Feb 10 2014

OPINION: Alan Harvey Theater Upside Down

– Late night ad for loading up on debt – 

I just listened to the portion (from hour 2 to 2:30) of the Piedmont Unified School District January 22, 2014 Board meeting recording where Mr. Gautam Wadhwani, Financial Officer for the Piedmont Arts Center and a Finance professional, gives advice to the Board about which bond option to select for financing the Alan Harvey Theater (AHT) renovation.

The speech reminded me of 2007 late night TV advertisements encouraging homeowners to load up on debt and take second mortgages or interest-only first mortgages with balloon payments.

“I will encourage you to borrow as much as you can in a low interest environment.”
“We should not worry about debt being a bad thing.”
“Educated voters are a minority of the populace.”
“If you agree that we are in a low interest environment, you want to borrow for as long as you can.”
“It is always better to defer taxes.”
“Every dollar that I save in not paying taxes, I can use … to make my wife happy.”
“You want to borrow interest only.”
“It is good economics and good finance for everybody.”

During the Board meeting, Hari Titan made an appeal to modify the text of the June ballot measure to exclude the use of creative financing instruments. I do not know if the Board adopted his suggestions, but I strongly urge it to do so if there is still time. Please join me in doing so.

Am I alone in suspecting that the whole AHT project has been approached upside down? “What is the maximum amount of money the District can borrow? Get that money from the voters. Design a project that spends the money.”  We all know that every education dollar counts! Think what one million three hundred thousand dollars (the additional amount saved downsizing from a $14 to $13 million project – slide 9 KNN Consultants December 11, 2013 Presentation) would do to improve education in Piedmont classrooms?

Bernard Pech, Piedmont Resident

Editors’ Note:  The opinions expressed are those of the author and not necessarily those of the Piedmont Civic Association.  

6 Responses to “OPINION: Alan Harvey Theater Upside Down”

  1. Dear Mr. Pech: In reverse order:

    (1) Your suspicion is directly contrary to fact, as is apparent from Board minutes and discussion. Back in 2012, the Board asked Mark Becker to consider how AHT accessibility issues might be solved cost-effectively, and obtained his advice. The Board then retained an architectural firm, QKA, and asked QKA to try to modernize AHT, resolving accessibility and fire safety issues, for a target cost of $5 million. QKA and its independent cost estimator were not able to do the necessary work at that price, instead estimating the construction costs only at $9.8 million. The Board also had its construction manager, Vila Construction review the cost estimate, and add in soft costs and contingency. The costs are discussed further at http://www.piedmont.k12.ca.us/news/alan-harvey-theater, which you may wish to read. Neither the Board nor the Disrict set the AHT cost at the maximum amount the District could borrow if voters approved.

    (2) Your recitation of Mr. Wadhwani’s points is quite incomplete and thus misleading. But more to the point, you fail to point out that the Board directed the District to plan, if voters approve the measure, for issuance of bonds with a short 13-year repayment period, thus keeping total repayment low in comparison to the 25-year repayment period favored by Mr. Titan in an earlier meeting or in comparison to Capital Appreciation Bonds. The Board’s first preference was “hybrid” 13-year bonds that would pay interest only for 6 years and then, when other outstanding bonds are paid off, increase the tax rate for the final 7 years until paid off. The Board’s second preference was 13-year Current Interest Bonds, which would have roughly the same tax rate throughout the 13 years. The net present value cost of either option is estimated to be roughly the same, and the hybrid option reduces the cash flow burden on households. As the Board noted, a final decision on bond structure will be made based on market interest rates at the time of issuance–while no one is predicting a significant change in rates among the options, it would be foolish to commit to an option that might be much more expensive if rates change).

    (3) You suggest cutting the cost of the AHT project from $14 million to $13 million would allow more money to be spent on “education in Piedmont classrooms.” The Board already reduced the requested bond amount to $13.5 million, reflecting the $500,000 received in private donations. Further, as the Board and Superintendent have explained, State modernization funds and Prop. 39 bond funds must be spent on capital projects, and cannot be spent on educational programs.

    If you have questions about the AHT project, I encourage you to review the District website and/or contact the District to learn the facts.

    Rick Raushenbush, School Board President

  2. I believe the Board has declined to use the more “creative” financing vehicles. A fundamental question remains: Can AHT be made comfortable and significantly upgraded by needed cosmetic upgrades, new HVAC systems and the required 20% of budget allocated to ADA prioritized requirements; or is a complete redo with the addition of a new classroom the best use of what will amount to about double the initial $14M cost once the bonds are paid off?

  3. Assuming interest rates remain as estimated by KNN at the January 22, 2014 meeting, total repayment would be $19.55M over 13 years, which is not double $13.5M.

    Please explain your reference to “the required 20% of budget allocated to ADA prioritized requirements”? You seem to suggest that simply spending 20% of a budget on ADA accessibility constitutes compliance with the ADA. Not to my knowledge. The ADA requires that disabled individuals have the same access to school programs. If a disabled person wants to participate in theater programs, the ADA requires access where the theater program is held. The “equal access” requirement is separate from, and in addition to, the more general requirement to remove barriers in existing buildings. While the District could replace seats and HVAC at less cost, it would not meet ADA accessibility requirements, and could be wasted if AHT were required to close for lack of accessibility.

    BTW, the new classroom is very cost effective for two reasons. First, the building addition houses the hallways and elevator that provide ADA accessibility to the AHT seating levels, stage, and orchestra pit. To obtain that accessibility, you have to construct the addition. Making it slightly narrower to eliminate the classroom would not save much. Second, having classes held in a classroom, rather than using the main stage and seats every school day, almost all day, will mean that the main stage and seats will last a lot longer before wear and tear require refurbishment.

  4. Bad math on my part, the project will only cost taxpayers 45% more than the face amount. Perhaps the nearly $20M estimated total cost can be included in the ballot argument?

    By ADA Title III Regulations, Subpart D and specifically to Section 36.403 (f) and (g) there is a 20% cost limit on the amount that can be expended on “path of travel” alterations. ADA is complex. My understanding is the alterations are on a priority basis. Once the 20% is satisfied, one need not go further unless the primary function of the existing building has changed. AHT is now primarily a theatre but a new “multi-use venue complete with additional classroom is proposed” and now all ADA requirements must be met. I believe even an extensive re-do of the existing building without the classroom addition, including redoing electrical and the needed HVAC, would not require the extensive ADA requirements now stated as mandatory by the Board.

    There is now a stated mandatory seismic upgrade to AHT. Is this contradictory to the seismic consulting group which had found AHT was not in need of seismic upgrades?

    Finally, the actual Ballot Measure asserts that “under the ADA, wheelchair spaces in the 400 seat theater must be dispersed throughout the theater to provide accessibility to seating, and there must be an accessible path of travel to such seating.” I question this. There is detailed discussion of this at Appendix A to Part D of the Code and the theater lobby has been disputing and litigating this for years. (see U.S. v. Cinemark USA, Inc. 6th Cir., 2003) The Department rule does not apply retroactively to existing theaters and the definition of theater is seemingly 300 or more. If the District simply replaced seats and wanted to have spaces for wheelchair audience members with comparable sightlines, are there places now that could accommodate that without the additional classroom?

  5. It would be invaluable in this discussion to get an objective cost estimate as to just what the ADA upgrades alone would cost. Mr. Raushenbush’s claims seem partisan. He would have us believe that to do desirable and necessary upgrades, here and there, in a large existing building, that we might as well tear the place down and replace it with a state of the art performance center. My suspicions are that less than $2 million would do the ADA upgrades and other normal maintenance such as carpets, lights, etc. Without such knowledge, it is difficult to make an informed decision.

  6. Hi Rick: I appreciate your efforts to understand the law. However, the ADA Title III regulations that you cite apply to private entities, as you will see if you review the Definition and Applicability sections. The Department of Justice also makes that clear in its preamble to the Title III regulations. For the same reason, the cases about private theaters are not applicable to schools.

    Public schools are subject to the ADA Title II regulations. If you read the Title II regulations, including Subpart D, you will notice the requirement of program accessibility. Please read the regulations –you will notice some of the same limits on “disproportionate” expense to fix existing buildings, but you will see that the requirement that the program be accessible does not change. In other words, you can avoid fixing an existing building by (a) providing the same program in another accessible location or (b) by eliminating the program. PHS does not have an alternative, ADA-accessible theater. You can find some further interpretation of the ADA Title II regulations from the Department of Justice at http://www.ada.gov/taman2.html#II-5.1000.

    Dear Mr. Henn: I appreciate your “suspicion” that the necessary work can be completed for $2 million. However, the District has consulted with a building designer, two architects, an independent cost estimator, and its independent construction manager to (a) identify a design that corrects deficiencies and adds one classroom in a building that must be built to provide ADA-accessibility in any event, and (b) to estimate construction costs, soft costs and appropriate contingencies. We have to make our decisions based on the available facts, not our wish that the cost would be less.

    Rick Raushenbush

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