The Education Centre Lease

During the 2010 school board election, details around the CBE’s Education Centre lease were publicized. Many articles and editorials were published (eg. CBE’s lease called too high) and it became a major election issue. Despite all the press, every incumbent trustee was re-elected, although some races were very close. Newly elected Trustee Sheila Taylor brought forward a motion on January 18, 2011 for an independent review of the project in order to ensure that everything had been done in accordance with existing policy and to determine whether or not the costs were reasonable given the market conditions at the time of the decision. The motion failed 5-2 and the minutes of the debate as well as a couple of public comments on the matter can be found on the CBE website.

During the 2013 election, the main election issues were more budget related and how resources were being deployed, as provincial funding had not been keeping pace with growth and inflation for the past three years, class sizes were increasing (especially in high schools) and other supports were being cut. While not a primary issue, the lease was often pointed at as a symbol of CBE administrative inefficiency.

The lease was once again front and centre in the Fall of 2014 when Gordon Dirks became the Education Minister and people started questioning his role in its approval. Since then, while people still express frustration at the cost of the lease, for the most part, they understand that it is a contractual obligation that must be fulfilled.

While I, too, know this, I admit that every time I walk into the Education Centre I feel a sense of unease, almost like guilt, even though I had nothing to do with the decision. The building is a constant reminder to me that trustees are responsible for asking the tough questions in order to ensure that the best decisions for students are being made. After being elected as a trustee, I questioned whether there was any possibility of getting out of the lease. While I had asked outside of the boardroom, I felt it was also important to have an answer provided on the record in a public board meeting.

The short answer was that the matter had been legally reviewed and, of course, it was possible, but that it would end up costing the CBE more in the end as the Education Centre staff still need a place to work and no one would be willing to sublet the Education Centre at anywhere near the price that the CBE is paying. The lease was signed at the very top of the market, and if rates had continued to go up, then perhaps the CBE would be looking great as they had locked in “lower” rates for such a long period of time. However as we all know, that is not what happened, and as a publicly funded organization, the CBE does not have any leverage in order to renegotiate a lease with a for-profit corporation. The lease is less than 1% of the CBE’s operating budget, the CBE is in no danger of declaring bankruptcy, and the corporation is accountable to their own shareholders to ensure that they get the best possible deal. The current CBE administration has been clear with trustees that they are constantly reviewing the situation to see if there is any possible way of reducing the costs of the Education Centre. However, at this time, the CBE has a contractual obligation to pay the lease.

Having said that, I do think that a new Board of Trustees needs to begin planning, in an open and transparent manner, what will happen once the term of the lease is done in 2031. Capital planning can take many years and I do not want a future board feeling as if they have no other choice but to continue the lease because of inadequate planning in the past. I do not know right now what the various options might be, but I think it is important to start having those discussions.

So, what about all those recent headlines saying that half of the cost of the lease could be going into classrooms?

From what I have been able to determine, this is a misinterpretation on the part of the Education Minister of an observation made in the operational review. The operational review states that:

In Alberta Education’s review of CBE’s board system and administration, it was noted that over half of the Central Administration Building’s costs are allocated to instructional programming costs instead of being charged to administration overhead. Provincial policy would suggest that such an allocation might be high and requires further analysis.

I must admit, I was confused by the words “would suggest,” “might be high,” and “further analysis.” As the province writes the policy, isn’t this something they should already know? But I digress, and will return to the point at hand as to whether money going towards the lease could somehow be directed to the classroom. As already explained above, the answer is no, the lease must still be paid. At the end of the day, no matter which bucket of money the lease is being accounted for in, there is no magical way of directing half of that money to classrooms.

So, when the Minister said this on 660 News, I was dismayed:

There is no question that the lease is high, that it is more than the other metro boards spend, and that everyone should be looking at their budget for further efficiencies. However, to suggest that there are further adjustments that could be made to the lease without providing any specific recommendations is simply wishful thinking. I would love any help or feasible solutions that the Minister could offer as to how more money could be directed to classrooms, but so far nothing has been forthcoming.

The bigger question from the review is whether the CBE is accounting for half of the lease in the wrong place, and is thus trying to hide the true cost of the lease.

In the 2015-16 audited financials, on page FS-35 is the following table:

On the same page is an explanation of all of these categories as well as how much revenue the CBE has from subletting out two floors. I hope this shows that the CBE is not trying to hide the cost of the lease in any way.

But is it being accounted for correctly?

To understand this, you must know that when school boards submit their audited financials to Alberta Education, they are required to break down their expenses into the following six categories:

This is from the most recent 2015-16 CBE audited financials with the columns being the 2016 budgeted amount, the 2016 actual amount and the 2015 actual amount.

The question of how the lease is being accounted for has been asked by trustees many times over the past four years, as it would seem logical that the full cost would be in the administration category. However, the definition of what is considered “Instruction” and what is considered “Administration” is set by the province, not by trustees. The CBE has worked closely with the province to ensure that the appropriate expenses are being accounted for in the correct categories. The CBE’s external auditors are also tasked with ensuring that the CBE is accounting for these six categories correctly and have never expressed any concern. Having said that, it is the province’s definition that we must follow, and if they wish to change the way in which the lease is accounted for, I would be happy with that as I believe the public expects the full amount to be in the administration category. As the audited financials are due by November 30, I hope that Alberta Education will be following up on this “observation” soon and coming up with a more definitive statement as to where the lease should be accounted for going forward.

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