A California appeals court’s decision last month in a complex case involving a construction firm that built a Fresno middle school is more than a simple dispute about a building contract. It offers insight into the questionable ways that California’s public schools spend taxpayer dollars – and the unwillingness of the Legislature to do anything about it.
The case highlights the “big money to be made” as California schools spend $100 billion annually, “which translates into political jousting for pieces of the financial pie,” argued CalMatters’ Dan Walters in a recent column on these pages. The specific issue focuses on a financing mechanism that is widely used by California districts.
In 2012, a contractor filed suit against Fresno Unified alleging the school district’s $36.7-million contract with a rival firm violated competitive-bidding and conflict-of-interest rules. Under California’s “lease-leaseback” law, districts can lease property to a developer that builds a school, and then the district leases it back. Districts can thereby build a facility without having upfront cash.
The law is designed to let schools lease back facilities over many years, but, sometimes, the districts simply lease them back over the construction period – thus allowing them to use the process as a means to bypass state competitive-bidding restrictions.
In this case, the court previously ruled that, “the contracts used were not genuine leases but were, in substance, simply a traditional construction contract with progress payments.” It found that the contractor “participated in the making of a contract in which contractor subsequently became financially interested.” Last month, the court ruled that the firm could be forced to return the money.
From a broader perspective, state officials continually seek ways to pump more cash into school systems, even though more than 40 percent of the general-fund budget goes to education. They never seem to have enough funds, even amid declining enrollments.
Before looking for new revenue streams, California needs to assure that districts are spending their budgets as efficiently as possible. If the state ever gets serious about doing so, it should start by reviewing its school contracting procedures.