Jump to Navigation

The Red Plan--Where did the Money Come From? Duluth News Tribune, Nov. 16, 2012

We have nearly finished the Red Plan.  But rather than hearing about what a great plan this has turned out to be, the main discussion from the public is why do we have such large class sizes and why have we been cutting curriculum?   The Duluth News Tribune has done stories on the impact that this has had on our students.   Are the Red Plan and these negative educational impacts related?  The answer is a resounding YES.

Last year, over $7.8 million that was in the school district’s general fund (the money used for classrooms) was used to cover debt obligation payments for the Red Plan.  These transfers and their impact have been routinely have been explained away by the administration and kept out of budget deficit discussions.

The administration tries to justify the transfers of money for the Red Plan by saying that Red Plan resulted in general-fund savings. But a reality check shows those to be less than predicted. There have been no reported energy-cost savings. The new buildings grew in size—and so did maintenance costs. Transportation costs are up. The old school buildings were to be sold for $27 million in savings, but that estimate has now been lowered to $16 million and few building have yet sold.

 Worse, the Red Plan’s financial scheme has general-fund savings (as questionable as they are) plowed into paying for the Red Plan debt obligations.  So what did we get for $315 million? By design, no help for classrooms, but fancy buildings that Duluth may not be able to afford.

During their promotion of the Red Plan, the school administration and the district’s Red Plan consultant and architect, Johnson Controls implied and directly stated that taxes would not increase over the initial bump in 2009, that class sizes would remain the same or go down, and the curriculum would be able to be expanded.  In fact, JCI said in its Jan. 24, 2006 response to the Duluth school district’s request for proposals that what came to be known as the Red plan could be built, “in both a budget and tax neutral manner”, and the company even vowed to  “guarantee the financial solution in writing” (emphasis in the original JCI documents). 

It is time to do a sober reassessment of what our options now are.

We can continue taking $7 million a year out of the $80 million general fund to pay Red Plan debt obligations, with the possibility of continued larger class sizes and more reduced curriculum.  And we can hope sell Central HS, its windfall saving the district for one year. 

It is correct to put part of the blame for the school district’s financial trouble on lack of state funding, but begging the state is an unlikely way to get us more money.  I call this the “Waiting for Godot” option. 

We can also refinance the Red Plan, by bringing in independent financial experts to analyze extending the payment schedule from 20 years to 30 years.  This could result in lower general fund transfers and the ability to keep property tax rates down without increasing the cost of the Red Plan.  At the low interest rates of today, this is a real option;

In addition, we can ask for accountability and repayment back from Johnson Controls.  What happened to their guarantee “in writing”?  Asking for accountability from Johnson Controls is not unprecedented. Other schools in the state have asked Johnson Controls for that, and the city of Duluth took Johnson Controls to task over work it did related to the city’s steam plant—and the city received $2.3 million for saving promised but not entirely delivered.  

The school administration and Johnson Controls have used voodoo economics in an apparent attempt to hide the funding and the true cost of the Red Plan from the tax paying public and the school staff. 

We have new, fancy buildings that must be paid for.  If none of the above options are taken, larger class sizes may continue or property taxes increases may be needed to cover Red Plan debt obligations.




Main menu 2

Dr. Radut Consulting