From bond measure to federal probe: How Fresno Unified caught the eye of investigators
Since Fresno Unified School District found itself under fire for a “lease-leaseback” contract, superintendents and developers across the state have been quick to point out that the no-bid alternative is a legal way to build and renovate schools.
And they’re right. Leaseback deals are legal.
So how did California’s fourth-largest school district wind up under a federal grand jury investigation that targets those deals?
Fresno Unified officials maintain that they used the special financing method – in which a district is permitted, by law, to skip the competitive bidding process – the same way as many other districts across the state.
But critics say what Fresno Unified did was a blatant misuse of an exception to the law that was intended to help poor school districts, and is more black and white than others’ use of the loophole.
Garret Murai, an Oakland-based attorney specializing in construction law, says while districts have been teetering on the legal use of the leaseback exception, Fresno Unified’s case is too obvious.
“Right now, I think a lot of districts and contractors are in that morally gray area where they don’t know what’s OK and what’s not,” Murai said. “But the Fresno case was actually a lot more clear cut. They just did not enter into a true lease-leaseback with a developer, which, when I read it, I thought, that’s a clear no-no.”
The subpoena, served to the district in August by the U.S. Attorney’s Office, doesn’t name individuals. But Superintendent Michael Hanson, Chief Financial Officer Ruthie Quinto and Chief Operations Officer Karin Temple have been scrutinized, since they’re the people who directly oversee all contracts.
Last week, an unplanned school board meeting was held in closed session to discuss hiring a criminal defense attorney to represent the three officials pending the outcome of the investigation, but no action was taken.
The board already has hired Carl Faller, formerly of the U.S. Attorney’s Office in Fresno, to help the district comply with the subpoena’s wide range of demands – which probes any financial dealings between officials and select developers, and requires Fresno Unified to turn over personal emails and phone records.
The Fresno Teachers Association asked the three to step down last week, citing concerns about allegations that documents possibly tied to the investigation are being destroyed. But Hanson said the allegations were false, and stands by his claims that what started all of this was simply routine business.
LEASE-LEASEBACK IS NOT SUBJECT TO COMPETITIVE BIDDING LAWS, AND SOME, PERHAPS, HAVE TAKEN ADVANTAGE OF THAT FACT. SCHOOLS CAN UNILATERALLY DECIDE WHO THEY WANT TO ENTER INTO AN AGREEMENT WITH, AND THEREBY ALLOW INFLUENTIAL CONTRACTORS TO CORNER THE MARKET.
Garret Murrai, construction law attorney
Measure Q
The state Legislature created the leaseback method in 1957 to allow cash-strapped districts to build schools even if they don’t have the money to pay for them upfront. Under leaseback, districts are allowed to circumvent the traditional bidding process and hand-pick a contractor who will agree to build, then accept payments over time. School districts can pay back contractors for a project for up to 40 years.
For Fresno Unified, it all started with Measure Q – a $280 million school bond passed in 2010. Up until then, the district always had taken the traditional route of publicly advertising projects and awarding them to builders who made the lowest offers.
“We knew we were looking for a project-delivery method that would allow us to move quickly to implement multiple, major projects simultaneously in anticipation of Measure Q’s passage,” Temple said. “We talked to many districts throughout the state, and they all had positive experiences. We really did our research.”
Hanson and Quinto declined to be interviewed for this story.
Since 2011, Fresno Unified has spent millions in public bond money on more than 20leaseback agreements, including the one at the center of a legal fight that could change the way districts in California finance school projects.
The 5th District Court of Appeal ruled in June that Fresno Unified’s contract with HarrisFrom bond measure to federal probe: How Fresno Unified caught the eye of investigators | Fresno Bee:
