In West Contra Costa County, bureaucrats splurge on taxpayer money

By Marc Joffe
July 24, 2017

Despite living in the affluent Bay Area, residents of western Contra Costa County have been plagued by a rash of government fiscal crises. The region’s healthcare district filed for bankruptcy twice and is now no longer providing services despite collecting $5.5 million in annual parcel taxes. West County’s largest city, Richmond, carries a junk bond rating from Moody’s Investors Service. The neighboring city of Hercules defaulted on three municipal bond issues earlier in the decade.

And then there’s the local school district. Although West Contra Costa Unified School District (WCCUSD) is not in immediate danger of insolvency, its mismanagement of bond funds has raised serious questions about the school board’s ability to handle taxpayer money.

A Legacy of Insolvency

WCCUSD was operating under its original name, Richmond Unified, when it filed for bankruptcy on April 1991. It was only the second California school district to ever use the Chapter 9 bankruptcy process.

The filing was necessitated by years of financial mismanagement. According to district bond documents, annual operating deficits started in the 1983-1984 school year and reached $20 million by 1990-1991. State auditors found that the district misspent $7.7 million in Voluntary Pupil Integration funds provided by the state (these funds were intended to support racial balancing of district schools via busing and other means). After the bankruptcy filing, Richmond Unified defaulted on Certificates of Participation – debt securities that it had issued three years earlier without voter approval in a failed effort to fill its fiscal hole.

After the bankruptcy filing, Richmond Unified threatened to end its 1990-91 school year six weeks early, but backed off in the face of multiple lawsuits and after receiving a state bailout. The bailout took the form of $29 million in loans which the district finally paid off in 2012. The loan originally carried a 6% interest rate, but was lowered to 1.5% after teachers and activists started a hunger strike.

While the loan remained outstanding, a state-appointed trustee retained the authority to overturn school board decisions. In 2011, outgoing trustee Linda Grundhoffer tried to compel the district to close a pair of elementary schools with low and declining enrollment. The smaller school, Shannon Elementary in Pinole, had fallen below 300 students. Because the district was in the process of closing out the state loan, the board was able to ignore Grundhoffer’s decision.

Wasting Bond Funds

The district has now been free of state control for five years. While it has been able to balance its operating budget and maintain healthy cash reserves, its stewardship of school construction funds has been troubling.

Starting with the good news, WCCUSD’s 2016 financial audit shows general fund revenues exceeding general fund expenditures by $30 million. The district ended the fiscal year with over $59 million in assigned and unassigned general fund reserves.

But the district’s government-wide balance sheet is less impressive, showing $1.6 billion in long term liabilities and a negative unrestricted net position. While some of the outstanding debt is attributable to unfunded pension and retiree health benefit commitments, most of the liabilities are bond obligations arising from an aggressive building program.

The district’s need for so much construction is hard to understand given enrollment trends. Traditional public school enrollment within WCCUSD declined 1.5% from 29,078 in 2010-11 to 28,639 in 2015-16. While more school age children have moved into the area, they are all going to charter schools. During the same period, charter school enrollment rose from 900 to 2334 as four new schools opened.

The district is not responsible for charter school construction and improvement: that is the handled by charter operators often with the help of generous donors. In West Contra Costa, philanthropists Steve and Susan Chamberlin have built or renovated four buildings to house charter schools.

That leaves the question of why the district needs to borrow so much money for school construction. Even in the face of stable or declining enrollment, existing school infrastructure must be maintained or replaced. It is not reasonable to expect students to succeed in old, crumbling buildings.

But despite borrowing and spending so much construction money, the district does not appear to be providing adequate facilities for all students. In a 2012 complaint, the ACLU claimed that WCCUSD exposed at-risk students in a Community Day School to unacceptable conditions.  The suit alleged that “students have been subjected to a school environment that at times has had no electricity, no heat, leaky ceilings, insufficient desks and chairs, rat and feral cat feces and mushrooms growing out of the floors.” Since the Community Day School had enrollment of 29 students, with only 8-10 attending on a typical day, the facility issue could not be attributable to a lack of capacity.  WCCUSD shut down the school in 2013.

Rather than provide adequate facilities to all students, the district is building very expensive schools for some and frittering away bond proceeds due to waste, fraud and abuse. The new Pinole Valley High School has a construction budget of $130 million in part because it includes separate Gymnasium and Performing Arts buildings. With enrollment of just 1200 students, the new facility will cost over $100,000 per pupil.  When the costs of tearing down the existing high school (which is only 50 years old) and of setting up, maintaining and removing the temporary campus are included, the overall replacement program will absorb a staggering $250 million of bond funds.

In April 2015, WCCUSD project analyst Dennis Clay made a whistleblower complaint, releasing hundreds of documents that provided evidence of systemic mismanagement. The district responded by hiring an external accounting firm to conduct a forensic accounting investigation at a cost of almost $1 million. The external firm’s 1485-page audit report, released last fall, contained numerous recommendations but appeared to lack a smoking gun.

The forensic auditor also revealed that the district’s construction management firm, SGI, refused to cooperate with numerous information requests. As a result, the auditor was unable to determine whether SGI inappropriately billed the district for sick and vacation time, and if its invoices had appropriate supporting documentation. Former employee reviews of SGI on Glassdoor allege that the company was “fairly disorganized”, that “not many people knew what they were doing” and advised management to “keep yourself clean.”

Despite suspicions that SGI overbilled and potentially ripped off taxpayers, the district has been unwilling to compel the firm to fully cooperate with investigations. In May 2017, a group of citizens organized by the Contra Costa Taxpayers Association sent WCCUSD a letter demanding that the district enforce SGI’s compliance by retaining outside legal counsel. The authors noted that SGI’s contract contains a “Right to Audit” clause stipulating full access to project documents. The district’s attorney sent the citizens a non-committal response, indicating that the board has considered the use of outside counsel but that these discussions were held in closed session and thus could not be disclosed to the public.

Although located in the affluent Bay Area, Western Contra Costa County residents are mostly people of modest means. Struggling with the region’s high cost of living, the last thing they need is for government to waste their tax money. Unfortunately, they have been ill-served by elected officials and bureaucrats who fail to maintain local government fiscal stability and have thus triggered a string of needless financial emergencies.

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