Cashing in on Education 

California’s school bond system is dominated by well-funded private interests and plagued by a lack of oversight.

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click to enlarge PHOTO BY BRIAN KRANS
  • Photo by Brian Krans

As part of the 2017-18 budget process, Brown’s office called for increased accountability and auditing before releasing Prop. 51 funds, namely independent audits to ensure state school bond money is being spent appropriately.

With Brown about to retire as governor, the state’s school bond market, and its billions of debt yet to be paid, will fall on the next governor.

Because most school and community college districts “lack the financial savvy to avoid unnecessarily expensive bonds,” they often rely on for-profit companies to assist them with their bonds and construction needs, according to Tim Schaefer, deputy director for public finance in the state treasurer’s office, who testified before the Little Hoover Commission in Sacramento in September 2016.

He said that well-intentioned people at the beginning of their political careers run for school board and are soon faced with multimillion-dollar decisions while hired experts are telling them it’s OK. “That strikes me as playing with financial matches,” Schaefer testified.

The commission’s final report in 2017 stated, “Unscrupulous financial advisers, who stand to gain from bond issuances that are poorly designed, can dupe unsuspecting district staff who may not know any better, significantly raising the cost of the bond.”

Dozens of grand jury investigations have been critical of current practices in the school bond system and a handful of school officials have served jail time for how they’ve handed out some of that money. While many firms have been able to help districts pass bonds and build schools with little fanfare, some more egregious cases in recent years have attracted the attention of the DOJ, the FBI, and the SEC. Many of those cases involved CASH’s members.

In 2012, several board members and a superintendent in a San Diego-area school district were convicted of corruption charges for accepting gifts and money from a contractor. The FBI has an active investigation into officials at Fresno Unified, the state’s fourth-largest school district, and campaign contributions from Harris Construction, a large Fresno-based contractor and CASH staple.

Both of those latter cases were spurred by lawsuits filed on behalf of taxpayer watchdog groups from San Diego-based attorney Kevin Carlin, who specializes in school construction law. For 15 years, Carlin’s lawsuits have challenged a type of contract that had a loophole around state competitive bidding laws called the lease leaseback. From then until earlier this year when legislators closed the loophole, school districts used them to award construction projects to developers and contractors who donated the most to bond campaigns without going through the competitive bidding process.

What was once used by school districts from as far north as Eureka and south to San Diego can be traced back to CASH’s annual conference in 2003, according to dozens of records requests filed throughout the state.

In 2010, Harris Construction in Fresno and other CASH members hosted a workshop for school districts that were trying to pass school bonds. Speakers included higher-ups from Harris Construction; the president of CASH’s parent lobbying firm and its attorneys; Fresno’s mayor; area superintendents; and Terry Bradley, a well-known name in California’s school bond industry and CASH’s former chair Bradley, at the time, was also securing campaign contributions for a Fresno school bond, gathering more donations from Harris after informing them they’d be avoiding competitive bidding laws to handpick a contractor for the work, according to emails I obtained.

Two speakers from that event — Bradley and an employee of Keygent, a school bond adviser — would later be involved in the first case prosecuted by the SEC under anti-fraud provisions of the Dodd–Frank Wall Street Reform and Consumer Protection Act. Authorities alleged in June 2016 that Bradley’s backdoor dealings with municipal advisors, or the people who managed school bonds for school districts, violated reforms that were created after predatory lenders caused the housing market to crash in 2008.

Unbeknownst to many involved, around the same time Bradley was raising money for Fresno’s bond campaign, he was a consultant to five other school districts about their bonds and getting paid by Keygent, which was bidding for work in those districts. During that time, Bradley shared confidential information with Keygent managers, including questions ahead of interviews with district officials and what Keygent’s competitors were bidding.

Keygent won five contracts in districts where Bradley was also a consultant. The SEC said he abused the trust he had gained as a key person in California’s school construction industry and as the former superintendent of the Clovis school district. He settled by paying a $50,000 fine in 2016 and was barred from acting as a municipal adviser on bonds in the future. Even after settling with the SEC, Bradley was still invited back to be a guest speaker at CASH events. His business, School Business Consulting Inc., was one of CASH’s sponsors of Prop. 51.

Across the state, Keygent has been the financial adviser to more than $10.2 billion in bonds, according to state records. In the East Bay, Keygent’s clients include the Peralta Community and Contra Costa County college districts, Fremont Unified, and other school districts.
One of Carlin’s ongoing lawsuits is against the Mount Diablo school district in Contra Costa County. The lawsuit alleges the district hired a consultant for pre-construction services, which then ultimately picked itself to do the final construction, thus violating state conflict-of-interest laws.

Through his legal work across the state, often at odds of CASH and its members, Carlin, like other taxpayer watchdogs, says some school districts aren’t motivated to safeguard school bond money.
“One would think that they would want to spend those dollars as wisely and prudently as possible,” he said, “until one considers the fact that the school district’s attitude might be that once the bond measure is exhausted, they’ll just have the contractors that they’re handing these contracts to go out and fund a campaign to convince the voters to pass another school bond measure.”

This report originally appeared in our sister publications, Oakland and Alameda magazines.


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