prep, steel and concrete (Google says around 20-30%).

Regarding contingencies, according to documents from January, the project does have a contingency budget of around $4 million - which they have only tapped into a little on Bid Packages 3-6. It’s hard to get specific numbers, but it does seem like they’ll probably be okay on construction costs. Please comment if you know more.

The big issue remains paying for non-construction costs - the stuff inside the building - this is the additional $6 million expense that Dr. Grossi discussed when he wrote;

Once built, the District will lose approximately $6 million more of fund balance reserves due to project costs exceeding proceeds from the borrowing

It remains unclear to me where those funds will come from, in addition to the existing $13 million annual deficit. According to the District, I guess we’ll find out in three months.

1. “Misinformation” is putting it very kindly, in my opinion.

2. I’ve written this about 100 times before but I’ll say it again - they should have had a referendum for this to begin with, and in fact, it is required by law.

3. I can’t really think of any reason to not share them in the first place - the board is well within their statutory authority to include these in their meeting minutes and to me, the guy staring at their budgets, none of this is even a surprise;