News & Articles

Most people in town are aware of the fact that School district 709 finally signed a purchase agreement to sell the Central High campus. As usual, most people in town are ignorant of most of the details. Beneath the banner headlines, trumpeting the district’s spin, there is always more fine print than a credit card application.
The tentatively agreed upon price of $10 million for the Central campus is $3.7 million less than the asking price of $13.7 million. That asking price includes both buildings of the Secondary Technical campus. The newest Secondary Technical building (known as the “upper campus”) was left out originally, because it was only fifteen years old and a very popular school. Keith Dixon thought citizens might get upset about shutting down such a useful and beloved school, not fully paid for yet. Soon realizing, however, that Duluth was populated by a flock of sheep that would let him herd them in any direction he desired, the cotton-topped hustler tossed the sparkling new Secondary Tech building on the auction block, too.
(To his delight, Mr. D. also discovered mainstream media reporters make excellent sheep herders!)
The district and its apologists are busily touting the Central Sale as a “wonderful” thing. They’re claiming three big pluses to selling the property: (1) They say developing the property will create jobs. Trades people getting work is hard not to cheer about, but the jobs will be relatively short-lived. (2) They say tax revenue will pour into the city’s coffers from transitioning public property onto the tax rolls. Financing details are a long way from being worked out and released, but nearly every penny of Duluth development money ends up sheltered for a couple of decades in TIF, so wait for the fine print of these claims. (3) They say the money will create a windfall turn-around for the district’s shaky fiscal state. The net effect on the district’s finances from this $10 million will be comparable to tossing a fairly sizeable grain of sand on the Park Point beach.
All money from property sales should of course be channeled towards Red Plan debt payment, the way it was expressly stated it would be used in the 2007 Review & Comment approved by the Minnesota Department of Education. The school board has been shifting huge amounts of Red Plan debt to the tax rolls over the past few years (the entire remaining debt burden of the 2009a bond, in fact, about $80 million.) The failure to sell property vacated by the Red Plan has been the primary justification given for that transfer.

Time for a rebate!

Taxpayers have been picking up the huge tab for botched property sales (and false Red Plan savings claims.) In a fair world, the ten million dollars from the sale of Central should go to the taxpayers of Duluth in the form of a rebate check. If no one wants to cut Duluthians a check, then the money should go into Red Plan debt payment to reduce the tax burden, which is criminally higher than taxpayers were promised.
The pockets of taxpayers have been picked in more than one way through these property deals. Beyond the reduced selling prices (heavily discounted on every sale), millions more were lost. Look at this particular transaction. The lower campus Secondary Technical complex (a beautiful, multi-million building, built into the corner of the promontory) is now only eighteen years old. When it was shut down, it was only fifteen years old and the district still owed $2,342,730 on the construction bonds. The taxpayers have been paying off those bonds while the building sat empty. The last payment of $578,136 (and 25 cents) is due March 1st.
Duluth taxpayers also approved a construction bond levy in 1999. The levy was to be used for three district facility projects: to renovate Public School Stadium, upgrade athletic facilities at Ordean Middle School, and $1.8 million for new tennis courts, a running track and a parking lot on the Central campus. The bonds had a payment schedule of fifteen years, which means taxpayers have also been paying off this bill on a closed school. The new facilities on the Central campus were only used for about nine years before the campus was shut down. Assuming the asphalt surfaces had a minimal life-span of 20 years (fencing for tennis courts fencing, etc. would normally last longer), a reasonable estimate of about 60% of the taxpayers’ $1.8 million investment in these facilities--$1.05 million--was completely wasted money.
On top of that, the district’s own estimated utility and maintenance costs on the Central property while the buildings sat empty has been about $170,000 a year. It will be four years before the buildings are actually sold (taxpayers just picked up heating costs through 45 below-zero wind chills) and the district has been forced to repair vandalism damage as well. The full amount lost to the taxpayers for these expenses will be minimally in the range of $750,000.
On top of that, there will be the real estate company’s cut and closing costs. Last year, the State Auditor’s Office listed $592,000 paid out (as of 12/31/13) for Red Plan-related real estate deals. A change order signed by Board Chair Tim Grover in 2009 shows that the primary realtor the district has been working with--F.I. Salter--has been earning $115/hour. The realtor’s cut in this mega-deal will not be inexpensive. Significant closing costs will also inevitably arise in a commercial deal of this kind: land and environmental surveys, all kinds of legalese and contracts…and who knows what other concessions the buyer may hustle into the closing deal? Combined with the realtor’s take, all these costs could easily run in the range of $200,000.
On top of that, there is the time-value of money. Again, when the deal is closed in July, the Central campus buildings will have sat empty for four years. Money loses value every year. Ten million dollars is not worth the same today as it would have been worth four years ago. Even a very conservative estimate of 2.5% annual loss, over four years adds up to a total of one million dollars lost to education from sitting on the property.
Still adding up losses: our shrewd and able leaders essentially tossed the lower campus Secondary Tech building into the Central deal free. Claiming the building was worth $3.7 million when we still owed $2.3 million on it was a laugher from the beginning. The $2.3 million should also be subtracted from Central’s sale price. Add that $2.3 million to $1.15 million thrown away on new tennis courts, $750,000 for utility and maintenance costs, $200,000 to close the deal with the realtor, and $1,000,000 lost in the value of money over four years, and you can subtract a total of about $5.3 million from $10 million. The net profit Duluth citizens will gain is about $4.7 million for the crown jewel of all our properties--the Central campus--including the high school, Secondary Tech and 77 acres of arguably the most prime real estate in the city.

Wise and wonderful investments.
 
When Central High was built in 1971, I’m fairly certain taxpayers expected more than a 44-year return from their multi-million dollar investment. Secondary Tech opened in the fall of 1996 and was used by this community for only 15 years. Again, that investment, paid for by Duluth citizens, should have remained a useful asset to this city for a very long time. Calculating, in real dollars, just how much money has been lost by the district’s poor planning in constructing and dumping these buildings is difficult, but the price tag of wasted tax money is a multiple of millions. What other real estate investment loses all its value in a few decades?
Looking closely at these deals is like uncovering a gory operation, terribly botched. No wonder they called it the RED plan. The blood-letting from our town has been horrific. I don’t have enough space to detail all the money we’ve thrown (just within the last couple of decades) into all the buildings shut down by the Red Plan. Large percentages of these taxpayer investments--for new classrooms, media centers, cafeterias, gyms and athletic facilities--were wasted money. The same referendum used to build new tennis courts at Central, for example, was used to upgrade athletic facilities at Ordean middle school. After only a few years, a $2.4 million investment for new bleachers and reconfigured field spaces for football, soccer and a baseball diamond was ripped out and replaced with a new stadium, when Ordean was transformed into East High school as part of the Red Plan.
The Red Plan’s vacated buildings have also largely turned out to be white elephants--with negative worth on the market. As Kerry Lieder, the district’s Facilities Manager recently put it, the buildings are difficult and expensive to “repurpose.” The developer of the Woodland school site saw no value whatsoever in a perfectly good school with a swimming pool. The buyer of the Central site has already announced its intention to tear down the high school. The other Secondary Technical Center building, once used as the facility’s auto shop (known as the “upper campus” building; only twenty years old), is also slated for the wrecking ball. Dutifully playing its role as Good Shepherd, the News Tribune interviewed Mr. Lieder, one of the Red Plan’s chief promoters, asking him about the fate of the newer, lower campus Secondary Tech building.
“It is unlikely to be torn down.” Mr. Lieder declared, squinting confidently through the Red-tinted glasses he was issued nearly a decade ago.
There is a very real chance, of course, that this expensive new building, also difficult to “repurpose,” will eventually be razed.
Not long ago, I was in the city council chamber listening to councilors discussing the fate of the old Seaway Hotel in West Duluth. Councilors made the case that the building had to be saved because it was a waste of resource to let the old canker sore be torn down and--my, God!--we have “limited space in landfills.” Meanwhile, under the wasteful hemorrhaging called the RED plan, four schools have already been torn down and hauled off to landfills, and likely at least three more (one 18 years old, one 20 years old, and one 44 years old and big enough to stuff about three Seaways into it) will also be torn down and hauled off to landfills, in a mind-numbing waste of wealth and resource and an environmental crime so colossal it may very well rain bad karma on Duluth from every tree-hugger on the planet!
In its Educational Adequacy Report--a property assessment done in the initial stages of the Red Plan--Johnson Controls called the Secondary Technical Center “a shining example of the breadth and quality of programs offered by Duluth Public Schools.” The Center should be forever etched in Duluthians’ memories now as a shining example of poor fiscal management and planning. The Tech Center was such a popular school, it was drawing students into the district. “(It) is one reason why the district enjoys a positive open enrollment ratio in the upper grades,” The Adequacy Report stated about the school.

   
Only one more payment to go before we “sell” it for $0.00!
 
Interestingly, the lower Secondary Tech campus building was not built with a voter approved levy. It was built using the same State statute to circumvent the public’s vote exploited with the Red Plan. Only one other school in the State has been built with the nonvoter-approved taxing authority of the statute--Arlington High, in St. Paul. That school was also shut down, the same month/year as Secondary Tech. The Red Mess would have imploded long ago if the public hadn’t forked over enough money to keep it patched together.
The moral of this story is that a voter referendum is the wisest route to go with any community investment. Input from the public, despite what the Red Plan hustlers told us, is actually very valuable for good planning. It is important to get the public behind decisions like this, to bring the public into the loop--not only to get the community’s support, but because citizens have a good, intuitive sense of their own town.
The prospective buyer of the Central property--Harbor Bay Real Estate Advisors-- was quoted in the Duluth News Tribune, promising to “preserve and showcase the site’s beauty.” We’ll see. Red Plan promises, strewn across Duluth like bathroom tissue tossed by drunk vandals, have been more overvalued than the original “excess” property estimates. There is no question, however, that the property has very real and dear value to the citizens of this city. Many people, especially in the central corridor, still feel the precious property was stolen from them through sleight of hand when their so-called “representative,” Tim Grover, broke all his campaign promises.
Before turning coat and selling out his constituents, Grover infamously stated: “The Red Plan will create an educational void in the center of the city. The plan severely limits reasonable access to public education for this area. I believe Duluth’s geography virtually requires us to keep three high schools, which we have now and works well.”
During a meeting I attended in City Hall, to elicit property use suggestions from the public and subsequently decide on zoning for the Central property, a woman--a Central High alumnus--started weeping. I have never seen anyone cry with more anguish at a funeral. For a while, it looked like we wouldn’t be able to continue with the meeting.
Emotions about the Central property tap into roots and traditions that reach all the way back to the beginnings of this town, to that majestic brownstone icon built in 1892 on East Second Street. Selling the beautiful promontory of the Central campus to a private developer is like commercializing--building a mall--on a sacred mountain. It is like selling the central part of this city’s soul for thirty pieces of silver (fifteen, once you subtract the debt.)

Loren Martell has been involved in Public School District issues for several years. He wrote the Red Plan report for the State Auditor’s Office and ran for the School Board office.