If those specific problems were not serious enough, an extensive investigation by the Vanguard has found a series of questionable decisions and critical mistakes by Tahir Ahad and his staff, especially with regards to facilities planning. During the course of this second segment, we shall examine problems that arose with the construction of Montgomery Elementary School, Mace Ranch Elementary, which eventually became Korematsu, and King High.
Due to the length of this discussion, the next segment of this series will cover the Grande Property, and also examine the Fiscal Crisis and Management Assistant Team (FCMAT) report and how the implications of a budget deficit was created by the use of one-time monies to fund ongoing projects.
One key point that needs to be made at the onset is that the district brought in FCMAT. They also brought in a consultant, Terri Ryland who reconstructed the district’s books that were in disarray following Tahir Ahad’s 2006 exit from the district. The key point however, as Board President Sheila Allen emphasized, “there was no lost money, there was no money that was illegally spent, but it was very difficult for someone to come in and be able to track exactly—here’s the money coming in, here’s how it was spent.” The other key point that will be demonstrated much more thoroughly in a future segment of this story is that many of the problems that FCMAT found with the district’s books have been thoroughly examined by the school district and new CBO Bruce Colby and the district has fixed many if not all of these problems.
Nevertheless, despite the fact that no monies appear to be missing, what the Vanguard has uncovered amounts to serious fiscal mismanagement. Money may not have been lost, but these practices undoubtedly cost the district much in terms of inefficiency, time, energy, and the expense of repairing the damage caused by Mr. Ahad’s business practices. The FCMAT report rated the district a “high risk,” a score that will be explained during the course of this report.
In 1998, the district attempted but failed to pass a facilities bond with the voters. Complaints ranged from the fact that the bond was too high to the fact that it covered too many schools and facilities. So in 2000, the school district placed a $26 million school facilities bond before the Davis voters. Included in this bond was $32 million in matching funds from the state. Measure K sought to alleviate overcrowding by building a new junior high school and two new elementary schools—one in South Davis and one in Mace Ranch.
The paired down ballot measure passed easily with 85 percent of the vote. However, in it contained the seeds that would cause almost a decade worth of problems for the Davis Joint Unified School District as well as many in the community.
The first problem was the decision to include Mace Ranch Elementary School in the bond measure. There were strong political reasons for its inclusion including a Mello Roos levied on the residents of Mace Ranch and the political need to include it in order to insure passage of the bond measure. But there were warning signs as well including a 1996 Future Facilities Task Force Report that suggested that future enrollment might only support an additional 1.5 schools rather than two full-two schools. Unfortunately, that projection has played out to present, where the Best Uses of Schools Task Force report basically found the same thing—the district does not have significant attendance to sustain a ninth elementary school. This is just a side note however; even now it is difficult to ascertain whether the decision to build two new schools was a clear mistake without 20-20 hindsight.
The larger problem however was the reliance of $32 million in state matching funds. The tenuous nature of such reliance was underscored just a little over a month after the passage of Measure K when the Davis Enterprise ran a December 19, 2000, article that questioned what a State Allocation Board decision to reserve a large amount of money in matching funds for Los Angeles might mean for Davis. This put into question whether Davis would receive their allotment of matching funds.
Ironically enough, Tahir Ahad was quoted in the article as saying:
“I believe it does not reflect positively on the work that districts like Davis have done to make sure we comply with the rules and regulations, and to get our applications in on time.”
The problematic nature of depending so heavily on state funding becomes apparent as we examine the problems that underlie the construction of Montgomery Elementary and Mace Ranch Elementary, which would become Korematsu Elementary School.
In August of 2001, the Davis School district signed construction contracts to build Montgomery Elementary School. According to the plan, the approximate funding requested for this project was just over $9 million of which the State was requested to fund just over $4.5 million.
According to the state law, the district had 180 days from this date to submit a funding application. However, the district did not file until July of 2002, or 11 months after the contract was signed. This application was “rejected due to the District being non-responsive to Staff’s request for addition information. In addition, the District did not qualify for funding since the construction contracts were signed more than 180 days prior to the District’s submittal.”
A key point needs to be made clear at this time—it was not clear that the District knew that it had missed the deadline. However, the application submitted was missing required information and the district failed to respond to requests for additional information.
While the facilities plan in general fell under Tahir Ahad’s auspices, the specific employee in charge of the application was Henry Petrino, the Facilities Director who also worked on the side for Total School Solutions. The readers should be reminded that Henry Petrino left the school district to work full time for Total School Solutions but was hired back as a consultant by Tahir Ahad (as was discussed in the previous segment).
By January of 2003, the school construction was completed. The district then submitted funding application for a second time. The application was rejected once again since the contracts were signed more than 180 days prior to the District’s submittal. The deadline was missed not by a short period of time either; it was missed by a full five months.
The Davis School District was not alone in missing the deadline however.
“Much has been made of the district’s ultimate success in August 2007 in obtaining $4.5 million from the state for the 2001-02 construction costs of Marguerite Montgomery Elementary School. We are also delighted at this successful result of many years of work by many people. When we learned in 2003 that a new regulation jeopardized our application for state construction funds, we supported the superintendent in his immediate efforts to secure the funds. More than 70 other school districts had run afoul of the same obscure regulation.”
In point of fact there were problems with the regulations; however, that really does not excuse missing deadlines. A simple call could have clarified any deadlines for matching fund allocations. Many familiar with such processes told the Vanguard that it would be the first thing we find out, because almost all applications have deadlines. One would ordinarily build a calendar to ensure compliance with any and all regulations. This did not occur with the school district in the case of Montgomery.
The Vanguard asked Board President Sheila Allen about the chief problem involved in losing the state matching funds during the course of her interview in January.
“The chief problem for why we lost the state matching funds was because we missed the deadline. To me, that’s inexcusable to just miss it. For something as huge as this, I don’t know what else that you’re doing, but something so very important as this, you just don’t miss the deadline. That’s the reason that the whole thing started is that you missed the deadline. And there can be speculation as to why one would have missed the deadline, but the bottom line is that the deadline was missed. I don’t think there was a sufficient consequence for such a large mistake as that.”
The bottom line however following the denial of funds is that the district was short of $4.5 million that was being counted upon to fund Montgomery. Worse yet is the fact that the construction was already completed before matching funds were secured. So what did the school district do? Did they issue a mea culpa and ask for more funding? No, they did not. They began a process whereby funding for other projects got shifted to Montgomery. However, the lost money from Montgomery was magnified by subsequent problems with the funding from Mace Ranch Elementary School—soon to be called, Korematsu. Before we discuss Korematsu, we will discuss the recouping of the Montgomery money, which took place just last summer.
“Winning the Lottery”—Recouping the
Following the second denial in April of 2003, the Governor placed a freeze on all regulations until May of 2004. Upon the lifting of the freeze, regulations for a 120-day grandfathering filing period were approved by the State Allocation Board (SAB) on an emergency basis. The district in November of 2004 submitted a 3rd application and this application was rejected since the District did not have eligibility for the project during the grandfathering period.
The problem was that by 2004, the district was experiencing declining enrollment and no longer eligible for matching funds by the state. It would take until the summer of 2007 until the district, with great effort on the part of staff and community, would secure this matching funding upon appeal.
Assemblywoman Lois Wolk told the SAB:
“It’s true that there have been numerous mistakes made on this application dating from the early year 2000 when the bond was passed and after that 2002 and onward… Many of these issues resulted in a new school board, a new school, a new chief budget officer, and a new superintendent. Heads have rolled indeed. But if the district is not granted this appeal, it is not those individuals frankly who were responsible for the errors who will pay but rather the Davis students.”
Former Assemblywoman and current County Supervisor Helen Thomson also apologized to the SAB for what she described as “very highhanded and arrogant” treatment by former employees of the district. She too emphasized personnel change in the form of a new superintendent and new business manager.
A thorough reading of the minutes from the SAB suggests that while the district did in fact recoup the $4.5 million in matching funds, it took tremendous effort and in many ways it was a decision made not on merits of the case as West and Sallee describe, but rather on mercy by the SAB. They certainly were well within their rights to follow the staff recommendation of rejecting the appeal.
Board Vice President Gina Daleiden told the Vanguard it was a combination of the efforts of Lois Wolk and Helen Thomson along with changes made by the school board that led to the reinstatement of the funding.
“We had a huge helping hand from our widely respected representatives, Assemblywoman Lois Wolk, Supervisor Helen Thomson, and Senator Mike Machado who all went in and made the statements that you can find reflected in the transcript. But basically it is my belief that the State Allocation Board, in that second meeting, understood that the district had made changes to correct past problems and mistakes, had acted responsibly, and had understood that our students would be the ones that would be most hurt by the denial. And our interim Superintendent listed several changes that had been made in the district that he helped make, and that our new CBO had made in our financial practices, so I believed sitting there in the audience, that the state allocation board understood that we corrected a lot of past mistakes and they were willing to give us the funding.”
The Davis School Board led by Jim Provenza worked very hard to make key changes that would enable the SAB to consider overturning the rejection on appeal. Senator Bob Margett, a Republican was a key player in the appeal process. He would not have been willing to overturn the decision had the district not worked hard to clean up their business office beginning with CBO Tahir Ahad, the replacement of David Murphy with Richard Whitmore as Superintendent, the hiring of Bruce Colby as the new CBO, and an implementation of the changes requested by FCMAT.
The Davis Enterprise quotes Keltie Jones praising Jim Provenza’s leadership and expertise on this matter.
School board trustee Keltie Jones credited Provenza, an attorney with the Los Angeles District Attorney’s Office in Sacramento.
“We benefited from your expertise in the state Capitol,” she said.
Board Member Sheila Allen generously praised the efforts of all involved.
“I have to take another opportunity, because I don’t know if they get a lot of positive press in your blog or not, but Mike Machado and especially Helen Thomson and Lois Wolk, not only came to the meeting and spoke for us, but they were doing political assisting behind the scenes and people were going out of the room and there were phone calls happening at the dais while people were doing their presentations. It passed with more votes than we actually needed. I felt like I won the lottery that day.”
As was the case with Montgomery, the district had budgeted roughly $9 million for the construction for Korematsu. Roughly $4.5 million of that was supposed to be financed by state matching funds. Instead, the district received only $2.476 million or roughly $2 million less than originally planned.
According to Board Vice President Gina Daleiden:
“When we filed for state funds enrollment was at one level and at the time the funding came in we had declined in enrollment so we actually received fewer dollars for Korematsu.”
Local funds had to make up the difference between the $2.4 million in state money obtained and the amount originally planned. Clearly, this is the fault of no one. However, it does illustrate once again the pitfalls of relying on state money as a necessary funding source. Due to the shortfalls and lost revenue, the district between these two projects was around $6.5 million in the hole as compared to the amount that was originally budgeted for the two elementary school projects.
Mismanagement however comes into play here as well. The project bid went to NTD Edge as a “sole source designed build” in which exactly one company was consulted.
The contract itself was very “unusual.” It was a “design-build lease-back contract.” The site would be actually leased to the contractor for $1 per year. According to the minutes from the September 18, 2003 board meeting:
“The design-build lease-back would allow the contractor to negotiate the price with the subcontractors of their choice, reducing cost and ensuring quality workmanship.”
The board would be informed that this arrangement would be “expected to see reduced architectural cost and reduced change order costs with this type of approach.”
This would turn out to be largely untrue.
Moreover, the minutes note, “Deputy Superintendent Ahad noted that the district qualified for funding for this project, but the funding is not released until a construction contract is awarded. There is a possibility the money would not be available, although the district already qualified.” Further Mr. Ahad “indicated that eventually the money would be released, but in the meantime the district would have a cash flow issue. The board member noted that was a concern.” A board member, believed to be Don Saylor, although not identified in the article, “noted that was a concern.” And in fact, the district received less than they expected from the state for this construction.
Further problems resulted from the structure of this contract. The board was told that they needed to adopt this contract the evening of September 18, 2003 or the contract opportunity would disappear.
In fact written into the contract were timelines and deadlines for the district to deal with issues such as the burrowing owl habitat within a timeframe that was largely infeasible. This led the contract to not be executed. As a result, the cost of materials went up and costs increased by at least $600,000 on the project.
Questions persist to this date about the nature of this contract and the reason for a single-bid award rather than an open bidding process.
The fiscal practices of the district and the loss in revenues would catch up to the district and Tahir Ahad with the construction of King High. As we would learn in November of 2006, funding was just the tip of the iceberg. There was a fundamental lack of communication between the school district and the city of Davis. Davis City Manager Bill Emlen came before the board to report on several problems that developed.
The three largest were construction crews severing the root structure of trees on B Street that had been at the center of controversy. Suddenly a huge logistical problem conveniently resolved itself. Second, because the district did not consult with the city before proceeding, there was a discovery of a storm drain that ran underneath the King High structure. Finally, the footprint of King High intruded onto city property.
While Emlen was at this meeting, the board learned that the district needed an additional $5 million in COPs (Certificate of Participation) in order to be able to afford to complete the King High construction project. The revelation that the district only had enough money to complete half of the King High project put an immediate halt to the prior conversations and eventually a halt to the King High project itself until the district and school board could figure out what had happened with now nearly $10 million in facilities money.
In order to trace the timeline more accurately, we go back in time to August 18, 2005. It was this meeting prior to the election of Gina Daleiden, Tim Taylor, and Sheila Allen, that set the stage for what would happen.
At that point, Tahir Ahad was coming before the board for approval of a $10 million COP.
Tahir Ahad stated:
“These items are brought to you to implement the action plan which you briefly talked about on June 9  to raise money for the construction of King High School and to pay for some other projects in the master plan.”
Board Member Joan Sallee would then ask Mr. Ahad:
“And the reason we are doing this is to give us additional money because we have not enough left in the facilities bond. We’ve fulfilled our requirements, we’ve fulfilled our responsibilities to the community, but we want to go on and work on King High School and some other projects that deserve funding but were not included in that original facilities bond.”
Tahir Ahad responded:
“Yes, you are right Joan.”
Later in the discussion, Board Member Jim Provenza expresses his support for this plan:
“It would be a benefit to the students of the district to get started on those projects a little earlier.”
Keltie Jones follows by saying:
“Particularly for me, the key factor is that this is supporting the reconstruction of King High which I think is long overdue and that the students shouldn’t feel they’re second class and not included in all the upgrades that everyone else gets in the district.”
This sequence is vitally important because it establishes that Tahir Ahad as well as three board members at that meeting acknowledged and clearly understood that they were voting to authorize debt to be taken out to finance the construction of King High and other projects.
November 2, 2006, just over a year later Superintendent David Murphy, with Tahir Ahad now gone, was already talking about taking out another COP for $5 million to fund King High School.
Gina Daleiden forcefully spoke to this:
“We learned just a few minutes ago that more than fifty percent of the [King High] project is unpaid unless we make a decision about COPs. That is news to me.”
On the videotape of that meeting, you can hear both Jim Provenza and Sheila Allen stating their agreement with Gina about this.
David Murphy however tried to reassure the school board that all the money was in place; however, they just did not have the documentation. How he could make such an assertion prior to the audit was unclear.
“I’m sure we have all the money that we think we have, but the documentation provided to the FCMAT team was deficient… I’m confident that not only do we have the money that we believe we have, but the documentation will show that.”
The Superintendent then uses the fact that the top two DJUSD administrators in charge of business services were not there as a reason for not knowing what happened with $10 million.
Former Board Member B.J. Kline came before the board during public comment to make a strong statement.
“When we approved back in September or October last year I believe what it was when we did King High, we were told we were fully funded. We had the money in the facilities master plan, because we got the COPS, we had the money, I signed it, my name is on it. So I’m disturbed that we might not have half the money to build this school. And we made a commitment to that community to give them their school… This is one of the questions we asked during the discussion. Are we done with this? Can we move ahead with no problems? And we were assured that there would be no problems… The financing, there’s no excuse for that, absolutely, 100% no excuse… I’m a little bit, I’ll use the word, it’s pretty heavy, disgusted tonight.”
Board member Daleiden expressed her discomfort for going ahead with the project without secured funding:
“The deal is that ultimately this board is responsible for the finances of the school district… So all of this clean up work essentially eventually falls on our shoulders. I am feeling very uncomfortable and a little nervous… I’m worried about causing more problems for our system than we already have. The problems seem to be a little deep. As I sit here today, I don’t know and that’s part of the problem.”
In their November 2007 Op-Ed, Marty West and Joan Sallee blame the school board for creating this mess and suggest that stopping the construction of King High was costly to the district.
“The construction of a new King High School was on track. Funding had not been finalized, pending the completion of other facilities projects, but we knew sufficient funds would be available. The superintendent told the current board in August 2006 that additional borrowing would be needed, secured by future receipts from existing bonds measures.
In November 2006, the board majority, trying to create an impression of financial mismanagement, put King High construction on hold, causing unnecessary delays and costing an extra $175,000. In early 2007, the budget officer reassured the board that the construction money was, in fact, available. King High is now ready to open.”
The fact that this seemed to catch all five board members off-guard (and indeed even former board member B.J. Kline), the fact that no one could account for what happened with the $10 million surely suggests that the board majority (in fact, a unanimous board) did the right thing by stopping construction and figuring out what happened with the money.
The question quickly became: What happened with the money, and was it lost? The school board would take the lead to answer that question bringing in Terri Ryland, a consult, to examine the books. The board majority made up of four members heavily pursued the answers to what had happened with the King High money.
Their efforts led to an inquiry by Terri Ryland and FCMAT that got to the bottom of the story.
On December 7, 2006, Superintendent David Murphy gave what amounted to an apology to the school board.
“The project was approved by the board on August 17. However, on November 2, it was quite clear that the district’s procedures and the staff’s work by which we’ve kept the board updated and clearly involved in a timely way to understand changes by which to fund this project were very inadequate.
On November 2, it was clear that five board members were surprised to learn that the complete funding of the financing project had not already been approved by a board decision and would be dependent on a current or a future board decision. During the November 2 board meeting, staff indicated a second certificate of participation [COP] would be needed at that time to be issued in the future in order to complete the funding of this budget and that was not expected by this board.
Although that COP would be repaid by CFD revenues, the fact is the board was quite surprised by that need and believed the King High School had already had a formal board approved financing plan. I had not realized the board would be surprised, but the fact is all five board members were. We’d like to and should acknowledge where we see those things occurring, and then we should say what we should do as a consequence of looking at those facts clearly, publicly, and that’s what we’re doing. No one wants such surprises, I don’t want them, the board doesn’t want them, nobody wants them. They’re not done by deliberate intent but they sometimes occur.”
The district hired a consultant, Terri Ryland to figure out what had happened with the $10 million ahead of the FCMAT report that would be coming out later on and we will discuss at length in the next segment.
The answer of course you probably already suspect, the District under David Murphy and Tahir Ahad’s leadership took the money that was a shortfall for Montgomery and Korematsu and took it from the money that was supposed to go to King High.
As Gina Daleiden stated at the meeting:
“Essentially it’s telling us that the bulk of that COP money went to Korematsu… It looks like about $7 million dollars went to Korematsu… That would be a little bit of a new surprise for me. I mean I’m pretty surprised because that was not a discussion that I ever heard that the COP money was for Korematsu.”
So money that was supposed to go for King High instead went to pay for Korematsu. And money that was supposed to go to Korematsu went to pay for Montgomery. How could the board not know this?
Because the state matching money from Montgomery was actually reflected in the district’s flow sheets for several years even though the money had not been received—and so the board members were led to believe that the money was there.
Here was the key discussion during the December 7, 2006 board meeting when this was disclosed:
Ryland: “There was a time yes, when you did, and in fact, there was a receivable on your books as late as the 05-06 year anticipating the receipt of that money… So there was a time when it was part of the plan and it was anticipated that it would be spent on the projects at that time.”
Provenza: “At what point did it go off…”
Ryland: “It was reversed just this last fiscal year, at the end of the 05-06 year, negative five million dollar adjustment to state apportionment was made.”
Murphy: “In the district’s tracking documents that I looked at, that change occurred sometime before May of ’06.”
Gina: “So for two years it looked like the money was there when in reality we had not obtained it.”
Provenza: It wasn’t in our flow sheets but it was still being relied on… It was not in the flow sheets.” “We weren’t aware of the Montgomery money being relied on. But it was in fact being relied on.” “I think the problem is that the board was not properly informed that that money was still being relied on. That’s one of the reasons that we thought that the money was there for King… What I’m hearing is that the Montgomery money was being relied upon to pay for these projects, it was not in our cashflow reports, so that we did not know that.”
Ryland: “It was on the books as a receivable until the end of the year.”
Provenza: “But we don’t see the books as the board, we just see the cashflow report.”
Ryland: “Right, exactly. That’s one of the key points by FCMAT, and would be one of my key points as well is that if that reconciliation had been occurring, between the facilities department and the finance department regularly. ”
Gina Daleiden in her interview with the Vanguard sums up what happened as what was reported in Terri Ryland’s report.
“Basically here comes Montgomery, they’re short the money because they missed the filing deadlines, so now Montgomery is drawing more local funds than were anticipated. Here comes Korematsu, that’s budgeted for a certain amount, enrollment declines… Korematsu gets fewer dollars from the state, so now Korematsu is drawing on more of the local funds, and at some point this $10 million gets dumped into the same fund and now it’s all rolling together so it’s covering whatever was being pulled out before, also modernization projects are in that same funding… Basically King was the last project in, in that course, and the first one to run out of money.”
The problem is that the board was not apprised of what was going on. Part of this is that anticipated funds were included on line items as though they were actual funds. Compounding this problem was the fact that these funds were also not yet board approved.
Gina Daleiden in her interview with the Vanguard cited the FCMAT report (available on the district webpage on the right hand column) page 95:
“There was funding that was not yet board approved that was on a line that was called “redevelopment agency” funds, and that is actually in the FCMAT report, page 95, “since the issuance of FCMAT’s initial draft report, the district has disclosed that the $3 million was entered on the wrong line and instead should have reflected a new COP issuance,” which would have been financing, “with a second $3 million to be requested in 2007. Since neither amount had been approved by the board, it is not appropriate to reflect that as cash flow unless clearly noted as potential cash. The current practice of listing the amounts without such a notation must be discontinued. The district should insure that all revenue projections are realistic and based on likely funding.”
Why this money was placed under the label, “redevelopment agency funds” is not clear. The district staff under David Murphy claims this was an error. Regardless, it led the board to believe money was actually there when in fact it was only “anticipated.”
Summary and Conclusions
To summarize this segment, we can look at the problems with the district’s facilities planning as twofold. There was an initial mistake made in the filing for the Montgomery matching plan. Board member Sheila Allen calls this mistake in itself as “inexcusable.” And that is clearly accurate; you simply cannot miss out on substantial funds because of missed deadlines. That is why you hire professional staff and why you cannot have that staff preoccupied with other projects such as his work at Total School Solutions as Henry Petrino was involved with at the time.
The second problem, is instead of issuing forth a mea culpa, they took what appears to be steps to downplay and minimize their mistake. They shuffled monies around and then asked for additional funding under false premises. How many of these errors were errors rather than concerted efforts at cover up are unclear.
The district under Tahir Ahad and David Murphy assumed all along that they would get the money from Montgomery and that all would fall into place. However, based on what we know, this is incorrect. The SAB never would have granted the appeal and overturned the decision, had the district not made changes to their personnel. The board was mislead into thinking that they had money for project that they did not have. Tahir Ahad and David Murphy were not necessarily covering up the lost money—since the board knew that they had lost this money, but rather covered up the impact of the loss of the Montgomery money.
The board was shown line items that indicated that they had money that was not there. Money that they were told would go to pay for King High, instead went to cover for the lost Montgomery money.
The end result is that the district did not “lose” any money according to the best audit reports from both Terri Ryland and FCMAT. On the other hand, the district never performed a Forensic Audit of their accounts. The audits by FCMAT and Terri Ryland simply aimed at ascertaining where the money went and tracking it. A forensic audit would look to examine as to whether any malfeasance occurred.
Regardless of this point, as we shall discover in much greater detail when we examine the FCMAT report more thoroughly in the next installment, is that the district was at best sloppy with its money. That in and of itself, is a cause for concern. The amount of time spent dealing with these issues was prohibitive. Terri Ryland was hired at great expense to put books together for over 100 hours. The staff and consultant time in recouping the Montgomery money was considerable. The amount of money spent trying to fix King High design and construction problems and figure out the finances was considerable as well.
All of this results from a simple fact that deadlines for funding applications were missed and the need to somehow, some way, conceal the gravity of the situation from the board of education elected by the Davis voters.
—Doug Paul Davis reporting