Community Requests Investigation into Measure J Funding For Mismanagement of Monies

South San Francisco, CA   October 1, 2015

The South San Francisco Unified School District’s execution of the $162 Million Measure J Bond continues to come under fire after the Forensic Audit revealed $11 Million shortage to complete projects and the questionable practices that were used by District representatives. While it appears the School Board has found other funding to complete the unfinished projects and have acknowledged errors with a ‘Let us move forward’ attitude, many in the community demand further investigation for possible criminal behavior and for accountability.  A simple internet search of California School District lawsuits regarding construction brings up a multitude of articles highlighting this very issue. (CLICK HERE)

One of the concerns voiced by many taxpayers is the lease/lease back agreement which is similar to the the issue before the Supreme Court posed by the Fresno Unified School District which is being closely monitored by school districts through out California. In addition, the issue of financing the solar panels at tax payers expense instead of using third party lenders which has been done with other School Districts and Chevron, needs to be examined since it was not included in the Forensic Audit.

And because the City of South San Francisco is seeking a 1/2 percent tax on this November ballot, there is community concern that similar lack of oversight and inappropriate spending might happen as is believed to have taken place with Measure J monies. Some of these concerns have been shared on our social media by residents as South City neighbor Alana commented ‘The City wants the citizens to approve a .05 sales tax x35 years to fund projects around town. With the way funds are spent by the district schools with tax payer monies, my confidence is shaken that projects will be done correctly, and within budget.’ While both entities, SSFUSD and the City of South San Francisco, are completely different agencies, public trust needs to be restored through a thorough investigation of Measure J funds.

The Winston Manor Community Association is one group that has been following Measure J funds since this was passed by South City voters back in 2010. Members of this Association continue to attend the meeting, both School Board and Citizens Bond Oversight Committee meetings. They have expressed frustration that their concerns are not being heard nor addressed by Boardmembers or District representatives.

Below is the General Letter to the Community by the WMCA as they share with the public what they have learned, or not learned, about the financial dealings of the $162 Million Measure J Bond. Also included below is the Winston Manor Community Letter to the SSFUSD Board of Trustees that WMCA Secretary Anna Nastari was not able to complete reading into record at the last School Board meeting during the allotted 3 minutes per speaker.

The next regular School Board meeting is slated for October 22nd and starts at 7pm. In addition two additional meetings will be held by the SSFUSD; October 8th the SSFPD will discuss student security and on October 12th a community forum will discuss surplus properties.  Both of those meetings begin at 6pm. All meetings will be held at the Baden High School gymnasium. For more on the SSFUSD School Board meetings, agendas and minutes please CLICK HERE.

Open Letter to the Community

After voters of the South San Francisco Unified School District “the District” passed Measure J in November 2010 (a $162 million bond measure), Board of Directors of the Winston Manor Community Association “WMCA” as tax paying members of the community, tried to monitor the expenditure of these funds. After all, the entire $162 million (plus interest) will be paid by taxpayers for the next 40 years.

We thought it was important to know how the money was spent, to ensure that the funds were spent in a prudent and appropriate manner. This letter is to report on what we have discovered as members of the community and to highlight some issues from the District’s May 2015 Forensic Audit.

At first it was indicated that the District would carefully spend these funds at a rate of $40.5 million every two years through 2017. Instead, by April 2015, the District had carelessly burned through the entire $162 million. In fact, they spent it so fast that they lost control of expenditures and did not realize how much money they were spending. As a result, the District overspent the bond measure by a minimum of $11 million, on projects already in process. Also, they cannot complete with bond funds, all of the projects that they indicated would be completed.

Most of the funds were spent on solar power and modular constructions projects at various school sites. Millions were also spent to hire construction professionals and consultants to assist District officials.

On March 25, 2011, the first project a $25 million contract with Chevron Energy Solutions “CES”, was initiated to invest in solar power panels to generate electricity. Solar panels were installed at each school site with a primary purpose of replacing a District operating expense (the PG&E bill)! Please note that paying an operating expense with bond funds is prohibited by the California State Constitution and Education Code.

Although this project cost $25 million in bond funds, the CES project will only save the District $1 million a year for the next 20 years, a total of $20 million! What was not disclosed, until April 2015, is that it will actually cost taxpayers between $45 and $52 million (including interest) to pay for this project. As a result, to save $1 million a year for 20 years, the CES project will result in a significant cost to taxpayers and loss of public funds. Long after the solar panels have stopped working, taxpayers will be paying the bill for the next 40 years.

Before they began construction of new classrooms, District officials promised the public that they would construct high quality “brick and mortar buildings”. On November 8, 2012, the District entered into a contract with a modular company called Project Frog. Project Frog submitted a bid for the construction of lower quality “modular buildings” at various school sites, including entire schools (Buri Buri & Parkway). Although Project Frog was awarded a “noncompetitive contract”, it was later discovered that Project Frog “was not a licensed contractor” and “did not have general contractor qualifications”. Instead of canceling the contract, the bid by Project Frog was transferred to a third party contractor USS Cal Builders.

To justify not putting the projects out for competitive bids, the District used “lease-lease back agreements” for the modular building projects. Because no other contractors were allowed to submit competitive bids, the public will never know if the amount paid by the District was fair and reasonable. It may be of interest to note that in May 2015, the Court of Appeals for the State of California made a ruling that these type of “lease-lease back agreements were illegal”. The District had entered into illegal contracts for these projects.

Unfortunately for taxpayers, because of serious errors and omissions from Project Frog’s bid, projects at Buri Buri Elementary and Parkway Middle Schools, could not be completed for the amount of the bids.

Project Frog’s bid was incomplete as it did not include costs for obvious and necessary site work. Utility connections beyond 5’ from buildings footprints were not included.   As a result, classrooms and bathrooms were not connected to any utilities (electricity, sewer, gas, water etc). It will cost taxpayers an additional $11 million, to complete these two projects, in addition to the $162 million from Measure J.   The WMCA does not understand how the Board of Trustees, District staff, USS Cal Builders, Project Frog, Project Architect Quattrocchi Kwok and the Management Consultant team from Swinerton, failed to notice that these costs were not included in the bid. Didn’t any of these “experts” read the contract?

The Forensic Audit has also uncovered several other issues that should be of concern to taxpayers.

• The initial contract awarded to Project Frog was $24.5 million and was subsequently increased to over $100 million. These contract changes were not disclosed in a public forum and there were no renewed negotiations by the District’s construction team.

 

• Many of the changes resulted from one on one meetings and direct negotiations between the District’s Bond Director and the General Contractor. The District’s construction managers were excluded from these closed door meetings and were not involved in the negotiation of change orders and contract amendments. This is a highly inappropriate way to negotiate public works projects.

 

• It was also determined by the Auditor that the General Contractor was billing the District for “work that was not completed or started”. Concerns raised by the District’s construction managers were brought to the attention of the Bond Director, but were dismissed by the Bond Director and the payment applications were approved for payment. This type of payment in advance is inappropriate and the review of payment applications was well below industry standards

 

• Without approval from the SSFUSD Board of Trustees, the Bond Director also approved the transfer of funds from one project to another to cover change orders and increased costs. This is also an inappropriate use of public funds as these types of increased costs must be submitted to the Board of Trustees for approval. The Bond Director significantly exceeded his scope of authority.

 

• When it became time to start the last project on the list, Martin School, it was discovered by the District that the entire $162 million was already spent and they were in a deficit condition in excess of $11 million. The Martin School project could not be started. Until the forensic audit was completed in May 2015, District officials, the Board of Trustees and Superintendent Hogan were apparently unaware that there was no further Measure J funding available for the Martin School project.

 

• On September 5, 2014, Swinerton, Construction Management Consultant, terminated their contract citing concerns that the District was violating District policy, state law and the public trust. On January 31, 2015 the Assistant Superintendent of Finance, Patricia Ernsberger, resigned. On June 30, 2015, Superintendent Alejandro Hogan also resigned (and refused to be interviewed by the forensic auditors).   They left behind a bill for $337,067,764 (including interest) for taxpayers to pay for the next 40 years, plus additional costs to pay for projects that were not completed.

Submitted by: Board of Directors of the Winston Manor Community Association in South San Francisco

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TO: Board of Trustees of the South San Francisco Unified School District

FROM: Members of the Board of the Winston Manor Community Association

DATE: September 24, 2015

Members of the Board of the Winston Manor Community Association have spent a significant amount of time as attendees at meetings of the Citizens Bond Oversight Committee. This was an attempt to become informed members of the community, regarding the expenditure of Measure J funds.

What we have observed has left us disappointed and appalled. From the beginning it was apparent that Measure J funds were not being spent in a prudent or appropriate manner.   Also, that there was an obvious attempt by the District to keep information from both the public and the CBOC and a refusal to disclose exactly how the funds were being spent.

Over the years we brought to the attention of the Superintendent and Board of Trustees that the Chevron solar project was an inappropriate use of Measure J funds and would result in a significant loss of public funds. We have been treated as if our concerns were without merit.

We clearly demonstrated that other school districts were saving money by installing solar power systems, which were financed by third party lenders like Bank of America. Although this was at no cost to taxpayers the District refused to consider this as an alternative to the use of Measure J funds to finance the project.

It was not until April 2015 that the public was finally informed that the $20 million in savings that will result from the Chevron project, will actually cost taxpayers between $45 and $52 million (including interest).   This is an excessive loss of public funds and taxpayers will be paying this debt for the next 40 years.

We do not understand how the Board of Trustees can possibly justify this loss or to have incurred this amount as a taxpayer liability. The public deserves to know why the Chevron project will result in such a significant loss to taxpayers. This project was not included in the May 2015 Forensic Audit. Therefore, we call upon the Board of Trustees to have this project investigated and fully audited and to explain and justify this expenditure.

Regarding the Forensic Audit, we are also at a loss to understand how the Board of Trustees can excuse or justify the outcome of the audit. It is apparent that the lease/leaseback agreements were an inappropriate process for a project this extensive, which has been reaffirmed by the State of California Court of Appeals. There was no competitive bidding and a complete lack of the control of expenditures.

It does appear from the audit that several members of the districts management team have exceeded their authority and may have performed their duties and responsibilities in a negligent manner. These individuals were hired to perform their duties in the Districts’ best interest and should be held accountable.

It also appears that contractors, project suppliers, architects and professionals who entered into contracts with the District, may have also been negligent in the performance of their duties and responsibilities. These individuals and businesses should be held accountable for any negligence that may have occurred.

The Forensic Audit has left many questions unanswered, which will require further investigation and examination. The results of the audit clearly indicates that there was questionable conduct by parties both internal and external, who were involved in these projects. The WMCA is, therefore, requesting that an investigation be conducted by the appropriate authorities, to determine if there was inappropriate conduct or any possible wrongdoing that may have occurred.

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