An East San Jose school district hammered for years by audits, investigations and claims of corruption took another hit in the latest rundown of its storied dysfunction.
A new report by California State Auditor Elaine Howle found that the Alum Rock Union Elementary School District ran afoul of the law and its own policies in the way it managed construction projects, kept track of hundreds of millions of dollars in bonds and otherwise ran the public’s business.
Howle conducted the audit at the behest of state Sen. Jim Beall and Assemblyman Ash Kalra, both Democrats from San Jose. In a letter summarizing her findings, Howle wrote that the district and its elected leaders “must improve their governance and operations to effectively serve the community.”
The report affirms what local watchdogs have long known: that Alum Rock screwed up a major construction deal that allowed one company to essentially police itself.
According to the audit, the district failed to follow state law and district policy in selecting Del Terra Real Estate, which had a reputation for blowing past deadlines and leaving other agencies with incomplete work. Despite that, the board awarded the contractor more than $6.4 million from 2013 to last year.
In early 2018, Howle found that the board violated district policy again by failing to scrutinize bids for outsourced legal counsel. Since it ignored policy and protocol, the board then had no way of proving whether the firm they selected—Long Beach-based Leal Trejo—was the best choice for the district.
“By failing to adhere to the district’s policy for selecting legal counsel, the board committed the district to a contract that it cannot demonstrate to the public was the best choice,” the audit reads. “If the board had teamed with district staff to conduct an evaluation as district policy requires, it could have presented a summary of the evaluation process at a public meeting and demonstrated the basis for its decision.”
Howle also took issue with a contract struck up with HarBro—a firm hired to fix fire damage at an elementary school—that had terms that were unfavorable to the district.
“The district’s director of maintenance awarded the contract of $525,000 on behalf of the district to HarBro, with whom he had been employed before he came to work at the district,” the report states. “Although he acknowledged the connection and the Superintendent [Hilaria Bauer] was aware of this contract, this situation still creates the appearance of possible favoritism toward the contractor.”
Additionally, the district failed to make sure that key staffers and contractors filed Form 700s disclosing their financial interests.
“The district did not require some individuals who performed services for the district through contracts to disclose their financial interests, even though these individuals, whom we refer to as contracted personnel, served in roles similar to those of district employees who must disclose their interests,” Howle reports. “In accordance with state law, the district adopted and implemented a conflict-of-interest code (code) identifying those employees who are responsible for making—or participating in making—decisions that may have a material effect on their own financial interests.”
The board’s divisiveness last year also undermined its ability to evaluate Superintendent Bauer, as required by the terms of her contract.
Remember that time then-Board President Esau Herrera reportedly played hooky to watch Luis Miguel in concert? Apparently, he might’ve still been paid a meeting stipend.
State auditors found that the five-member panel of trustees had a spotty attendance record, which delayed important decisions, and that the district unlawfully compensated some board members for meetings they didn’t attend.
The board evidently fell short of basic transparency standards, too.
One time, a trustee who should have recused himself cast a vote on a key board decision in violation of state law. Yet another board member who did recuse herself neglected to provide the legally required information about why she did so. “The two board members’ actions limited the board’s transparency and accountability to the public,” Howle states.
Meanwhile, the district should’ve done more to keep the public in the loop. The audit found that the district didn’t post meeting agendas on time, and would leave out sufficient details about closed-session items, “potentially limiting public involvement.”
It should be noted that some of the trustees serving at the time of the audit, which went up to December 2018, are no longer on the board. Herrera and Khanh Tran—considered some of the worst offenders—didn’t survive the last election.
Lack of Disclosure
Howle raised questions about the district’s stewardship of general obligation bonds pegged for school improvements. Per the audit, the district failed to report critical financial data, including the cost of issuing the bonds and how much money went toward consulting and advisory fees.
“For one of three general obligation bonds the district issued from fiscal years 2013–14 through 2017–18, the district’s financial advisor appropriately presented at the required board meeting the actual costs of $239,000 for the bond issuance of $32.4 million,” the report states. “However, the board did not present information on actual costs at the meetings following the other two bond issuances, which totaled $21.1 million. When we asked why the board did not disclose the actual cost information for those two bond issuances, the assistant superintendent of business services said he was unaware of the legal requirement to do so, even though district policy clearly states this requirement.”
That seemed like a weak excuse, the audit suggests.
“[Ev]en without knowledge of the relevant legal requirements,” it goes on, “district staff should have been familiar with district policy and ensured that either the advisor or the board disclosed the cost information.”
In closing, the audit recommends that the board to go through ethics training, draft a code of conduct and come up with a system to keep track of contracts, train employees and deal with conflicts of interest.
Since a few new trustees have come on board since last year, that work is reportedly already underway. The district, for its part, agreed with the findings.
“The district takes the analysis seriously and fully intends to take actions to put in place systems, trainings and practices designed to prevent the types of problems that this report has found,” Bauer wrote in response to the state agency.