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Documents: JCI numbers don't add up
Investigation finds JCI overstated staff savings from school plan
New documents obtained by the Timberjay through the state’s Data Practices Act are raising alarming questions about the veracity of claims by representatives of Johnson Controls, Inc., regarding the district’s school closure and facilities consolidation plan.
That plan calls for the closure of five community schools, the construction of two new schools to serve multiple communities, and the renovation of remaining schools. JCI officials told the St. Louis County School Board back in September 2009 that the plan was the only way that it could stave off a financial crisis that would leave the school district with a $4.1 million budget deficit by the 2011-12 school year.
Those dire predictions enabled the school district to achieve narrow voter approval in December 2009 of a $78.8 million bond measure to pay for it all.
Key among the new documents handed over by JCI is a “master spreadsheet” that the company developed in order to support its claim that its plan would generate more than $5.6 million in cost reductions for the school district. Those cost reductions, JCI claimed, would allow the district to close the projected $4.1 million budget gap and achieve a million dollar-plus surplus dedicated to educational improvements.
The spreadsheet, and supporting documents created by the school district, have been examined in detail by both the Timberjay and by Dennis Peterson, a retired engineer who consulted to private industry on major construction projects for more than 40 years. Peterson currently resides in Greaney.
While the spreadsheet is purported to demonstrate more than $5 million in cost savings, it, in fact, strongly suggests that individuals who developed the document consistently exaggerated anticipated savings and failed to account for higher costs, in areas such as transportation, that were likely to result from implementation of the plan. The spreadsheet also shows that those working under the school district’s contract with JCI used revenue and enrollment figures that were substantially at odds with projections developed by the company just one year earlier. Those discrepancies will be the subject of a report in next week’s edition of the Timberjay.
Staffing discrepancies total in the millions
The discrepancies uncovered in the new documents are significant, amounting to millions of dollars in claimed savings that will not be realized, or are unlikely to be realized, as a result of implementation of the JCI’s facilities plan. Indeed, after an in-depth review of the master spreadsheet, both Peterson and the Timberjay concluded that the nearly $3.3 million in savings from teacher and principal reductions purported by JCI were overstated by approximately $2 million. JCI officials claimed another $1.1 million in non-educational staff reductions as well. Those estimates also appear substantially overstated, but neither the Timberjay nor Peterson has sufficient comparison data, at present, to accurately determine the full extent of overstated savings.
JCI officials had claimed that total staff reductions made possible by its plan would save the district nearly $4.4 million annually. It now appears actual savings will be less than $2 million.
JCI’s projected savings for educational staff appear to have been “achieved” in ways that are highly questionable, including:
‰ Exaggerating the savings from individual layoffs. While JCI representatives had access to precise information on the actual salary and benefit savings achievable from each staff reduction, the company consistently used figures that were significantly higher than the school district’s own data suggested.
‰ Exaggerating the actual number of staff that would be laid off as a result of the plan. Despite the fact that the school district had undertaken significant teacher and other staff reductions (totaling 22.54 full-time equivalents) in 2009, JCI representatives and school officials included those reductions as potential savings attributable to a school closure and consolidation plan that would not be implemented for at least two years. In addition, JCI claimed teacher reductions in some cases that appeared to be more the result of declining enrollment at certain school sites, particularly Babbitt, rather than a result of the facilities plan.
‰ Errors in tabulation. In some cases, an examination of the master spreadsheet revealed apparent math errors that had the effect of increasing the claimed savings. The largest was under the secondary teacher category, which appears to have overstated reductions by 1.5 full time equivalents.
Peterson, at the Timberjay’s request, has since corrected the JCI spreadsheet to reflect far more realistic assumptions for the number of staff layoffs as well as the savings from each specific employee reduction.
Peterson questioned the process used by JCI as well as the final numbers. “Determining staff savings due to restructuring is a pretty straight forward two-step process,” said Peterson. “Step one is you project staffing levels in the 2011-12 school year as if there was no change in facilities. Then you project the staffing levels in 2011-12 assuming the facilities plan is implemented. Then subtract. The difference is the staff reduction due to the facilities changes. In Step 2, you multiply the reductions in each staffing category by the cost of each staff member. Neither step was done properly in this case. The wrong staffing levels were used for the no restructuring projection. And inaccurate costs for the laid off staff were used.”
Deploying a more accurate method, Peterson said the differences are far less than JCI officials have claimed. “The maximum achievable cost savings for educational staff and principal/dean reductions is only about $1.16 million,” said Peterson.
That compares to the $3.3 million purported by JCI officials.
Exaggerated salary reductions
The master spreadsheet, combined with other documents developed by the school district or JCI, reveals a consistent pattern of exaggerated savings from specific staff cuts.
For example, the spreadsheet used savings from teacher reductions that were significantly higher than the district’s own calculations indicated. A detailed document provided to the Timberjay by the school district, shows the average cost of a secondary teacher (including salary and fringe benefits) was $68,500 as of the 2008-09 school year. But in the master spreadsheet, the savings per each full time secondary teacher reduction were tallied at $74,000. The district’s calculations peg the cost of an average elementary teacher at $72,000, but those reductions were tallied at $78,500.
And the actual discrepancy is much larger. School board member Zelda Bruns has acknowledged publicly on several occasions that the district doesn’t lay off the “average” teacher. Under the district’s teachers’ contract, layoffs are based on seniority, which means the least senior— and lowest cost— teachers are the first ones in line for reduction.
Because those teachers are typically paid substantially less than more senior teachers, the actual savings attributable to their layoffs would be significantly less than the average, notes Peterson.
In fact, the total cost of the least senior teachers in the district, including salary and fringe, is less than $50,000 in some cases. But Peterson used an average cost of $55,000 when re-calculating staff savings to reflect more accurate figures.
The higher numbers used in the spreadsheet cannot be attributed to inflationary increases. That’s because the spreadsheet includes an inflationary adjustment on top of the base numbers. Once adjusted for inflation, the spreadsheet uses $85,776 as the savings from an elementary teacher reduction and $80,859 from a secondary teacher reduction. In other categories, such as guidance counselors, the spreadsheet uses an average of over $94,000 per full time reduction, once adjusted for inflation.
According to Peterson, the spreadsheet uses higher than appropriate figures for all teacher categories across the board, and the inflated numbers resulting from it overestimate the true savings by hundreds of thousands of dollars.
Exaggerated staff reductions
One of the biggest factors inflating cost savings in the spreadsheet is the inclusion of staff reductions that had already been made and were not attributable to the $78.8 million facilities project.
The spreadsheet includes savings from over 22 full time positions that had already been eliminated as of June 2009.
Those staff reductions included approximately 14 full time teacher positions, with the rest coming from support staff. Combined, those reductions saved the district at least $1.4 million, which contributed to a significant improvement in the school district’s financial condition in the 2009-10 school year.
Despite the fact that those staff reductions were made two years in advance of implementation of the JCI-developed facilities plan, they were included in the calculations of overall savings from the facilties plan.
That decision, by itself, inflated the estimated savings, from teachers alone, by approximately $1.05 million.
At the same time, other teacher reductions were included in the spreadsheet that do not appear related to the facilities plan. For example, elementary teacher reductions in Babbitt were included, even though those reductions appear to be related to sharp declines in elementary enrollment, not changes in facilities. Including those unrelated staff reductions added just over $250,000 to the claimed savings in the spreadsheet, according to Peterson.
At the Timberjay’s request, Peterson has recalculated the figures within the JCI spreadsheet in order to more accurately reflect actual staffing reductions attributable to the school facilities plan as well as more realistic savings for each reduction achieved. Peterson’s revised spreadsheet shows actual savings from teacher and principal reductions at $1.16 million. That’s just over one-third of the $3.3 million claimed in the JCI spreadsheet.
“The numbers in the spreadsheet appear to have been generated in a misleading or fraudulent manner,” said Peterson. “I don’t believe any organization doing this kind of cost study could have accidentally misused the cost information in such a systematic manner,” he added.
Did district officials review the numbers?
The Timberjay provided the school district with an advanced copy of this story on Monday, Jan. 10, four days prior to publication. At the same time, the Timberjay asked school officials who, if anyone, from the district reviewed the cost savings data developed by JCI.
The school district did not reply to that question, nor did it provide any response to the story as of deadline.
In response to earlier questions from the Timberjay, Michelle Kenney, of the Knutson, Flynn law firm, who is representing the district, stated that school district officials provided cost information to JCI, but that they had no control over how those numbers were used by JCI. School district officials have previously noted that JCI did not provide them with a copy of the master spreadsheet. JCI officials have maintained that the spreadsheet was “proprietary.”
JCI initially used that claim to deny public access to the spreadsheet as well. But that claim has since been overruled by the Minnesota Department of Administration, which determined in a Jan. 3 opinion, issued at the request of the Timberjay, that the spreadsheet was public data.
Part of a pattern?
JCI has come under scrutiny before for allegedly overstating anticipated savings from projects in which they were involved, most recently in the case of the city of Duluth’s steam plant. In that case, JCI had claimed millions of dollar in energy savings from proposed steam plant renovations, purported savings that prompted the city of Duluth to hire JCI to undertake the $3.8 million in renovations. When the city later determined that actual savings were barely one-third of what JCI had claimed, the city of Duluth demanded compensation. After months of litigation, the two parties reached a settlement in December in which JCI agreed to pay the city $2.3 million, and to undertake some modifications at the plant. In addition, any carbon offset tax credits in the future will now flow to the city’s steam plant operations, not to JCI.
JCI’s response
The Timberjay provided JCI with an advance copy of this story prior to publication, seeking comment and clarification. In response, the following statement was issued by Christopher Schulken, JCI’s Regional Vice President and GM:
“Johnson Controls is a company that is built upon a strong foundation of integrity and ethics. This strategic plan for ISD 2142 was developed based upon the collaborative efforts of the school district, area residents, Johnson Controls and a number of other consultants. The plan was subsequently reviewed and approved by the Minnesota Department of Education, and area voters approved the plan in a well-publicized referendum. The school district has reviewed every option and made decisions after careful study and deliberation, and this “spreadsheet” served as one model and one of many tools used to help make these decisions.
“We do not believe the Timberjay’s analysis of the data is accurate. Readers should be encouraged to direct questions to the school district or to visit the district’s website at www.choose2142 schools.com.”
Officials from the MDE have defended their approval of the school district’s proposal, noting that they do not attempt to verify the financial claims made by school districts or their consultants when reviewing bonding proposals.
Keywords
Johnson Controls, Inc. JCI, ISD 2142, facilities plan
