Issue | Background | Findings | Conclusions | Recommendations | Responses | Attachments Summary of Fiscal

Any or all documents relating to the San Mateo Union High School District’s $25,000 payment to Strategic School Solutions.

Any or all documents relating to the District’s $63,000 payment to Cooperman and Associates.

Any and all documents relating to borrowing agreements entered into while the third Certificate of Participation, aka “COP3,” was being funded.

A copy of Cooperman and Associates’ contract with the San Mateo Union High School District, and any other contract between principals of Cooperman and Associates and the San Mateo Union High School District, in any form, and any documents relating to such contracts. Although the Grand Jury received many documents, those were mostly correspondence and some projected debt service schedules. No formal written agreements involving COP#3 were delivered. When asked about the $25,000 payment to Strategic Schools Solutions (Exhibit 3 above), District officials did not know what services Strategic School Solutions provided to the District. Lack of Revenue Stream to Pay COP#3 Subpoenaed documents produced to the Grand Jury included debt service schedules at various rates. Below, re-created as Exhibit 4, is a projected debt service schedule at 4.25% interest, which is offered as an example of such a schedule. The schedule does not identify the source of the revenue that would pay the COP. This would seem to be an important comparison for individuals trying to determine if debt repayment is feasible. None of the documents the Grand Jury received from individuals outside the District indicated how the COP would be paid. Exhibit 4 San Mateo Union High School District Gross Debt Service Schedule and Calculation of Total Annual Payments Variable Rate Lease Revenue Bonds, Series 2006 (20 Year Term) Annual Ending Fiscal Remaining Principal Debt Capitalized LOC Remarketing Trustee Annual Principal Year Principal Payment Rate 1 Interest Service Interest Fees Fees Fees Payments Balance 9/1/06 15,000,000 15,000,000 6/1/07 15,000,000 4.25% 478,125.00 478,125.00 (478,125.00) 85,000.00 0.00 1,300.00 86,300.00 15,000,000 6/1/08 15,000,000 455,000 4.25% 637,500.00 1,092,500.00 (346,875.00) 85,000.00 0.00 1,300.00 831,925.00 14,545,000 6/1/09 14,545,000 475,000 4.25% 618,162.50 1,093,162.50 85,000.00 0.00 1,300.00 1,179,462.50 14,070,000 6/1/10 14,070,000 510,000 4.25% 597,975.00 1,107,975.00 67,800.00 0.00 1,300.00 1,177,075.00 13,560,000 6/1/11 13,560,000 535,000 4.25% 576,300.00 1,111,300.00 65,125.00 0.00 1,300.00 1,177,725.00 13,025,000 6/1/12 13,025,000 560,000 4.25% 553,562.50 1,113,562.50 62,325.00 0.00 1,300.00 1,177,187.50 12,465,000 6/1/13 12,465,000 590,000 4.25% 529,762.50 1,119,762.50 59,375.00 0.00 1,300.00 1,180,437.50 11,875,000 6/1/14 11,875,000 615,000 4.25% 504,687.50 1,119,687.50 56,300.00 0.00 1,300.00 1,177,287.50 11,260,000 6/1/15 11,260,000 645,000 4.25% 478,550.00 1,123,550.00 53,075.00 0.00 1,300.00 1,177,925.00 10,615,000 6/1/16 10,615,000 675,000 4.25% 451,137.50 1,126,137.50 49,700.00 0.00 1,300.00 1,177,137.50 9,940,000 6/1/17 9,940,000 710,000 4.25% 422,450.00 1,132,450.00 46,150.00 0.00 1,300.00 1,179,900.00 9,230,000 6/1/18 9,230,000 740,000 4.25% 392,275.00 1,132,275.00 42,450.00 0.00 1,300.00 1,176,025.00 8,490,000 6/1/19 8,490,000 775,000 4.25% 360,825.00 1,135,825.00 38,575.00 0.00 1,300.00 1,175,700.00 7,715,000 6/1/20 7,715,000 815,000 4.25% 327,887.50 1,142,887.50 34,500.00 0.00 1,300.00 1,178,687.50 6,900,000 6/1/21 6,900,000 855,000 4.25% 293,250.00 1,148,250.00 30,225.00 0.00 1,300.00 1,179,775.00 6,045,000 6/1/22 6,045,000 895,000 4.25% 256,912.50 1,151,912.50 25,750.00 0.00 1,300.00 1,178,962.50 5,150,000 6/1/23 5,150,000 935,000 4.25% 218,875.00 1,153,875.00 21,075.00 0.00 1,300.00 1,176,250.00 4,215,000 6/1/24 4,215,000 980,000 4.25% 179,137.50 1,159,137.50 16,175.00 0.00 1,300.00 1,176,612.50 3,235,000 6/1/25 3,235,000 1,030,000 4.25% 137,487.50 1,167,487.50 11,025.00 0.00 1,300.00 1,179,812.50 2,205,000 6/1/26 2,205,000 1,075,000 4.25% 93,712.50 1,168,712.50 5,650.00 0.00 1,300.00 1,175,662.50 1,130,000 6/1/27 1,130,000 1,130,000 4.25% 48,025.00 1,178,025.00 1,300.00 1,179,325.00 Totals 15,000,000 8,156,600.00 23,156,600.00 (825,000.00) 940,275.00 0.00 27,300.00 23,299,175.00 195,670,000 It should be noted that in the above example the annual payment starting in 2009 is almost $1.2 million per year. The other two debt service schedules received by the Grand Jury, one for a 4.75% interest rate and another for a 5.25% interest rate, show correspondingly greater annual payments (Note: the actual interest rate fluctuates weekly). Documents obtained from the District indicate that the developer fees, the source of payment, are currently projected to be only $475,000 per year for the life of the COP. The General Fund is the only other source of revenue to pay the annual shortfall. A document regarding the financing of COP#3 was presented by the District’s current CBO at the February 8, 2007 Board of Trustees meeting. It is re-created below as Exhibit

This worksheet shows $475,000 developer fee payments, principal payments totaling $15,000,000 through 2035 and shortfall of payments to be paid from the General Fund from 2008 through 2027. Although the Grand Jury requested additional information, no other document created at the time of COP#3 funding that models debt service and revenue streams was produced by the District. Exhibit 5 COP #3 Projected Net Debt Service Compared to Developer Fees (Slide Copied From February 8, 2007 Board Meeting) Net Projected Fiscal Remaining Principal Debt Capitalized LOC Ratings Debt Developer Surplus Year Principal Payment Rate 1 Interest Service Interest Fees Fees Service Fees (Shortfall) 6/30/07 15,000,000 616,250 616,250 (616,250) 75,000 2,200 77,200 475,000 397,800 6/30/08 15,000,000 455,000 4.25% 637,500 1,092,500 75,000 2,200 1,169,700 475,000 (694,700) 6/30/09 14,545,000 475,000 4.25% 618,163 1,093,163 75,000 2,200 1,170,363 475,000 (695,363) 6/30/10 14,070,000 510,000 4.25% 597,975 1,107,975 67,800 2,200 1,177,975 475,000 (702,975) 6/30/11 13,560,000 535,000 4.25% 576,300 1,111,300 65,125 2,200 1,178,625 475,000 (703,625) 6/30/12 13,025,000 560,000 4.25% 553,563 1,113,563 62,325 2,200 1,178,088 475,000 (703,088) 6/30/13 12,465,000 590,000 4.25% 529,763 1,119,763 59,375 2,200 1,181,338 475,000 (706,338) 6/30/14 11,875,000 615,000 4.25% 504,688 1,119,688 56,300 2,200 1,178,188 475,000 (703,188) 6/30/15 11,260,000 645,000 4.25% 478,550 1,123,550 53,075 2,200 1,178,825 475,000 (703,825) 6/30/16 10,615,000 675,000 4.25% 451,138 1,126,138 49,700 2,200 1,178,038 475,000 (703,038) 6/30/17 9,940,000 710,000 4.25% 422,450 1,132,450 46,150 2,200 1,180,800 475,000 (705,800) 6/30/18 9,230,000 740,000 4.25% 392,275 1,132,275 42,450 2,200 1,176,925 475,000 (701,925) 6/30/19 8,490,000 775,000 4.25% 360,825 1,135,825 38,575 2,200 1,176,600 475,000 (701,600) 6/30/20 7,715,000 815,000 4.25% 327,888 1,142,888 34,500 2,200 1,179,588 475,000 (704,588) 6/30/21 6,900,000 855,000 4.25% 293,250 1,148,250 30,225 2,200 1,180,675 475,000 (705,675) 6/30/22 6,045,000 895,000 4.25% 256,913 1,151,913 25,750 2,200 1,179,863 475,000 (704,863) 6/30/23 5,150,000 935,000 4.25% 218,875 1,153,875 21,075 2,200 1,177,150 475,000 (702,150) 6/30/24 4,215,000 980,000 4.25% 179,138 1,159,138 16,175 2,200 1,177,513 475,000 (702,513) 6/30/25 3,235,000 1,030,000 4.25% 137,488 1,167,488 11,025 2,200 1,180,713 475,000 (705,713) 6/30/26 2,205,000 1,075,000 4.25% 93,713 1,168,713 5,650 2,200 1,176,563 475,000 (701,563) 6/30/27 1,130,000 1,130,000 4.25% 48,025 1,178,025 0 2,200 1,180,225 475,000 (705,225) 6/30/28 475,000 475,000 6/30/29 475,000 475,000 6/30/30 475,000 475,000 6/30/31 475,000 475,000 6/30/32 475,000 475,000 6/30/33 475,000 475,000 6/30/34 475,000 475,000 6/30/35 475,000 475,000 Totals 15,000,000 8,294,725 23,294,725 (616,250) 910,275 46,200 23,634,950 13,775,000 (9,859,950) Qualified Reports and COP Certifications According to Sections 42130 and 42131 of the California Education Code, the superintendent of each school district has to submit two financial reports to the governing board of the district each year, one covering the financial and budgetary status of the district for the period ending October 31 and the other for the period ending January 31. These reports must certify whether the district is able to meet its financial obligations for the remainder of the fiscal year and, based on current forecasts, for the subsequent fiscal year. There are three levels of certification, positive, qualified, and negative, that indicate whether the district may, may not, or is unable to meet its financial obligations for this time period. The First Interim Financial Statement for the period July 1, 2005 to October 31, 2005 (representing an interim report for the fiscal year ended June 30, 2006, prepared on November 30, 2005) was presented to the Board of Trustees (Appendices 4 and 5) at its December 8, 2005 meeting. The minutes portray a more favorable financial picture than actually existed. “It was moved by Trustee [Name withheld] and seconded by Trustee [Name withheld] that the Board of Trustees approve the First Interim Report for Fiscal Year 2005-2006 and certify that the San Mateo Union High School District will be able to meet its financial obligations for the current fiscal year and the subsequent two years. The motion carried unanimously.” It should be noted that the First Interim Financial Statement was considered “qualified” certification. A letter dated January 17, 2006 from the San Mateo County Office of Education to the Board’s President stated the following, “The County Superintendent of Schools Office has reviewed the San Mateo Union High 23 School District’s First Interim Report for fiscal year 2005-06 and concurs with the district’s qualified certification.” A “qualified” certification indicates that the District may not be able to meet its financial obligations and results in unfavorable restrictions. One such restriction is that all new COPs issued by the District must be approved by the County Superintendent of Schools. Exhibit 6 below is a summary of the District’s financial status from December 2005 to the present. One of the reasons for the qualified certification of the First Interim Financial Statement was that District reserves fell below three percent because the County was required to refund some of the property tax revenue it had received earlier that year and that reduced the District’s revenue for that year. The District successfully argued to the County Superintendent of Schools that this tax refund was an anomaly, which allowed the District to receive a positive certification for the Second Interim Financial Statement (March 2006 through July 2006). Erroneous Certifications In January 2006 the District’s former CBO signed a Certificate of Participation agreement for COP#2 erroneously certifying that the District had a positive Financial Statement (i.e., without financial difficulties), so the County Superintendent’s review and 24 approval of the COP was not required. The pertinent language of the certification includes the following, “…the District did not file and does not expect to file a qualified or negative certification…” This document is re-created in part below. $15,000,000 SAN MATEO UNION HIGH SCHOOL DISTRICT CERTIFICATES OF PARTICIPATION (2006 School Facilities Bridge Funding Program) CERTIFICATE REGARDING SECTION 42133 OF THE CALIFORNIA EDUCATION CODE I, [NAME WITHHELD BY GRAND JURY], Associate Superintendent, Business Services of the San Mateo Union High School District (the "District"), for the purpose of showing compliance with the provisions of California Education Code Section 42133, hereby certify that, in fiscal year ended June 30, 2005 and June 30, 2006, the District did not file and does not expect to file a qualified or negative certification pursuant to California Education Code Section 42131(a)(1) and the San Mateo County Superintendent of Schools did not classify the District's certifications for each such fiscal year to be qualified or negative pursuant to California Education Code 42131(a)(2). signed by the former CBO on January 24, 2006 In June 2006 the District Superintendent signed a similar document and erroneously certified the same statement for COP#3. (See recreated document below). The District’s financial status was positive on June 28, 2006, the date of the Superintendent’s certification. However, the District had a qualified certification for the First Interim Financial Statement and, therefore, the certification was improper. The District Superintendent further certified that the San Mateo County Superintendent of Schools was notified of the approval by the Board of Trustees to proceed with the execution and delivery of the above-referenced Certificates of Participation and was provided with the repayment schedules for the Certificates. The Grand Jury heard testimony that this did not occur. These erroneous certifications are technical errors and do not incur fines or penalties to the District. However, at least in the case of COP#3, the County Superintendent did not know about the COP and therefore did not have a chance to review the debt service and revenue stream as prescribed in California Education Code Section 42133(a) (Appendix 6) and was not provided “repayment schedules for that debt obligation, and evidence of the ability of the school district to repay that obligation...” as prescribed in Code Section 17150(a) (Appendix 7). 25 $15,000,000 SAN MATEO UNION HIGH SCHOOL DISTRICT CERTIFICATES OF PARTICIPATION (FINANCING FOR HIGH SCHOOL RENOVATION PROJECTS), SERIES 2006 CERTIFICATE REGARDING COMPLIANCE WITH THE CALIFORNIA EDUCATION CODE I, [Name withheld], Superintendent of the San Mateo Union High School District (the "District"), hereby certify as follows:

Establish clear and comprehensive policies for requests for approval of funding applications, including requiring the Superintendent and his/her representatives to be familiar with requirements relating to specific funding applications prior to submittal of any request to the Board of Trustees and to provide the Board with clear and detailed explanations of the legal and financial requirements of the request. Part 3: Accounting and Authorization Issues The Grand Jury recommends that the San Mateo Union High School District Board of Trustees direct the Superintendent to: 8. Cause the General Fund to repay its $1 million loan from the Building Fund as soon as possible.

Ensure that all interfund transfers are properly authorized by the Board of Trustees after appropriate notice and submission of detailed requests before any transfer is made.

Determine whether reimbursements of the General Fund for indirect or overhead costs from the Building Fund were properly documented and otherwise allowable under the terms of the funding.

Direct financial personnel and outside auditors to disclose adequately in the notes to the financial statements all uncertainties of potential loss as described in Statement of Financial Accounting Standards No. 5 – Accounting for Contingencies, including uncertainties of potential loss due to property tax refunds.

The authorization and repayment of interfund loans.

The reimbursement of indirect costs incurred by the General Fund on behalf of the Building Fund.

The adequate disclosure of all material uncertainties of potential loss. Part 4: Certificates of Participation The Grand Jury recommends that the San Mateo Union High School District Board of Trustees direct the Superintendent to: 29 15. Direct legal counsel to determine the propriety of the Housing Loan Program funding and the basis upon which it received payment from COP#1.

Establish financial controls and clear and comprehensive policies governing disbursements of District funds, including review and retention of supporting documentation.

Direct legal counsel to determine the propriety of the $25,000 “finder’s fee” paid to Strategic School Solutions and the District’s rights of recovery.

Direct legal counsel to review the District’s payment of excessive interest costs attributed to the late closing of COP#3 and determine the District’s rights and remedies to recover some or all of the excess.

Verify that the County Superintendent of Schools has all required documentation for the COP#3 issue as prescribed in California Education Code Section 17150(a).

Embrace the Professional Governance Standards of the California School Boards Association and require education in school district finance and/or accounting for its members.