REGIONAL – ISD 2142 drained the contingency fund for its $78.8 million school restructuring project nearly a month ago, but was able to replenish it by levying additional health and safety dollars for some portions of the project.

“When I did this budget schedule a month ago, we were in the red. There was nothing left in the contingency fund. We were in deep do-do,” said Randy Anderson, who works for Johnson Controls Inc, which is overseeing the mammoth construction and remodeling project.

The district-wide contingency fund currently shows a total of $441,976, according to the most recent project budget sheet provided to board members at a study session last week. The budget doesn’t read zero because the additional levy dollars have already been added to the fund. Voters don’t have a say on whether school districts levy funds that fall under health and safety categories.

The admission that the contingency fund was drained weeks ago caused board member Troy Swanson to call for more transparency in the process.

Board Chairwoman Zelda Bruns shares his concerns. “I said quite some time ago that we needed someone to oversee our construction budget, someone a little more objective who isn’t working for Johnson Controls,” she said in a phone interview this week.

Contingency fund

The contingency fund, which held more than $1.4 million at its peak, was money not earmarked for any specific project but could be tapped if projects exceeded budgets or encountered unexpected increases.

Although most projects remain under budget, both Cherry and Tower-Soudan schools have exceeded their budgets and there have been numerous change orders at most sites.

“That’s why I wanted to see an accounting on the bond budget,” said Troy Swanson, who represents the Tower-Soudan attendance area on the board. “We’ve been spending a lot of money. I wanted to know how much was left.”

Cherry’s remodeling costs so far have totaled $11.5 million, about $487,241 more than had been projected. Meanwhile, Tower-Soudan’s costs total $5.16 million, $91,884 more than had been projected. Neither of the remodeling projects is completed yet.

Cherry’s added costs can be attributed in part to additions and changes to the original design plan and the unexpected cost of removing contaminated soil at the site. Tower-Soudan also ran into some unexpected project costs, such the expense of replacing an exterior wall after the 1917 wing of the school was demolished.

South Ridge, which is nearly complete, appears to be close to its budget, with the most current estimate of $29.2 million leaving an estimated project variance of $174,946.

Anticipated costs for North Woods are $28. 49 million, leaving a $905,726 cushion but a large portion of that work remains to be completed. The current project estimate for Northeast Range is $.48 million, leaving a balance of $320,429.

But with work remaining at all the sites, School Board Chairwoman Zelda Bruns said the contingency fund will likely have to be tapped again in the future.

“I’m concerned that we have enough in there to complete the North Woods School as promised,” said Bruns, who represents the Orr attendance area.

Taxpayers foot the bill

Districts can levy for health and safety projects without voters’ approval, but some of the work being covered by the levy was originally to be paid for with the bond revenue.

For instance, remodeling projects at Tower-Soudan, Cherry and the Northeast Range (Babbitt-Embarrass) schools were expected to encounter some asbestos abatement when they tore down walls. After the discovery that the contingency fund was exhausted, Superintendent Teresa Strong made a trip to the Minnesota Department of Education to seek permission to levy health and safety dollars for portions of the projects dealing with environmental and safety issues. Strong said the department did not voice any objections.

Some taxpayers, however, may see things differently. They are already paying for the repayment of the bonds, but will now have some of the work that was to be covered by bonds added as another tax.

The district also encountered higher costs than expected for acquiring land for its new schools. To meet a county zoning requirement, South Ridge purchased more property, bringing the total land acquisition costs to $546,856.

Winter construction costs at South Ridge also boosted costs at that site by at least $500,000, according to JCI’s own estimates.

Legal costs over challenges to the district’s bond referendum and its plan to build in Field Township also added to the tab. The district has spent more than $200,000 in legal fees, according to the most current budget sheet.

In addition, the district received less interest than originally estimated for its bond proceeds. Ehlers and Associates had projected interest on banked bond funds would generate $800,000 for the district. But that estimate has now been rolled back to half that amount — with the district expected to receive about $400,000 in interest.

Anderson said that fees would further reduce the interest to less than $200,000, but business manager Kim Johnson, contacted after the study session, said the only fees she was aware of were the fees to Ehlers and Associates for overseeing the Build America bonds. That fee for filing paperwork amounts to about $900 a year, she said.

Anderson said some savings should result at the North Woods School, which is identical to the South Ridge building, as a result of lessons learned on that project. For instance, he said too many stage lights were installed at South Ridge and Northeast Range and some of the lights will be removed and installed at North Woods.

Similarly, they have more furniture than needed for South Ridge, which will be transferred to the North Woods School.

Payment sought

Meanwhile, Anderson said Kraus-Anderson was back-charging a number of contractors who failed to clean up their sites as required under contract. ISD 2142 custodians had to do some of the cleanup and Anderson said the general contractor is seeking to recoup some of the dollars that were paid to contractors for that portion of the work.

Bruns noted that Architectural Resources Inc. should also be held accountable for costly change orders that resulted from code violations in their original drawings. The architectural firm is charged with ensuring that the projects meet current codes for schools. “We should be asking for some money back from them,” said Bruns.

But Anderson said ARI has an “errors and omissions” clause in its contract that would make it difficult for the district to pursue repayment from the firm.

“John Powers and I are still looking at it,” he told the board, but said it would likely require the assistance of legal counsel if the district were to seek payment from ARI for increased costs resulting from the code violations.

Swanson said the issue highlights the need for more transparency in the process. He noted that the Timberjay has been seeking more information on the ARI contract for months, but JCI has thrown up legal hurdles.

As a private company, JCI has a right not to disclose some information, Swanson said. “But the difference is there are tax dollars being spent here and we and the public should be able to see the contracts or have access to information” on the school projects.