Watch Program Paul Strickland
Board President
and Jaime Castellanos
William S. Hart Union School District

Jaime Castellanos
Jaime Castellanos
Interview by Leon Worden
Signal Senior Editor

Sunday, December 3, 2006
(Television interview conducted November 28, 2006)

    "Newsmaker of the Week" is presented by the SCV Press Club and Time Warner Cable, and hosted by Signal Senior Editor Leon Worden. The program premieres every Wednesday at 9:30 p.m. on SCVTV Channel 20, repeating Sundays at 8:30 a.m.
Questions are paraphrased and answers may be abbreviated for length.

Signal: What went wrong with school construction this year? How is it that the district went over budget by — what was it? $18 million? $30 million? $42 million?

Castellanos: It's approximately $33 million, of our three modernization projects.

Signal: Why don't you walk us through it? What were the schools, what were they budgeted, and why weren't those budgets met?

Castellanos: Well, there were a few issues. First of all, when you do a preliminary budget at the beginning of the actual modernization projects, that's just kind of a guess at what we're looking at, what we think it will cost. Obviously when we started the construction projects in 2003 to the present time, we've had honestly some escalation of price, particularly with concrete and steel. It's gone up quite dramatically.
    Also at the same time, there were some issues that, toward the end of the last school year in June, particularly as our CBO (chief business official) was leaving, I did some investigation, talking some of my staff. Because I had some questions that weren't really answered, in my opinion, appropriately. So as I looked at it, there came to be some things that came to my attention that I thought we needed to take a look at.
    So therefore, with the board's support, we went ahead and had an audit done — the first report to the board was in mid-October — and found in that in fact even though there were cost overruns, there were some things that we certainly could have done a lot better.
    For example, one of the things we found in the findings of the audit is that with our assistant superintendent business, that almost all of the decisions rested solely with one person, so we didn't have what they call redundancy — a number of different hands taking a look at budgets and at the projects.
    And also, there wasn't any really good communication going back to the board in terms of the true picture of what was happening. So that was one of the issues.
    And another issue I'll share with you also, and with the community, is that we looked at the issue that we didn't have processes in place. I've already mentioned the issue of redundancy; I mentioned the issue of having decisions pretty much made in one person. And obviously recently now, I've hired a couple different people now, I split that position into new parts — an operational side and a budget side — to provide more accountability, and at the same time to give us a great opportunity for more people to be talking about the budgets.
    We used to have a lot of change orders; we almost have zero now. And I think that's helped us there. So that in a nutshell is what some of the findings were with our audit.

Signal: Paul, when did you and the Hart board first learn that there was a problem with cost overruns?

Strickland: We could see that there was a problem last year, right about this time, in November. (From then to) June, we went from $2 million to $12 million. And then we knew there was something definitely wrong. So we called for the audit, along with Jaime, as he was saying.

Paul Strickland
Paul Strickland
Signal: Now did we get from there to here? You knew about $2 million and it went to $12 million by June, then it became $18 million — no, it's $30 million — no, it's $42 million. What are these numbers?

Strickland: That's the purpose of the audit. That will be reported out at our next meeting which is Dec. 13. We'll talk about that openly to the public.
    But yes, there are a number of reasons. First of all, I can tell you this: Even as early as our master plan, it's hard costs, bricks and mortar. Soft costs weren't included in that — soft costs being engineering, architects, things like that. And we discovered that. There were just things all along the way. And then the construction costs. We were told many times at many meetings that construction costs, building supplies, cost so much money for A and B and C reason, over and over and over again. Everything was escalating.

Signal: How did you come to the realization that one person was in charge and it was a problem? When did you start to address that?

Strickland: That came through with the audit itself. That's the first time that we had any kind of knowledge about that.
    The thing with that is, in any company, in any corporation, in any large system, you have to have a number of people who know of costs and expenditures and everything like that. And the problem with this is, if it's just one person who's holding all that information, then it all falls through the cracks.

Signal: And that one person, Rory Livingston, you fired.

Strickland: Well, he's no longer working there.

Castellanos: Honestly, we didn't fire him. We came to that conclusion mutually.

Signal: OK, so he left — and yet he was retained to do what?

Castellanos: Well when he left, it's been put in the paper, there was a settlement agreement that he was given, which was $234,000, which is basically 18 months of salary. In there, he was retained to be a consultant, but not a consultant where he would get paid. What he would do for 18 months, he would give us free services, for the new person replacing him, to talk about project status, to give him a history of where the district's been with modernization. That's all it really was.
    The only thing he would have been paid for if we had used him was just for his travel expenses from where he lives to here. We have never used him for that, and as you know in the paper at this time, we have not made any payment of that settlement pending board action...

Signal: So he has not been paid the $234,000.

Castellanos: No sir, not at this point, he has not.

Signal: Escalating material costs aside, this is out of the ordinary, isn't it? You haven't had this level of overruns with school construction in the past, have you?

Strickland: Not that I'm aware of. Not nearly this level. But we've never been in an economy like this where the costs are just exorbitant. It's like 30, 40 percent in some cases, some materials. It's amazing. I've never seen anything like this.

Signal: If Mr. Livingston was the assistant superintendent for facilities, he was in a position where he could do what — approve change orders?

Castellanos: He was one of the final people to approve change orders, that's correct.

Signal: What were some of these change orders that were being approved? How did the money that was spent, differ from what was budgeted?

Castellanos: Well, that was part of what the audit brought out as one of the issues. First of all, you do a master plan. You have people who are experts walk the campus and look at what the needs of the campus, because one campus and the next could be very different than the others. And then typically they look at it and they try to put a price of what they think it will cost. And as Paul mentioned earlier, that starting point — I'll take Arroyo Seco for example, it was $24.5 million at the initial stages. We knew it would be more, but just not at that point how much more. Well, there were some basic cost overruns. As I say, concrete and steel went up about 30 percent — I mean, astronomically high. We ran into some issues of infrastructure pieces on that as we started digging. Blueprints did not indicate that some things had been added to it over the years, so we ran into some things such as some gas lines, water lines, that we thought weren't there, and were there. And in one case, it was broken and had to be repaired.
    But what happens is that when you do modernization projects, once you get your basic design, you go to the board with what is called a funding budget — the money you have to do the project — and an expense budget. The problem was is that we didn't bring both at the same time. We'd bring one piece at one time, not come back for a while, then bring another piece to the board when both of them should have been brought at the same time so the board can see what it's going to cost, what funds we have to complete the project, and over time you keep making periodic reports to the board saying, "OK, you know what? We have an increase of $8 million now for this reason. So we're going to need to increase the budget, and here's how we're going to pay for it."
    Those things never happened together. They happened separately.

Signal: So do you believe that during this year period, the board didn't have a complete picture of what was going on?

Castellanos: I believe that's happened for probably the last three years, yes.

Signal: What is the board's responsibility, Paul, in terms of making sure you're getting a complete picture?

Strickland: We ask for the information, and if it's not provided for us, we ask for it again. We ask for more information, and that's what we kept doing.

Signal: When Mr. Livingston was approving change orders, somebody was responsible for keeping an eye on what he was doing, right? Is that your job (to Castellanos)?

Castellanos: It's the job of the superintendent, no question about it, No. 1, and the board maybe secondarily. But I think what happened here is that — and I've been asked this question about what's the board's responsibility as well as mine — obviously, the board, they're lay people. They have their own jobs, they really aren't construction experts. Yes, we have people who know about numbers and accounts, but we have to really rely on the people that we have.
    For example, they have to rely on my recommendations that when I give them a recommendation, it's factual, it's correct, and it's up to date. But when I came to the district, I made an assumption that the board had been clearly told what the issues were all throughout the three years of the modernization projects, but it became clear to me that that was not the case. So I started having these reports put in a public session (as an) agendized item, rather than in the monthly reports so that the board knew what was going on and could ask questions.
    What happened from there is, the board has to rely on us as the so-called experts to bring them information, so you have to have a certain level of trust. I think that's what happened here. What I've learned from the situation myself is, I trust the people that I have in there now, definitely, but I ask questions and I ask questions until I get an answer to it. That's where I've certainly worked with the board, and I think they've done an outstanding job in the year and a half or so that I've been here, asking the tough questions that need to be asked.
    But when you don't have that communication, you have different pieces brought at different times and little segments of it, you don't get the total picture. When you're not updated periodically, when things change — budgets will change, we know that — that's what happens, and when you trust people and you rely on them that you're getting the information that's factual and correct — you do have to have a large degree of trust in the people who work for you.

Signal: You've been with the district how long now?

Castellanos: Oh, let's see — July 1 was my first (anniversary), so almost a year and a half.

Signal: You walked in and literally picked this up in mid-stream.

Castellanos: Honest truth is I did, yes. That's true.

Signal: So if you had known then what you know now, would you have wanted to walk into this?

Castellanos: Well, I've been asked that question many times, too, because as you know, I came in, too, with the Alabi lawsuit and the whole diversity issue.

Signal: That you were prepared for, the racism issue, but now you get into these other things—

Castellanos: I didn't come in with my eyes closed. I mean, I knew what I was getting into. Certainly these cost overruns, I had no idea that was happening until I started doing my own internal investigation, if you will, and started seeing some things that I had some real questions on. That's when I went to the board and said, "You know, we have some issues here," and we've got to put them out in the open so the community knows about it, because that's the only way to do business.
    We did this audit, and I wanted to have an audit done by an independent set of eyes that had no connection to our district. In other words, I didn't want our auditors to do it that have done audits before. And when Lettie Boggs of Colbi Technologies did our audit, came in, who has been a CBO in large school districts in the past, said, "Here are the findings, here are the recommendations I made," and that's when we found out to the extent that there were some issues on that.
    And as I said before very publicly, there is some potential litigation tied in with our assistant superintendent of business that I can't get into. I'd like to, but I can't. We'll just have to see how that rides out.

Signal: Has he filed a lawsuit against the district?

Castellanos: No. There has been no lawsuit filed at this time. He has filed a claim, which has to run 45 days, which ended on Nov. 13 and after that, if the person wishes to pursue litigation against the district, they may do so. But the district and I have been talking about our options, and we'll look at hopefully in a short time what we'll do about it ourselves.

Signal: This audit wasn't just an audit — it was a forensic audit, right?

Castellanos: No. Originally, it was put that way because —I think when people think it's a forensic, that's a fraud audit; it was not that at all. It was basically an audit to look at our processes in place, to look at how we used our budgets, how we used the moneys, how we tracked the moneys, and where the decisions were being made for that.
    That, I think, was probably more my fault, I'll take responsibility, because I think at one point I did call it a forensic audit. It's not. It was a basic audit to look at our processes.

Signal: What are your responsibilities when it comes to school construction? There is this entity out there, the Santa Clarita Valley Facilities Foundation, which is charged with finding new school sites for the district. You're aware that there is disagreement between the district and the foundation, on the one hand, and The Signal, on the other, over what it is. It was sanctioned by action of the Hart board, it was seeded with Hart district money, it was incorporated by a Hart district attorney, and it shared an employee with the district — so The Signal looks at it as an adjunct or a part of the district. Any way you look at it, if you go back to that date in the late 1990s, the Hart school board decided that it was going to take its responsibility to find new school sites and assign it to this entity that was out of the public purview. No other district in this valley operates that way. How appropriate is it for a school board to take that responsibility and assign it to someone else?

Strickland: First of all, I wasn't on the board then — and I'm not trying to shy away from the question because of that. Here's the situation. That was eight years ago. Eight years ago, we were in a really terrible situation. We could not pass — two bonds had failed, so we had to build new schools. Forty-five percent of the students that were going to school were going to school in portables. It was a very, very serious situation. That's when it was discovered that this was a way to make it easier for us to acquire the property, is to have the foundation.
    I think at that time, I don't believe that the board members were even going to or attending these foundation meetings. Then, later on, during the course of that when I was on the board, we voted to have our board members actually be part of the foundation itself. In this particular year, when Jaime came on, I was a (foundation) board member there this year, because it's the president (of the Hart board who serves on the foundation board). I went to, I think, every single meeting except for one, and this is the first year that we've really had an active part in that.
    I think between the two of us (Strickland and Castellanos), we have sort of tried to change that direction and make it more open for the public, for The Signal, for everybody to understand how important it is that we have this foundation and what good things it has done for us.

Signal: You both attend foundation board meetings, so you know what's going on there. Several years ago, the foundation purchased property in Sloan and Hasley canyons with the idea that it would be a good place for a high school, although the school board hadn't said it wanted a school there. Apparently the plan was to build a school and 50 homes, but now it's no longer a school site and the foundation is going back to the county for approval of 90 homes there. Is that totally off the table now as a potential school site? Is the foundation going forward with the plan to build 90 homes at Hasley and Sloan Canyon roads? If so, how does that benefit the district?

Castellanos: Being honest here, it's not off the map completely. As you know, we're having delays with building Castaic (High School) in the NorthLake area, and as you probably are aware, too, when Hasley-Sloan was purchased, there was a large uproar from some of the people who live in that area. (They) came to board meetings, I believe they went to Supervisor Antonovich and basically said, "We don't want it built here." So they called the district and we basically said, "OK, we'll move it," and that's how the NorthLake (site) came to be.
    Also, too, I just want to correct something: The foundation is not building homes there. What they will do is they will buy property for us to build a school, and the excess property will be developed in terms of sewer, water, that type of thing, and then that's certainly sold to developers to buy and make their homes.

Signal: So the foundation entitles the property and then sells it to a merchant builder.

Castellanos: Well, they basically, yes. Sell it to a builder; the builder will develop it, and then that money comes back to the district to be able to fund that school (that sits on that property). But it's not off the map completely. I'm not at a point right now that I can say with 100 percent certainty that we're going to get Castaic built by 2010-11. That's what we're certainly hoping for, but if it doesn't happen, I have to be able to use that as a possible place for a school.

Signal: So you still have the option to use the Sloan-Hasley site as a school.

Castellanos: We do, sir, and I know that will cause a lot of consternation with people if we decide to go for that (site), but right now, that's a last resort.

Signal: Of course what you're trying to do is build a school in NorthLake.

Castellanos: Yes.

Signal: And NorthLake — it should have been built in the late 90s, but it wasn't. What is happening?

Castellanos: We met with the Castaic (Area) Town Council back in October, if I'm not mistaken, and we did a report on what we wanted the Town Council to know, and having dealt with the county (through) with Bob Haueter, who is a deputy of Mr. Antonovich's, he wanted to make sure that we did a presentation to the Town Council in Castaic and also in the area of the West Ranch-Westridge area.
    The reason we did that is to basically let them understand that we needed their support to get the school built, hopefully by 2010-11. At the same time, we gave him some demographic information that — if we don't get the school built by 2010-11, West Ranch, which is currently about 2,400 students, will be in the mid-3,000 range if we don't get the school built. So we have an issue obviously with overcrowding at West Ranch, and that's why there's an urgency to have the school built by 2010-11. If we go beyond that, we will have to look at some different options.

Signal: What if you don't get it built by 2010-11?

Castellanos: Obviously there's a lot of different options that we could look at. We could go ahead and look at the ninth grade going to a different site for that one year to alleviate some of the overcrowding. Right now we're planning on putting portables on the West Ranch campus because we'll have to, for next year. We'll be pushing about 2,900 or 3,000 for next year. So we know we're going to have to do that.
    There are other options, too; obviously boundaries. I hate to say that word, because it seems to be such a bad word for people — we may have to look at boundaries. Whether that happens or not, we don't know, so please don't take that as what's going to happen. But we may have to look at that, as well. Because we're down a little bit in enrollment at Valencia, we're down at Hart. But again, we know that after a while, in a few — four to five years — that Valencia will be coming back up again. Hart will continue to drop for another seven to eight years and then gradually go back.

Signal: Ah, boundaries. So that's why you (Paul) want to jump ship and be appointed to the City Council.

Strickland: No! I went through that one, that was a 4-1, I was the "1" there. I know I made the right choice, and in retrospect, I'll hold to that.
    But anyway, we met in August with the county; we met with representatives from the Castaic elementary board, because they (have the) feeder school to this new school in Castaic. We were there, and (developer) SunCal was there, everybody was there. That's what we have to do in order to build these schools — everybody has to be on the same page.
    You know, in the past, years ago, one of the campaign slogans for everybody running for school board was, "I want to be sure that the developer pays their fair share." Well, they pay more than their fair share now, as everybody knows. Everybody realizes the value of having a nice school, and the developers do that, too. So from there — that's the reason we had to go; everybody agreed in that meeting that it would be 2010, it could be done, and that's the reason we went to the Castaic (Area) Town Council. And that's the reason we still have the Hasley Canyon site—

Signal: As a fallback.

Strickland: As a fallback. We have to have that. But just to make that clear, we really have to have total agreement between all of our parties.

Signal: Apparently the SCV Facilities Foundation has bought land for $18 million in Placerita Canyon? Are you looking at the Placerita-Golden Valley area for a school?

Castellanos: Well we actually haven't bought land; we're still in the negotiation process.

Signal: It hasn't closed?

Castellanos: No, not yet. We're in escrow, but it hasn't closed yet. It's 250 acres which is off Sierra Highway.

Strickland: It's not in Placerita Canyon.

Castellanos: It's not in Placerita Canyon. It's about approximately half a mile above where College of the Canyons' satellite school is being graded right now. We're looking at that for a future high school, and actually the cost right at this point in time is approximately $11.75 million for the 250 acres. But we have not bought it yet. We're still in escrow.

Signal: Going back to the $33 million cost overrun, what does it mean to the public? Does it mean their taxes will have to go up? Does it mean some programs will have to be cut? What is the impact on the Santa Clarita Valley resident?

Castellanos: There is really no impact on them. Taxes will not go up, because when Measure V bond was passed by the voters, it was $158 million dollars, and that was it. We have to utilize those bond moneys within — there is what they call Exhibit A, which is a write-up of how those moneys are to be used, and only to be used. For example, last night I met with the Citizens Oversight Committee, and we had Lettie Boggs do her presentation on the audit, and they were able to ask questions. So right now, that money, as I told them yesterday, is approximately $95 million dollars left of that $158 million.
    The big issue for us is going to be, how do we pay for those cost overruns? Do we take it out of the bond and deplete it down to maybe $33-$35 million? If that's the case, we may not be able to do all the other things that we'd like to do for all the other schools.
    But keep in mind, too, when the board went ahead with that bond, they did not promise that there would be $50 million for school A, $50 million for school B, $50 million for school C. It really depended on the needs, and in that master plan I talked about earlier, each school had different needs, so some schools may have received more money and others will receive less money. So we still haven't come up with a final solution as to what we're going to do with the cost overruns.

Signal: If you've got Castaic High School to build, if you've got this future school out by COC's East Campus to build, how long before you come back to the voters for more money?

Strickland: That's the difficulty. That's why it's important for us — and that's another reason why we called for the audit as quickly as we could. Because it would be very difficult to go to the public and say we want more bond money if we have all these cost overruns. You really have to let the public know out front what the problems were, put it behind us, and then go on.
    There is so much growth going to happen here, you know that. There's so much development. We clearly can see our way into the future, and we've done with Davis Demographics, who does the numbers for us, we've figured out at least until 2014-2015 and we know potentially the amount of growth that's out here and how many schools have to be built. So eventually yes, we'll have to come back and ask for bond money.

Signal: What assurance can you give people that (a) the district is going to be providing the board with all the information it needs; and (b) that the board is will be fulfilling its oversight responsibility?

Castellanos: From my perspective, one of the first things I thought we needed to do was be honest with the community about what had happened and if we were to blame for parts or all of it, then we needed to be honest about that as well, and I think we've done that.
    We put the audit out there once, and now we're going to bring it back at our Dec. 13 meeting to actually have a discussion about the audit findings again so it's fresh in our minds.
    But I thought that we had to be honest with the community. If we made mistakes, then you own up to them and you fix them. In terms of the "fixed" part of it, I have Rob Gapper now, who is my chief operations officer — he is overseeing modernization construction projects — and I have Sue Guthrie, who has been elevated to our chief financial officer. Even though they're distinct positions, they are working together almost daily to look at budgets; I'm having our director of new school construction and director of modernization also take a look at budgets. I meet with Rob probably two to three times a week to review the budgets, and I'm becoming very involved — more so than I probably need to, but I'm going to make sure, as I said earlier in the show, I certainly trust the people I work with, but I'm going to continue to ask questions, and I'm really pushing on the board to ask the tough questions. I really feel that in the last four or five meetings, they haven't really done that.
    We are taking the recommendations from the audit and we're already putting them into practice. We may have Lettie come back and do some training for our staff, just to ensure that we're doing the right processes, that there's a number of eyes and hands looking at the figures, and the minute there's a problem, we deal with the problem right there and we don't wait for it to get large on us.

Signal: I remember you sitting here about a year and a half ago, saying you really wanted to focus on curriculum. But you (to Strickland) haven't given him that chance!

Strickland: That's initially what we hired him to focus on. He does. He has focused on everything. Look at the amount of things that he's been able to do and accomplish in the year and a half that he's been here. It's amazing, it really is.

Signal: Tell us what you and the board are going to do.

Strickland: OK, here's the thing. Let me just say this first so people really have an understanding: A board member's job, by definition, is to set policy, approve curriculum, and then also hire the superintendent, which in this case, I was very fortunate to have that opportunity, to be in on a board that actually hired a superintendent.
    But that's it. We have to rely on the information that is given to us. We have to trust the people who are involved in that. It doesn't matter who they are; if they bring that to us and it's agendized and they go through a report and we ask questions and they give us answers and these answers are suitable, or we think they are, that's the only information we have. We really do a lot of reading and a lot of studying and we ask the hard questions, and if those hard questions are answered to our satisfaction, we have to go on.
    That's the way we have to be able to function. We have to have the correct information.

    See this interview in its entirety today at 8:30 a.m., and watch for another "Newsmaker of the Week" on Wednesday at 9:30 p.m. on SCVTV Channel 20, available to Time Warner Cable subscribers throughout the Santa Clarita Valley.

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