Christina district struggles to sell vacant building

Facing a $9.5 million budget shortfall after voters failed to approve its referendum this week, the Christina School District is sitting on a vacant 178,000-square-foot Glasgow building it co-owns with the state.

But even if it sold the property that has consumed roughly $22 million of government funds, the district cannot use the proceeds to address its financial needs. Under state law, that money could be used only to pay down the debt incurred to acquire it.

The school district had sought to reduce its funding gap by raising taxes by 37 cents per $100 of assessed property value, phased in over three years. Voters in the district rejected the proposal Wednesday by a vote of 5,968 to 5,074.

Now, more than 100 teachers, paraprofessionals and secretaries face layoffs, with more possible depending on next year's enrollment. After-school activities, music programs and freshmen and junior varsity sports face the chopping block. School maintenance and textbook purchases likely will be delayed, and the district will remove some school resource officers.

While selling the building may seem like an obvious solution, the reality of divesting the property is far more complicated.

Title 10 Section 1057 of the Delaware Code mandates school districts that built or purchased a property with money generated through the sale of state bonds must use any profits created through the sale of those properties to reduce the debt on the bonds. The proceeds cannot be used to reduce operational expenses such as lighting, heat and teacher salaries.

"If we were to sell that building and if we were able to make lots of money off the sale, zero dollars can go towards operations," said Robert Silber, assistant superintendent and chief financial officer for the school district. "Whatever we get from the sale would be applied to see a reduction in our future payments."

The bonds were sold in the school district's name. Silber said the bond payments are the only debts currently facing the district.

Not only does state law limit how sale proceeds must be spent, the law also limits how much of those funds the district can receive. Delaware schools can own only 40 percent of a property with the state owning the remainder. If a buyer is secured for the property, only 40 percent of the sale price would be allocated to the district.

Another issue facing the school district is the lack of interest in the building at 300 Executive Drive in the Pencader Corporate Center. The building has been on the sales block since 2009, and the state decided earlier this month to slash the asking price by almost half in an effort to entice buyers. When the property hit the market six years ago, it had a $14.9 million price tag. It has since dropped to $8 million. Colliers International of Conshohocken, Pennsylvania, is marketing the building.

A spokeswoman for the Office of Budget and Management said in a released statement the price reduction was the result of softer real estate market. However, the property was offered at $14.9 million toward the tail end of the recession.

"The previous appraisal of the property was done during the height of the real estate market," said OMB spokeswoman Jessica Eisenbrey. "Since that time, the market value of the property has decreased as reflected in an updated appraisal performed for the district in early 2015. The district recommended and OMB approved of resetting the asking price of the property to a level reflective of the revised appraisal."

So far, the property, which never housed a single student, has cost the state nearly $22 million. The building was purchased in March 2005 for $12.8 million. An additional $9 million was spent to transform it from office and warehouse space into a school.

"The building was designed to be a manufacturing building with office space," Silber said. "It was not designed to support an educational environment. It was not a matter of unlocking the door and moving in."

Silber described the transaction as "indicative of previous administrations."

Joseph Wise was district superintendent at the time of the purchase. He said in an email the district paid below-market value for the property after an independent appraisal. He also noted the Delaware Department of Education approved the purchase and the funds could not have been appropriated without state approval.

At the time of the purchase, school officials envisioned the building as the new home for as many as 1,200 middle school students. But a lawsuit initiated by the city of Wilmington accused the Christina School District of failing to comply with the Neighborhood Schools Act. A Delaware court ruled the school district violated the law and ordered it to completely reconfigure the district. Once the reconfiguration was complete, the school district found it no longer had a need in that area, according to Kelli Racca, senior director of facilities planning and operations and chief operating officer for the district.

"We talk about it now in terms of a what if," Silber said. "We can envision all sorts of wonderful things you can do with that asset."

In 2009, the district decided to unload the property. At first, the district went back to the state to see if another agency could use it, according to Racca. No takers emerged, and the Delaware Economic Development Office marketed it from December 2009 until December 2010. Racca said the University of Delaware was interested, but backed away after it purchased the former Chrysler plant in Newark for its Science Technology and Research Campus.

"It was like one storm after another," Racca said.

Colliers took over the building's marketing in 2010. The building is currently used by the district for storage of excess desks, lockers and even cafeteria equipment. The building's second floor is entirely vacant, Racca said.

Silber remains hopeful, but realistic.

"The building has been actively marketed, and there is interest in the property," he said. "But there is still plenty of supply on the market, unfortunately."

Contact Jeff Mordock at (302) 324-2786, on Twitter @JeffMordockTNJ or jmordock@delawareonline.com.