Report 99114 Summary - October 1999

The Los Angeles Unified School District:

It Made Reasonable Decisions in Moving Its Business Services Center, but Must Act Soon to Successfully Relocate to a Permanent Site

RESULTS IN BRIEF

The Los Angeles Unified School District (district) made a reasonable decision to move its business services center, and its choice of buildings appears defendable. In October 1994, following the Northridge earthquake, engineers hired by the district found that the building housing its business services center had structural flaws even though it suffered relatively minor damage from the earthquake. The engineers' review determined that these flaws could cause specific sections of the building to collapse if a moderately strong earthquake took place closer to the building. Concerned for the safety of its employees, the district's Board of Education (board) declared an emergency and relocated the employees and services from the building. Retrofitting while the employees stayed in the building was not a viable alternative because of the risk of injury or death should another earthquake occur.

Thus, the decision to move the business services center was reasonable, but the district's need to move quickly gave it little time to look for a new location. Further, the district's desire to keep its staff housed together limited its choices. In spite of these limitations, it appears that the district selected the most favorable alternative from the options it determined to be suitable. However, we did find that the district's process of selecting a building lacked an independent evaluation of its cost assumptions and of the information provided to it by its real estate broker. The district relied heavily on its broker to identify and analyze its relocation options, even though the broker stood to benefit from the transaction. It is not prudent for a public agency to rely exclusively on someone who stands to benefit from a transaction. This evaluation, independent of the broker, could have been performed either internally or externally, depending on whether the district possessed the necessary expertise.

Its lease at the interim site, the IBM Tower, will cost the district a significant amount of money. We project that this seven-year lease, including parking and relocation costs, will total $47.2 million. However, after considering offsetting savings from its former facility and a federal grant, the lease's $19.8 million projected net cost is close to the $20.5 million the district initially estimated as its expected net cost.

The district still has challenges ahead: It may find itself facing another hasty relocation if it does not act soon. Only advance planning can ensure timely and cost-effective decisions when relocating a large number of people. Yet with its lease ending in less than 2.5 years (March 2002), the district has not determined where it is going to relocate the business services center. In March 1999, the district commissioned a study of the best options for the district. However, it has only recently received a draft report of the study, and thus is just starting to consider the consultants' recommendations.

We also determined that the majority of funding awarded to the district for the business services center was for appropriate purposes. The district applied for funds from two federal agencies and one state agency and was awarded, or conditionally awarded, about $20 million to relocate and retrofit its business services center. However, the district was inappropriately awarded funds of more than $130,000 because the State Allocation Board did not clearly communicate in its policy the intended purpose for its program's funds.

RECOMMENDATIONS

To make the most of its financial resources, the district should do the following:

  • Take prompt action to make cost-effective decisions about where to locate its business services center when its lease expires in 2002 and what to do with its former business services facility.

  • Protect its interests in significant financial transactions by obtaining an independent review of information its consultants provide, especially when the district's interests may conflict with its consultants, using a third party if necessary.
To avoid the misuse of state funds, the State Allocation Board's policies should clearly communicate its intentions when it allocates funds for specific purposes. It should also retrieve any funds it inappropriately disbursed, and unobligate funds it inappropriately approved.

AGENCY COMMENTS

The district agrees with our recommendations and plans to take corrective action. In addition, the State Allocation Board plans to discuss the recommendation we directed to it at a future board meeting and take appropriate action.


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