INDEPENDENT CITIZENS’ OVERSIGHT COMMITTEE

ANNUAL REPORT 2010San Diego Unified School District

The pace of construction work will accelerate in 2011. A Five-Year Look Ahead schedule of projects is provided inside. Below is a summary of work expected to be initiated in 2011:

HVAC and building improvements at six schools

Third year of i21 program: i21 technology suites to be installed in 890 additional classrooms

Data Center at Serra High School and an Information Technology Academy at Hoover High School will begin construction

Improve second-floor exiting at Chavez, Jefferson, and Rosa Parks Elementary Schools

New marquees at Angier, Lafayette, and Rodriguez Elementary Schools

Power and Energy Building at Scripps Ranch High School

New building and modernization at the Creative Performing Media Arts (CPMA)

2011 EXPECTATIONS

2010 HIGHLIGHTS

PROP. SREPAIR, RENOVATE, REVITALIZE

2010 marked the second year of the Prop. S bond program to repair, renovate, and revitalize schools within the San Diego Unified School District. The District implemented the priorities set by the Board of Education in 2009: providing 21st century technology in all District classrooms over the course of five years, taking advantage of state matching funds by focusing on projects eligible for Career Technical Education (CTE) funds and Overcrowded Relief Grant (ORG) classrooms, and prioritizing critically-needed renovation projects at school sites. Highlights from 2010 include:

i21 technology suites were installed in nearly 1240 classrooms; for the first-year i21 schedule, 1226 of 1309 classrooms are 100% complete; for the second-year schedule, 1143 of 1240 classrooms are partly complete (SEE PROJECT STATUS INSIDE FOR MORE INFORMATION)

Five Career Technical Education projects were completed, funded in part by state CTE grants; five more are under construction

Heating, ventilation, and air-conditioning (HVAC) upgrades at Ellen Browning Scripps Elementary School and Americans with Disabilities Act (ADA) ramp upgrades at Muirlands Middle School were completed

A revitalized track and field complex was built at San Diego High School

In addition to the completed two-story classroom-building at Hoover High School, two new projects to replace temporary classroom buildings were started, funded in part by state ORG funds

Dear Taxpayers,Prop. S is now in its second year. I present the ICOC

2010 Annual Report, covering work done using Prop. S funds during 2010.

To take advantage of historically low construction costs, the Board of Education opted to double the size of the 2010 Prop. S bond issuance from $100 million to $200 million. While this allows more construction to be done earlier, 40-year versus 25-year bonds were issued. Because the total cost to the taxpayer is far greater for 40-year bonds, the ICOC recommended a cost/benefit analysis be done as part of future bond issuances — the independent auditor made a recommendation for a second financial opinion before bond issuance.

The Board's recent decision, to use redevelopment funds earmarked for the downtown School-Library to address shortfalls in the annual operating budget, is not reflected in this report (REFER TO "CCDC FUNDS" ON THE FUNDING STATUS CHART INSIDE). As reported last year, cost estimates continue to predict that available funding will be unable to complete all the work items listed on the Prop. S ballot. Loss of CCDC funds reduces available funding for bond projects.

Board priorities stress obtaining state grants, doing critically-needed renovations, and completing the i21 program (which puts 21st century technology into every classroom). The ICOC has expressed concerns that emphasis on changing technology overshadows the need for major repair and replacement work called for in the bond. In addition, while the ICOC concurs with pursuit of state grants, that pursuit has reshuffled project schedules several times. This makes coordination of bond projects with other ongoing work more difficult — in some cases work must be re-done or work to address overlooked items must be added. This less-than-optimal use of bond funds has not been quantified but may prove to be significant in these financially troubled times.

Despite some difficulties, Prop. S projects continue to make meaningful progress. Students are already using new facilities and equipment like the new auto shop at Madison High and new classrooms at Hoover High. Learn more at the District website (www.sandi.net/props) and the ICOC website (www.sandi.net/props/icoc).

Sincerely,

Gil Johnson, Chair

During 2010, 22 construction projects valued at nearly $61 million were underway at 13 school sites. Included are projects receiving Career Technical Education (CTE) funds and new classrooms built using Overcrowded Relief Grants (ORG) from the state. The five-year program to put 21st Century technology into all District schools entered its second year, with the i21 program installing white boards, DVD players, wireless networking, and voice amplification systems in nearly 1240 classrooms. Netbooks planned for second-year distribution have yet to be supplied to classrooms.

The Prop. S management team maintains a risk-adjusted cost projection to complete all listed Prop. S work over the full life of the program. Projections as of the end of 2010, as depicted on the right, predict that there will not be enough funding available to complete all the projects as provided to voters in Prop. S in November 2008.

The decision by the Board to issue $200 million in bonds has accelerated the schedule of projects. The Five-Year Look Ahead on the following page reflects this, particularly in whole site modernization projects. The District expects to begin six more modernization projects in the next four years than reported in the 2009 Annual Report, plus 13 more in 2015.

Construction project schedules continue to be driven by addressing critical building code and safety concerns, and by projects that provide state or federal funding to supplement available Prop. S funds.

The following page includes a list of completed projects, projects under construction now, and the planned construction projects for the next five years.

PROJECT STATUS

(mill

ions

of

dolla

rs)

TOTAL PROJECTED COST Projected CostAvailable Funding

$2,450

$2,400

$2,350

$2,300

$2,250

$2,200Best Case Most Likely Worst Case

playground expansionat Jefferson Elementary access ramp at Morse High

completed automotive programat Madison High

ICOC walkthrough at Madison High

Ellen Browning Scripps ES HVACGarfield HS Culinary ProgramHoover HS ClassroomsKearny HS Construction Tech Madison HS Automotive ProgramMira Mesa HS Track & Field ImprovementsMission Bay HS Café School StoreMorse HS Track & FieldMuirlands MS ADA Ramp Upgrade & Synthetic Baseball

FieldPoint Loma HS Music RoomSan Diego HS Business Management, Culinary Program,

Multi-Media Studio, Track & Field Improvements

Alternative Learning for Behavior & Attitude (ALBA) Classroom Conversion

Cherokee Point ES ChillerClairemont HS AutoshopHoover HS Green Workshopsi21 Suite for Classrooms 1st Yeari21 Suite for Classrooms 2nd YearIbarra ES ChillerInfrastructure Connectivity: 76 sitesJefferson ES Playground Expansion/Child Development

CenterMadison HS Multi-Media Program, Stadium UpgradesMorse HS Autobody Program, Culinary Program, Stadium

UpgradesPoint Loma HS ClassroomsSan Diego HS Classrooms

PROJECTS IN PROCESS

COMPLETED PROJECTS

completed culinary programat Garfield High

FIVE-YEAR LOOK AHEAD(planned project construction starts)

2011SPRING FALLBayview Terrace ES Office

EnlargementHoover HS Sports Facility

Upgradei21 Suite for Classrooms 3rd YearNew Marquee at Angier ES,

Lafayette ES, Rodriguez ESNormal Heights ES HVACScripps Ranch HS Power &

Energy BuildingSessions ES Parking Lot Upgrades

2nd Floor Occupancy at Chaves ES, Jefferson ES, Rosa Parks ES

Creative Performing Media Arts (CPMA) New Building & Modernization

Hoover HS Academy of Information Technology

Marshall ES Student Drop-offMead ES HVACSerra HS Data Center

2015SPRING FALLModernization at Baker ES, Clark

MS, Crawford HS, Kearny HS, Mira Mesa HS, Misson Bay HS, Scripps Ranch HS, Serra HS

Serra HS Track & Field

Modernization at La Jolla HS, Lee ES, Point Loma HS, Wangeheim MS, Whitman ES

Point Loma HS Track & Field

ES: elementary schoolMS: middle schoolHS: high school

ADA: Americans with Disabilities ActHVAC: heating, ventilation and

air-conditioning

2014SPRING FALLKearny HS Stadium

ImprovementsHenry HS Modernization

2013SPRING FALLGompers MS Charter ProjectHenry HS Stadium/Sports

Facility Improvementsi21 Suite for Classrooms 5th YearModernization at Audobon ES,

Balboa ES, Emerson/Bandini ES, Encanto ES, Hamilton ES, Millennial Tech, New Dawn/Riley, Pershing MS

New Classrooms at Encanto ES, Language Academy, Serra HS

Modernization at Longfellow ES, Madison HS, Mann MS, Montgomery MS, Muirlands MS, University City HS

Stadium Improvements at Mira Mesa HS, Mission Bay HS

Track & Field at Kearny HS, Mission Bay HS

Zamorano ES New Classroom

2012SPRING FALL2nd Floor Occupancy at Balboa

ES, Boones ES, Marshall ES, Washington ES

Alternative Learning for Behavior & Attitude at North Park Phz. III

Clairemont HS Business AcademyHenry HS Production Studios

Program & Theateri21 Suite for Classrooms 4th YearMillennial Tech Phz. V Bus TurnMira Mesa HS JournalismMorse HS New BuildingModernization at Bell MS, Knox ES, Morse HSPoint Loma HS Football Stadium ImprovementsSchool of Creative and Performing Arts Live Broadcast Facility

Euclid ES New ClassroomsMarston MS Woodshop

VentilationMillennial Tech Phz. IV New

Building Modernization at Chollas ES,

Clairemont HS, Hoover HS, Memorial Academy, O’Farrell Community School

University City HS Stadium Improvements, Track & Field

completed culinary programat San Diego High

completed multi-media studioat San Diego Highmiddle school students with netbooks

ribbon cutting for Point Loma High classroom building(completed in February of 2011)

Prop. S earmarked $501 million for Major Repair and Replacement (MRR) work to improve the condition of schools across the District. By the end of 2010, no MRR work using Prop. S funds had started. The ICOC conducted a comprehensive review of the District’s MRR Plan for fiscal year 2010-2011, which makes use of funds from a number of recurring and one-time funding sources, including the future use of Prop. S funds. The recurring sources of funding as provided by the District to date are inadequate to maintain the current condition of District facilities.

The District Physical Plant and Operations office maintains a record of the Facility Condition Index (FCI) of school facilities. The FCI is calculated by dividing the cost of needed repair and maintenance work by a facility’s replacement value and is shown as a percentage. The lower the percentage is, the better the condition of the facility being measured.

As shown in the FCI chart, the original plan was to improve schools so that an FCI between 5% and 7% was achieved within the originally planned ten-year life of the bond program. Board decisions to prioritize i21 equipment installations pushed the start of Prop. S MRR work back nearly five years. In addition, the recession forced the District to extend the $2.1 billion Prop. S program from a 10-year to a 15-year plan.

The decision by the Board to issue $200 million in bonds during 2010 accelerated several whole site modernization projects. Some of these projects include MRR work and will begin in 2012, two years earlier than reflected in the chart. One of ICOC’s duties is to review deferred maintenance and MRR plans. The ICOC will report on progress made in achieving the FCI goals as depicted on the FCI chart.

FOR MORE INFORMATION, SEE THE ICOC MRR REVIEW ON THE ICOC WEBSITE: www.sandi.net/props/icoc.

DEFERRED MAINTENANCE

FACILITY CONDITION

INDEX (FCI)Actual

Projected

2008 Plan

20%

15%

10%

5%

0%

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

good

fair

poor

100

600

500

400

300

200

Major Repair &Replacement

EXPENDITURE STATUS

Student Learning &Instruction

Accessibility &Code ComplianceHealth, Safety, &

SecurityReplace Inadequate

BuildingsAccommodate Future

EnrollmentSite

Discretionary

5010

0

22

1

7

14

111473

458

454

117

78

20

PlannedSpent-to-Date

(millions of dollars)(millions of dollars)

FUNDING STATUS

500

2,500

2,000

1,500

1,000

Prop. SFunds 370

2,100

StateMatching

Funds 30188

CCDCFunds 0

20

PlannedReceived-to-Date

A financial audit of the Prop. S program was performed by independent auditor Christy White Accountancy Corp. per generally accepted government auditing standards, as defined by the United States Comptroller General. The auditor made recommendations for more timely contract payments and that the District designate an internal auditor specifically assigned to Prop. S to enhance oversight of the program. The independent auditor’s report issued an opinion that financial statements present fairly, in all material respects, the financial position of the Prop. S bond fund as of June 30, 2010.

Independent auditor Christy White Accountancy Corp. completed a performance audit of Prop. S for the fiscal year ending June 30, 2010. The audit was conducted per standards set by the United States Comptroller General. The performance audit recommended improvements in several areas including: posting of ICOC minutes, reporting of construction change orders, and the use of a second independent opinion by a financial advisory firm regarding future bond issuances. The audit report states that the Prop. S bond program complies with the requirements of the California Constitution and State Education Code. The auditor evaluated Prop. S expenditures and found no deviations with the use of funds from approved Prop. S purposes.

As of the end of 2010, a total of $382 million had been received from Prop. S bond issuances and state grants. Obligations totaled $219 million and $150 million had been spent on Prop. S projects. Cash on hand was $232 million.

Prop. S has been significantly impacted by economic conditions. Prop. S was expected to generate $2.1 billion in bond proceeds over a 10-year period. Due to a decrease in assessed property values within the District’s boundaries, bond issuances will need to be spread over a longer period in order to maintain promised tax rates.

The second Prop. S bond issuance was made in August 2010. In order to take advantage of a favorable construction cost environment, the District opted to increase the 2010 bond sale amount to $200 million (it was expected to be only $100 million). At the same time, because state law allowed it, the Board approved a 40-year amortization schedule for the 2010 issuance. Since 40-year bonds are much more costly over the life of the program versus 25-year bonds, the Board is carefully planning for the 2011 issuance. The ICOC has recommended to the Board that a formal cost/benefit analysis of the proposed structuring of bonds be done for future issuances.

MORE INFORMATION IS AVAILABLE IN THE OCTOBER–DECEMBER 2010 QUARTERLY REPORT ON THE ICOC WEBSITE AND IN THE ICOC AUDIT REVIEW LETTER LATER IN THIS REPORT.

FINANCIAL AUDIT

PERFORMANCE AUDIT

FINANCIAL STATUS

ICOC AUDIT REVIEW

The ICOC reviewed the performance and financial audits, then forwarded review comments and recommendations to the Board in the following letter:

Kevin AlvinGregg CantorJohn GordonGlen HillegasGil Johnson

Daniel MoralesLeonard PinsonKim SchoettleMatt SpathasDeanna Spehn

John Stump

Phone: 858-637-3609Email: icoc@sandi.netWeb: www.sandi.net/ props/icoc

THE 2010ICOC

CONTACT

The Independent Citizens’ Oversight Committee is the legally-required committee created to actively review the proper expenditure of Prop. S funds and to regularly inform the public and the Board of Education concerning Prop. S expenditures. All ICOC meetings are publicly noticed and open to the public.

The ICOC is comprised of eleven volunteers appointed by the Board of Education. The ICOC has established five subcommittees to carry out oversight activities. ICOC members walk construction sites, review planning and financial status reports, and examine audit reports to verify the District is using bond dollars effectively, responsibly, and in compliance with the Prop. S ballot language.

VISIT THE ICOC WEBSITE AT WWW.SANDI.NET/PROPS/ICOC FOR MORE INFORMATION.

ICOC meetings are open to the public and held at 4:00 p.m. on the third Thursday of the month at the Eugene Brucker Education Center auditorium, 4100 Normal Street, San Diego, California, 92103 unless otherwise noted.

SEE WEBSITE FOR THE ICOC SUBCOMMITTEE MEETING SCHEDULES AND LOCATIONS.ICOC OVERSIGHT

Independent Citizens’ Oversight CommitteeOffice of the ICOC Support Coordinator

858.637.3609Fax: 858.573.5876

icoc@sandi.net

FACILITIES PLANNING & CONSTRUCTION: 4860 Ruffner Street, Room 3, San Diego, CA 92111: www.sandi.net

February 14, 2011

Honorable Richard Barrera and Honorable Board of EducationSan Diego Unified School District4100 Normal Street, Room 2231San Diego, CA 92103

Subject: Proposition S 2010 Annual Performance Audit and Financial Audit

Dear Honorable President Barrera and Members of the Board of Education:

Proposition S was passed under the provisions of Proposition 39, which requires both an independent annual performance audit and financial audit. Proposition 39 provides for receipt and review of those audits by your Independent Citizens Oversight Committee (ICOC). This is the report of the review of the audits covering the period July 1, 2009 through June 30, 2010.

On February 7, 2011, the District’s auditors, Christy White Accountancy Corporation, presented the final audits to the ICOC Audit subcommittee. The auditors did not identify any loss of public funds, misappropriations or defalcations. There were audit findings that identified opportunities for improvement. The auditors concluded that Prop. S complies with the requirements of Proposition 39 and District financial statements fairly represent the bond proceeds’ financial position.

On February 10, 2011, the full ICOC received the audits, at a special meeting. A special meeting of the ICOC was required because these audits were prepared after the scheduled and outside the processes previously recommended by the ICOC, following last year’s audits. Based on review and analysis of both audits, the ICOC makes the following recommendations:

a) Future financial audits should not be limited to the “net construction proceeds" of the general obligation bonds issued by the District. Audits should include the costs of sale and issuing the bonds. The audit should cover the whole program. A net worth statement and a more detailed examination of interfund transfers should be provided.

b) Future performance audits should include an analysis of the recurring cost and replacement plans maintaining or replacing the facilities and equipment purchased with bond financing. The purpose of the analysis is to assess the adequacy of these recurring funding plans and sources. The ICOC has raised concerns regarding the Districts ability to maintain facilities and technology equipment funded by limited one time Bond financing. Additionally, the ICOC is concerned if 40-year bond financing is continued for equipment with a useful life of five years or less.

c) The District should adopt the auditor’s recommendation to engage an independent financial advisor to provide a second opinion on the expected financing costs of the Prop. S (Prop. S 2010 Performance Audit, page 20). An independent unbiased conflict free opinion should include a cost/benefit analysis of the proposed structuring of future bond issues based on the total long term costs to taxpayers and the limitations on total bonding capacity.

d) The District should adopt the auditor’s recommendation to engage an internal auditor for the Prop. S program, funded from Prop. S funds. (Prop. S 2010 Financial Audit, page 27; .2010 SDUSD Performance Audit, page 19).

On behalf of the members of the ICOC, we thank the Board for this opportunity to serve our community.

Respectfully Submitted,

Gil Johnson, Chair of the ICOC