Losing Ground

One well-connected nonprofit has landed two Portland schools properties at prices hundreds of thousands of dollars below appraised values.

The deals that benefited the Native American Youth and Family Association, or NAYA, came despite the school district's reluctance in the past 15 years to sell surplus property.

NAYA runs one of the district's community-based alternative high-school programs that were the focus of WW's cover story last week on graduation rates in the Portland Public Schools ("Flunk Factories," WW, Nov. 13, 2013).

WW reported that PPS is sinking millions into expensive alternative programs, contrary to the practice of other comparable districts. A PPS audit in August found those peer districts have far higher graduation rates than Portland's despite spending far less per student.

Meanwhile, critics say that NAYA is working increasingly closely with PPS. 

"NAYA's contracts with the district have gone from next to nothing to nearly a million dollars a year," says Teresa McGuire of Restore Education Before Buildings, a watchdog group that opposed the district's capital bond issues in 2011 and 2012.

"They've gotten what looks like two wonderful real-estate deals, one when their executive director was on the School Board. Is that an ethical way for the board to treat taxpayers?"

NAYA currently receives $688,000 a year from PPS to operate its high school and also has PPS contracts for parent involvement and early childhood education. 

Matt Morton, NAYA's director, who was elected to the School Board in 2010, says he has been fully transparent about potential conflicts of interest between his organization and the school district.

"The conflicts are known and out there," Morton says. He notes that NAYA purchased its headquarters from the district before he joined the organization and signed all its contracts with PPS before he joined the School Board. 

But the transactions raise questions whether the perennially cash-strapped district is treating all potential buyers equally and whether it is being financially prudent.

Bob Alexander, the district's director of planning and asset management, says NAYA got no special treatment.

"There's no attempt to help NAYA at the expense of anyone else," Alexander says. "Their needs coincide with what we're trying to do as a district."

PPS has long held a large portfolio of underused real estate since enrollment in the district has shrunk from 80,000 students in the mid-'60s to about 48,000 today. Despite owning nine vacant schools and four empty administration buildings, PPS has been reluctant to part with them.

A comprehensive audit highlighted the district's surplus real estate 15 years ago. "PPS is maintaining a large number of old and underused facilities," the accounting firm KPMG found in 1998.

Last month, the district finally closed a $2 million deal to sell the former Washington High School at Southeast 12th Avenue and Stark Street—32 years after the building served its last student.

PPS has leased some of its surplus properties at market rates—to the Riverdale School District for its high school in Southwest and to De La Salle North Catholic High School in North Portland, for instance—but other potential tenants or buyers say they have found it difficult to do business with the district. 

Portland Village School, the district's largest charter school, with 395 students, is bursting out of the church-owned property it leases in North Portland. 

Charters, such as Portland Village, educate public-school students with public dollars. 

In some states, school districts make their publicly owned surplus real estate available for charter use. PPS does not.

Portland Village supporters say the school pursued buying at least three different mothballed PPS elementary-school buildings—Clarendon and Applegate in North Portland and Foster in outer Southeast—without success.

Alexander says the availability of PPS surplus property and the needs of charter schools have not lined up.

Diane Garrett, a former member of Village School's site committee, said district officials resisted selling the surplus buildings to the point it was no longer worth the charter school's efforts to pursue a deal.

"The school became discouraged by PPS's response," Garrett says, "and essentially gave up."

NAYA had much better luck.

The association was founded in Portland in 1994 but really took off under the leadership of Nichole Maher, its executive director from 2001 to 2012, when NAYA's budget grew from $200,000 a year to $10 million. Last year, NAYA served 1,400 children and their families. 

NAYA began renting the district's Whitaker-Lakeside campus on 10-plus acres along Northeast Columbia Boulevard in 2006. 

Among other services, the nonprofit runs a PPS-funded community-based alternative high school in the 63,500-square-foot building. 

Right away, documents show, NAYA expressed interest in buying the property, and then-Superintendent Vicki Phillips, who had a strong working relationship with Maher, supported the sale. 

PPS first offered it to the city and the county, as district rules require. When both passed, PPS began exclusive negotiations with NAYA, without putting the property on the open market. 

District policy permits what is called a “directed sale,” if the transaction provides “community benefit.” 

On July 20, 2009, the School Board voted to sell the property to NAYA at a price “based on the current fair market value.” 

The agreed-upon price was $2.9 million.

But records show the property was appraised at $3.3 million  only four months earlier.

Alexander says the price was fair because the building needed a new roof.

In October 2012, three years after the sale, NAYA refinanced its original mortgage. Loan documents show the value of the property had soared to at least $4.7 million.

Rey Espana, NAYA's director of community development, says the property's increased value reflected improvements to the building but also a stronger real-estate market. "We bought when land was pretty depressed," Espana says.

Alexander says the increase in value reflects NAYA's investment and improved market conditions. "The economy changes," Alexander says.

In 2012, NAYA landed another district property, this time thanks to then-Mayor Sam Adams. 

PPS faced a $27 million budget shortfall that year, and Adams arranged for the city to provide the district $5 million. But the bailout came with a condition—PPS would have to turn over another surplus property to NAYA.

To get the money, the district agreed to lease 2.16 acres of the dormant Foster Elementary site at 5205 SE 86th Ave. in Lents to NAYA. 

The terms of the lease: 99 years at no cost. 

That was far below what the property was worth. A 2012 appraisal pegged the land's value at $425,000.

NAYA plans to develop 40 units of multigenerational housing on the site. If it is successful in raising money for construction, NAYA can buy the ground in 15 years.

The price: $1.

Espana says NAYA also hopes to raze the existing Foster Elementary building on an adjacent acre and build a new early childhood center, which it would operate under contract with PPS.

Lainie Block Wilker, a parent activist who wants the district to invest more in scientific and vocational education, says the NAYA transactions are fiscally irresponsible for a district struggling to pay for federal mandates.   

"Why is NAYA getting sweetheart deals when [PPS is] out of compliance with federal requirements in areas such as special education and [English Language Learners]?" she says.

Morton says the board is merely investing in effective programs.

Alexander says both NAYA transactions support PPS's mission and represent reasonable values. He says the public should be happy with what PPS has done. 

“We are not doing sweetheart deals here,” he says. 

WWeek 2015