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A consultant makes bank while Duluth schools continue to suffer

A 3rd article has appeared in City Pages that references the School Board’s involvement with consultant Nexus Solutions.
Please read the COMMENTS at the end of the City Pages article.

A consultant makes bank while Duluth schools continue to suffer http://bit.ly/2nDdjYm

In 2006, Duluth’s schools stood at a crossroads. Fewer and fewer students were attending too many schools, most of them outdated, their maintenance often neglected. Something had to give.

Consultant Johnson Controls served up the delicious proposition.

Duluth’s archaic facilities would be consolidated, replaced by sparkling new buildings. The old brick warriors that could stay, like Denfeld High, with its iconic 120-foot clock tower, would be renovated, modernized, and added onto.

The best part of the $250-million proposal, said the company — a one-stop construction services shop specializing in consulting, planning, and building — is that taxpayers would only have to pay for half.

Cost savings from leaner operations and more energy efficient buildings would pay most of the freight. The company estimated $100 million in savings over 20 years. The rest, according to Johnson Controls, would be generated by selling 14 district’s properties, made obsolete through consolidation.

“Johnson Controls believes the revitalization can be accomplished in both a budget and tax-neutral manner,” read the January 24, 2006 letter signed by company execs Micheal J. David and Brent T. Jones. “… Johnson Controls has the wherewithal to guarantee the financial solution, in writing. By doing so, we enable you to move forward with little or no risk.…

“Bottom line, the Duluth Public Schools is facing a once-in-a-generation opportunity and Johnson Controls can make it happen.”

Alanna Oswald was feeling it. The ’91 Denfeld grad and mother with two says the sales pitch was irresistible.

“I was all on board.… We were going to get brand new shiny buildings that more adequately addressed our children’s learning needs, and our taxes would go up a little bit,” says Oswald, who’d go on to become a Duluth school board member in 2015.

The massive overhaul would become known as the Red Plan. Johnson Controls would oversee it all, from planning to engineering. Construction began in 2009 and lasted into 2011.

But before it was all over, the Red Plan’s price tag would balloon to $315 million. Johnson’s fees, which were based on percentages, soared with it.

Whether it was for extra heaters or additional personnel, Johnson Controls’ costs were reimbursed in full by the district — plus ten percent.

According to school board member Art Johnston, the company was initially slated to collect around $35 million. It would end up receiving about $64 million.

Today, Duluth Schools’ financial straits are no better off than they were prior to the Red Plan. Only the details are different. According to Johnston, Johnson Controls’ promises of $5 million in annual operational and energy savings are instead yearly deficits, averaging well into seven figures.

Last year, the board had to cut $3.3 million from its budget.

The deficits, in turn, have forced the district to take $38 million from its general fund since 2010 to make debt payments, monies that otherwise would’ve gone to educate students.

Denfeld, the district’s iconic grand dame with its 1,800-seat opera house of an auditorium, sure could use the cash. Johnson Controls’ forecasts of surpluses stoked hopes that the district would re-institute a seventh class period. Duluth high schools have had only six since 2004, when budget crunching contracted the school day.

Denfeld’s woes are many. But the scarcity of funds is especially impacting students at both ends of the spectrum. The school doesn’t offer enough sections of AP and college-geared classes, like advanced Spanish and physiology, to meet student demands. At the same time, it’s overburdened with addressing the needs of a student population where one in four receive receive special ed services.

The district’s very public problems, combined with stats like Denfeld’s dismal 76 percent graduation rate, have Duluth families fleeing.

Wrenshall Public Schools, a 30-minute drive south, sends three buses into Duluth everyday for open enrollment kids, according to Oswald.

Denfeld resides in Tom Tusken’s soul. He’s an alum who’s taught at the school for 22 years. Tusken’s two kids attend Denfeld. He was supporter a Red Plan who went so far as to say so in a 2009 editorial in the Duluth News-Tribune. He now questions its wisdom by what he sees in the hallways and inside the classrooms of the school he loves, which first opened in 1926.

“We have issues and we need help,” he says. “If we keep losing students, I’m afraid this place won’t be around in a few years.”

Denfeld’s enrollment has dropped by some 500 students since 2011.

Johnson Controls “told us we were going to sell $27 million in property,” Johnston says. “We’ve sold four [million]. That was all supposed to go towards paying off [the Red Plan debt]. We were supposed to save $5 million annually in operational and energy savings. I don’t think we’ve saved any money at all.

“We’re using money to pay debt that should be going to our students. That’s why I say what Johnson Controls did here was fraud.”

He and Oswald acknowledge the district’s hand in the deal. Johnson Controls didn’t force school officials to sign off on the deal. But to say anything less than the company misled, oversold, and overcharged the district is wrong, they say.

“We believed,” says Oswald. “We blindly believed what [Johnson Controls] was telling us without thinking for ourselves. That’s where we went wrong.”

Oswald, along with Johnston, attended a meeting at Denfeld Tuesday night. It was called by parents who are trying to figure out what can be done about the school’s issues.

No one representing Johnson Controls attended. Company spokesperson Katherine Sopranos did not respond to messages seeking comment.

As for the company’s Jones and David, they too haved moved on.

The pair parted ways with Johnson Controls post-Red Plan. In 2012 they launched Nexus Solutions.

Nexus, like Johnson Controls, play consultant to school districts, assessing facilities and planning future needs, then overseeing construction. The set-up is such that it provides incentive to urge as much building as possible — and collect fees with each move from planning to completion.

Nexus is currently contracted with Prior Lake Area Schools. Its already collected $8.7 million in fees and bonuses while overseeing $35 million worth of projects. Business manager Julie Cink has said Nexus could receive at least $10 million more if voters approve a new funding referendum with a price tag estimated around $150 million.

Last month, in the Duluth Reader newspaper, Loren Martell warned Prior Lake about what it was getting into.

Be forewarned, Martell wrote in a piece titled, “Check for priors, Prior Lake.” of promises that “despite all the up-front expenditures, the district will actually SAVE money in the long run, while simultaneously (almost miraculously) getting brand new, state-of-the-art facilities.”

A Prior Lake resident emailed school board member Todd Sorensen about the story.

“Nexus has actually saved the district monies,” replied Sorensen, one of Nexus’ staunchest defenders. He’d also intimate that the Red Plan’s failings weren’t anybody’s fault other than the members of the Duluth School Board, who, according to Sorensen, “admit that they made mistakes.”

David and Jones declined to be interviewed for this story.