Sunday, March 11, 2012

PCS and the Day Care Debacle

    I recently received a phone call from a former PCS BOE member who was on the Board back in 1993 when the original agreement among the PCSD, the day care center, and the Village of Potsdam was crafted. This member had a number of questions for me about what has transpired over the years and what the implications are for the school district.
    To begin, on 3/9/12, the Daily Courier-Observer ran a story about the day care center. The article states, “Given the current terms of the building’s lease, Potsdam Planning and Development Director Fred Hanss said the day care is not behind in their payments to the village.” While this is true, it distracts the reader from a much more significant truth – namely that for the first ten years on an original 1993 debt of approximately $502,000 (loan: $331,243,83 plus 4.5% interest: $171,702.57), the day care paid only about $500/month instead of $2095.61 and, thus, was in default and would very likely end its second ten-year lease without coming close to paying its mortgage off.
    Back in 2003, PCSD attorney Don Budmen wrote the following in a memo to Peter Lekki (Village attorney):
“…Building Blocks, like its predecessor, has been unable to make monthly payments of sufficient size to cover the principal and interest on the Village’s loan for construction of the Day Care Center. As a result, there is currently, a $452,000 balance owed on an initial loan of $330,000. Given the size of this balance, it was clear to all of the parties at the table that following a 10 year renewal of the lease, [2003-2013] the loan will still not be paid off.” 
    In June of 2004, the Village legally decreed (in a leasehold modification agreement) that Building Blocks, Inc. was in default of its mortgage and was permitted to pay $500/month as full monthly payments on the mortgage “for so long as Building Blocks, Inc. continues in possession of the building.” Therefore, from then till now, the day care has been paying $500/month. At the repayment rate of approximately $60,000 per decade, wouldn’t it take over eighty years to pay off $500,000?  
    Giving such a generous mortgage to the day care center seems to some like a subprime loan.  “In finance, subprime lending means making loans to people who may have difficulty maintaining the repayment schedule. These loans are characterized by higher interest rates and less favorable terms in order to compensate for higher risk.”
In the case of the day care, the loan was characterized by having more favorable terms and by having the interest forgiven.
    What are the implications for the PCSD?
Ø  The PCSD was advised by its legal firm to disassociate itself from the day care center, once the current lease ends in 2013, because the relationship has been fraught with legal difficulties.  Documents read by Colleen Heinrich, Esq. were characterized by her as troubling.   
Ø  PCSD officials have stated many times that the day care center will be a needed building. Therefore, the school district should use the building for district purposes. The BOE officially and unanimously declared the day care building as needed in a resolution in 2011 and, if it reverses itself, it will have to prove the building to be unneeded
Ø  Within the next five years, the PHS could very well find itself as a regional high school. Since this has been anticipated by many, space will be in demand for the District. The day care building has already been examined as a place to move the Central Offices and the CSE Offices so that more instructional space would be eked out of the high school.
Ø  The District also needs to take possession of its building in May of 2013 because that is the smartest way to protect the District’s long-promised asset.  If the PCSD permits Building Blocks, Inc. to stay past the end of the second ten-year lease period, will the District jeopardize its legal standing? Could the PCSD be sued for the hundreds of thousands still due on the Building Blocks mortgage?
Ø  The whole PCSD/Day Care/Village deal started out with questionable planning, a deplorable lack of transparency, and stunning deceptiveness.(I can only speak for myself when I say that I was not apprised of the fact that BOE action on the matter in 1993 made the PCSD taxpayers liable for any unpaid Building Blocks mortgage obligations at the end of their two ten-year lease periods. It was illegal for the BOE to make the District a co-signer to the loans.) The architects of the day care plan hid behind the mantle of poor children in order to sell the day care concept to the BOE and the public. SED monies were improperly funneled to the day care back in the ‘90’s to help day care officials pay bills. When this was reported to SED, officials came to the PCSD to investigate. The District was told to manage NYSED funds properly or risk losing them. The Pre-K teacher, was not legally hired and was, thus, illegally paid. Only Board action to hire an individual permits a superintendent to release public funds to pay an employee. The District hired the teacher properly (and legally) years after the fact and only when I discovered what had transpired and made it public. 

     Boards of Education are required by law to make decisions based on what is in the best interest of the school district.  Let's avoid another debacle or a continuation of this one.

1 comment:

  1. I'm not sure why this was ever allowed to progress this far. It sounds like the Day Care business isn't a profitable one and it should have gone out of business as soon as it realized it couldn't meet its financial obligations. Since the Village lowered their mortgage payment, then the Village should get saddled with the debt. As a Village resident, it pains me to say that. But we need to reap that which we have sown.