The Fight Against Questionable Construction Contracts Awarded by TUSD
The below is provided courtesy of local activist Rick Marshall and is a must read for those concerned about how TUSD spends taxpayer funded bonds or those wondering why construction was halted on facility upgrades at local schools.
Do you hate seeing property taxes wasted by the millions in no bid contracts for school construction? Handouts made possible by school bond campaigns funded by the very recipients of the largess—bond underwriters, consultants, contractors and architects? Who also fund the campaigns of school board members voting for the handouts with little regard for how much they are overpaid for the work?
For the last 10 years, using non-competitively bid leaseback contracts that on their face do not comply with the applicable narrow statutory exception to competitive bidding in the Education Code, greedy construction contractors have fleeced hundreds of millions of bond dollars from unsuspecting California school districts.
Such arrangements have created a pay to play culture by the contractors, architects, consultants and bond underwriters who fund campaigns that elect school board members who in turn lavish on them millions of dollars in no bid contracts under leaseback contracts; a system that encourages fraud, corruption, misuse of public funds and lack of competition. In San Diego’s South Bay school districts it eventually led to convictions.
But the pay to play culture around school bonds is about to change; and with it the fraud, favoritism, waste, corruption, crony capitalism and abuse of taxpayers.
On June 1, 2015, California’s Fifth District Court of Appeal published a decision in Davis v. Fresno Unified School District that begins the long march back to fiscal sanity. The impact changes the way school construction contracts are awarded and school bond funding is spent—protecting taxpayers not rewarding campaign contributors. An added benefit is that money spent on those illegal leaseback contracts must be returned so that the bonds used to fund them can be paid off.
In addition to protecting taxpayers by clarifying the narrow conditions under which school districts can avoid competitive bidding using leaseback contracts the Davis decision adds significant protections to taxpayers because it clarifies these contractors cannot advise or influence the school district in the planning of their project, drafting of plans, setting of budgets or selection of materials.
While it would be good to have a contractor advise the district on these matters it is not good to have the same contractor who is going to receive the construction contract advise the district. The Davis court agreed this arrangement creates an illegal conflict of interest scenario where the contractor can be looking after its best interest rather than the school’s best interest. This is like hiring a fox to guard your henhouse. No matter how nice and reputable the fox is, it’s common sense not to hire a fox to guard your henhouse.
Unfortunately, the Davis decision is under attack before the ink is even dry. Contractors statewide know they have been getting away with murder on their sham leaseback contracts. Now they want the Legislature to give them a “get out of jail free card” to avoid having to comply with applicable statutes in effect since 1957. These unscrupulous leaseback contractors and their lobbyists are petitioning Sacramento legislators to change those statutes retroactively so they can avoid paying back millions of dollars to the school districts they have plundered through their illegal leaseback contracts and crooked conflict of interest deals. Here’s the “get out of jail free” language they want inserted to existing Education Code 17406 and Government Code 1091.5. Public Contract Code 5110 should also be watched.
The idea is to nullify the recent 42 page Davis opinion by one of the most respected Appellate Courts in California and validate their leaseback contracts; an opinion detailed in its analysis and well-reasoned in its conclusions upholding sound public policies in favor of competitive bidding and against conflicts of interest by those who advise public entities.
Their preferred vehicle for lobbying the change is an innocuous sounding front group called the Coalition for Adequate School Housing, with the interesting moniker of CASH. All you need to know about CASH is explained here. The moniker speaks volumes as to the organizational goal and whose interests are represented.
While CASH has many well-intentioned school districts and their employees and officials as members, the real purpose of CASH is to be a well-funded advocacy and marketing machine for bond underwriters, attorneys, architects, consultants, construction managers, contractors and others (collectively the School Facilities Industry) to influence those well-meaning school district officials and employees into handing over billions of dollars in taxpayer-funded school bond funding to their fellow CASH members in the School Facilities Industry.
But a legislative fix is unnecessary. School districts can still use non-competitively bid leasebacks for school construction if the following two conditions are met:
- It is a real lease back arrangement over time (can’t end concurrent with completion of construction) AND
- Contractor has to provide genuine financing.
In fact, a non-competitively bid leaseback contract was just awarded that meets these criteria.
For over 150 years the California Supreme Court has said companies and individuals contracting with public entities are presumed to know the laws that apply to their contracts. Where payments are received under a contract that does not comply with all applicable laws, the contractor must pay back to the public entity all money received under the illegal contract. The Supreme Court has also acknowledged this to be a harsh result but said contractors would never follow the law if they got to keep all the money they received under illegal contracts. A summary of Supreme Court statement of California law and public policy can be found in Miller v. McKinnon (1942) 20 Cal. 2d 83, 88-90.
Taxpayer and school district advocates expect the language that is being hammered out by well paid lobbyists in the back rooms of the Capitol will be quietly inserted into existing innocuous legislation just before midnight on the last day of the legislative session in a classic gut and amend maneuver they hope will avoid the light of day and public scrutiny.
San Diego San Diego legislator Joel Anderson is the leading contender to carry this dirty water for the leaseback contractors to absolve them from their debts to the school districts they have fleeced. Anderson is the author of SB 569 which as introduced made no substantive changes to the main leaseback statute Education Code 17406 (e.g. changed “board” to “governing board”, changed “district” to “school district”). SB 569 is an obvious Trojan horse placeholder to be used as a hedge at a later date (i.e. now) to legislatively reverse any court decision against the leaseback contractors.
Senator Anderson is likely willing to do the contractors bidding based on his long standing relationship with them and his need for their continued financial and voting support in his 2016 bid for a San Diego County Board of Supervisors seat. Toward that end the Republican Party of San Diego County (through which the contractors are washing their Anderson campaign contributions) made a $200,000 contribution to Senator Anderson’s 2016 County Supervisor Campaign on March 4, 2015 just 6 days after Senator Anderson introduced SB 569 as a Trojan horse for them.
That the Legislature would even consider such patently offensive retroactive legislation should be shocking to the conscience of all Californians. How can a Legislature pass laws that put third strike offenders in prison for life for stealing a six pack while at the same time pass legislation immunizing unscrupulous school contractors who have received millions of taxpayer dollars in illegal no bid contracts with obvious conflicts of interest?
Cynics say the Golden Rule is that he who has the gold makes the rules. I would hope our progressive California Legislature and Governor would ever allow that to happen in California and prove the cynics wrong.
This David vs. Goliath battle is now moving from the courts into the Legislature. Anyone who is in favor of good government and against fraud, favoritism and corruption must join this fight now. It’s time to notify our Sacramento representatives that they must vote no on this cancerous special interest legislation.
Please also email me if you want to join this fight.
Rick Marshall, Chief Financial Officer
California Taxpayer’s Action Network
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