Leon Worden: SCV Facilities Foundation: Three Tests Would Muzzle the Doubters

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SCV Facilities Foundation: Three Tests Would Muzzle the Doubters

By Leon Worden
The Signal
Sunday, June 26, 2005

Note: A separate commentary by SCV Facilities Foundation board President Rick Patterson appears below the following column by Leon Worden.

May 18, 2005

Dear Ms. Wiles,
    As The Signal's opinion editor, I am in receipt of your letter to (Signal General Manager) Tim Whyte and (City Editor) Lila Campuzano. Yes, I do intend to publish it.
    From a personal standpoint, I was unaware that Bowie et al. (your firm) served as the incorporator of the foundation. As a longtime attorney representing school districts in our valley, you of course know that the close relationship of your firm with both the foundation and the school district may limit the district's ability to demonstrate that it is severable from the actions of the foundation, should the foundation's actions be called into question. I fear it may also place the district in a tenuous position with respect to compliance with the Ralph M. Brown Act (the state's open-meeting law).
    Again — since you continue to represent the foundation? — I wish to reiterate my personal request that the foundation secure (and share) a legal opinion from the state attorney general with respect to the functional relationship between the foundation and the school district; as well as an opinion from District Attorney Steve Cooley with respect to the Golden Valley High School transaction. Also, I wish to thank the foundation board for copies of recent tax filings and an audit, and I now request copies of all receipts and invoices of the foundation (in and out) from inception in February 1998 to date.
    Best wishes,

Leon Worden
Opinion Editor
The Signal<

May 19, 2005

Dear Mr. Worden,
    Thank you for acknowledging receipt of our letter to the editor.
    Your e-mail appears to raise a concern regarding our firm acting as the incorporator. It seems you are suggesting that the fact that our firm prepared the incorporation documents may call into question the separate legal status of the Hart School District and the SCV Facilities Foundation and further suggests that this may place the Hart School District in a "tenuous position" in regard to compliance with the Ralph M. Brown Act.
    Your concerns are unwarranted. First, our firm does not represent the SCV Facilities Foundation. The foundation has its own legal counsel who advises the foundation. Accordingly, any requests regarding the foundation need to be addressed directly with the foundation.
    Second, the SCV Facilities Foundation was properly formed under the requirements of the Nonprofit Public Benefit Corporation Law, and under the law, it is recognized as a separate legal entity, which is separate and distinct from the Hart School District.
    Third, as you are certainly aware, the Ralph M. Brown Act applies to meetings of the legislative bodies of local agencies. This, of course, applies to the meetings of the governing board of the Hart School District. The Nonprofit Public Benefit Corporation Law, which governs the SCV Facilities Foundation, does not require that meetings of the directors of a nonprofit foundation be in compliance with the Brown Act. However, notwithstanding the fact that the foundation was not obligated to do so, the SCV Facilities Foundation's bylaws do provide that its meetings will conform to the Ralph M. Brown Act.
    We certainly hope this clarifies any questions you may have.
    Sincerely,

Wendy H. Wiles, Esq.
Bowie, Arneson, Wiles & Giannone
Newport Beach

May 19, 2005

Dear Ms. Wiles,
    Me again. I am writing to request clarification of some of the statements you make in your letter of May 18. (I may have more questions in the future, but here are some of the things about which I'm confused):
    (1) You state that your firm "participated in the negotiations for the acquisition of the (135-acre Golden Valley) property." When? At the time you incorporated the foundation? On whose behalf? If on the school district's behalf, with whom did you negotiate — the seller of the 135 acres, or the foundation? To what extent did the school district negotiate with the original seller, if in fact the foundation was the buyer?
    (2) To the extent the school district forwarded money to the foundation for the purpose of purchasing the 135 acres, what was the dollar amount that went from the school district to the foundation? Was it a gift? Loan?
    (3) What was the contractual relationship between the school district and the foundation, with respect to the 135-acre property acquisition?
    (4) You state that the Hart School District "did not have the personnel to manage a development the size of the Golden Valley site or to oversee the joint development..." Do you mean to imply that a five-person organization — the foundation — which did not even exist at the time the "Hart School District identified a potential school site consisting of 135 acres" — did have the personnel to do what the school district — one of the largest employers in our valley — did not?
    (5) You state that the Hart School District "undertook a search of potential community members who would serve as directors of a foundation..." Please provide details as to the extent of this search.
    Additional questions arise from your letter of May 19:
    (6) You state that you are not representing the foundation; however, you state that the foundation's bylaws, which you drafted, provide that its meetings conform to the Ralph M. Brown Act, "notwithstanding the fact that the foundation was not obligated to do so." If the foundation was formed in 1998, why did the foundation wait until 2002 to begin complying with the Brown Act's requirements for posting meeting notices, etc.?
    (7) I believe you misunderstood my concern about compliance with the Brown Act. Considering your statement in your May 18 letter that the "Hart School District undertook" measures to create the foundation, please explain how the foundation is not an agency of the school district that would necessitate the school district's compliance with the Brown Act (and other laws) with respect to the actions of the foundation.
    Thank you,

Leon Worden
Opinion Editor
The Signal

want to share with you a running e-mail exchange I've had with Wendy Wiles, an attorney for the William S. Hart Union High School District.
    My questions and her answers involve the Hart district and the Santa Clarita Valley Facilities Foundation, the nonprofit corporation that builds schools and ridgeline condominiums for the Hart district.
    I guess they build condos on ridgelines that could never be built upon by anyone other than the school district so they'll have enough students to fill the schools they're building. And now the foundation is contemplating the purchase of a $43,000 bronze grizzly bear for Golden Valley High School. Wonder if they'll use state matching funds. Already I digress.
    Wiles injected herself into the running discussion of the foundation last month when she replied to a commentary in which I'd opined that the foundation was formed for the purpose of running a con on the state of California and its taxpayers.
    In a nutshell, the foundation buys land on the cheap with money that the school district advances to it. The foundation then gets the land entitled, prepares it for construction and sells it back to the school district for about 10 times the original price. (Land that's entitled, i.e., approved by the government for development, is considerably more valuable — and expensive — than land that isn't entitled.)
    The school district repurchases the land with mostly state money; the "con" comes in when the school district bills the state for 10 times the "matching funds" it would normally receive if it just bought the cheap land in the first place and built a school.
    Under this setup, state taxpayers — you and I — wind up footing the bill for the maxiumum value of the land that would normally come from someone else. Like a developer.
    In her reply to my initial opinion column of May 8 ("In SCV, We Game the System"), Wiles wrote that her firm handled the incorporation of the foundation in 1998, and that the activities of both the Hart district and the foundation have conformed with all applicable laws.
    As the school district's attorney, of course, it's her job to provide guidance that would keep the district in compliance with state regulations. She notes in a subsequent e-mail message that you're about to read that she is not the attorney for the foundation.
    Wiles and various foundation board members argue that the various state agencies involved in school construction gave them the green light — and the funds — to build Golden Valley High School.
    OK, so some petty bureaucrat in Sacramento looked over a checklist to see that the site was ready and the local funds were in the bank and the property title read correctly. But the issue isn't whether the school district dotted all of the i's and crossed the t's when it applied for matching state funds.
    Rather, the issue is whether it was lawful for the district and the foundation — given their incestuous relationship (they share some board members, employees and facilities) — to conspire to inflate the value of the land and bill the state for the difference.
    Stated differently, does the foundation structure create an ability for the school district to overcharge state taxpayers — you and me — for school construction?
    This isn't something that fits in a box on a petty bureaucrat's checklist. They aren't checking for it.
    (And don't be distracted by arguments that the foundation filed papers with the secretary of state, like any other corporation, to do business in California. So did Enron.)
    As I've mentioned to individual foundation board members, there are three tests that could lay the issue to rest.
    All three must happen. None has been done.
    One, the school district should ask Attorney General Bill Lockyer to examine the foundation structure and determine whether it is legal and proper for the district and a closely affiliated organization to effectively manipulate land values before billing the state for matching funds.
    Two, the foundation should make public every invoice and receipt, in and out, from inception (1998) to date, so the public can be assured that no individual has improperly profited from the land deals. (Note: Invoices and receipts weren't part of Signal columnist Tim Myers' recent examination of the foundation's financial statements.)
    Three, the school district and the foundation should ask District Attorney Steve Cooley's public integrity division to determine the answer to No. 2. Furthermore, Cooley should be asked to fully investigate the Golden Valley school, road and condo deals, examining the actions of all of its participants — school district, foundation, (former) city manager's office and private developers.
    In the shaded box above you'll find the aforementioned e-mail exchange.
    Wiles' initial opinion column, which we received May 18, prompted the first set of questions. After she replied, I sent a second set of questions. I resent it last weekend. No reply.
    Literally and metaphorically, we finish today with more questions.

Leon Worden is the president and CEO of SCVTV: Local Television for Santa Clarita.

Paving the Way For New Schools

By Richard A. Patterson
President, SCV Facilities Foundation
The Signal
Sunday, June 26, 2005

he Signal's fine columnist Tim Myers recently authored an informative and timely series on the Santa Clarita Valley Facilities Foundation, the nonprofit, public benefit corporation that helps locate and develop school sites in our community for the William S. Hart Union High School District.
    We appreciate Myers' independent review, which found the foundation to be financially sound, well-managed and successful in the critical role it plays in helping to build a strong and vibrant school system. Everything the foundation does is aimed at the overall goal of helping our children get the best possible education by providing the best facilities.
    We agree with Myers — and are quite proud — that the foundation's success now places it in a position to be a net generator of new funds for the continuing development of school facilities in the Hart School District.
    As pointed out, the foundation entered into a lease-purchase agreement with the district and a joint-venture agreement with the city to develop the Golden Valley High School site, a significant portion of the new Golden Valley Road, and 17 acres for single-family homes contiguous to the school site — all on property developed by the foundation.
    Seven years of volunteer effort by a dedicated board have resulted in millions of dollars in savings for the city, the district and the taxpayers.
    Additionally, by acting as the developer, now all of the profits created by the foundation will be used for the benefit of the school district.
    It was Myers' suggestion that all profits be disbursed to the school district as soon as we receive them. However, we believe the better alternative is to disburse the funds to the district pursuant to a strategic plan developed in cooperation with the district.
    Per the foundation's governing documents, filed with the California attorney general and secretary of state, all funds generated by the foundation may be used only for the benefit of the Hart district — period. That is why institutions like College of the Canyons, California Institute of the Arts, Henry Mayo Newhall Memorial Hospital, the Child and Family Center and others have created similar foundations.
    Our goal is to be responsive to the school board's requests for assistance with facilities projects, and then cooperate with the district to ensure that the funds we contribute are used efficiently and that the value is maximized with state matching funds or by investing in school projects that serve multiple education purposes.
    Like any other organization involved in land acquisition and development, the foundation needs working capital.
    If requested by the school board to secure a new school site, we need to contract on a regular basis for a wide variety of pre-purchase services such as surveying, environmental, title and legal work. We need soil and geologic tests on sites to satisfy local, state and federal rules and regulations.
    Maintaining prudent reserves gives the foundation the flexibility it needs to operate efficiently. Having a reasonable level of working capital gives us the ability to move and react quickly to opportunities — which helps us to obtain the best prices for land and construction services.
    The foundation's financial independence from the day-to-day workings of the Hart district school board is also necessary to our very successful relationship. The two entities, while both dedicated to the benefit of the school district and the education of our children, must remain separate and independent to comply with state laws, as Myers noted. To be seeking funds from the district on a regular, day-to-day or project-by-project basis could jeopardize our independence and therefore the benefits that an independent foundation brings to the school district.
    As Myers pointed out, all of our funds are used to benefit the school district, and that can take a variety of forms. The foundation and the district are, for instance, currently considering a proposal for the construction of performing arts centers at both Canyon and Saugus high schools. If, after thorough design and needs analysis, it is agreed by the school district trustees and the foundation that this will be the best use of the funds, the majority of the foundation's anticipated income could go toward those new centers.
    The performing arts centers will provide unique and substantial benefits to each of the schools as well as to the communities they serve. These are facilities that neither the district nor the state would be able or willing to fund on their own.
    If the district receives a contribution of funds from the foundation earmarked specifically for the centers, then the school board may become eligible for matching state funds. The new centers will be designed as multipurpose centers allowing for additional classrooms, practice and performing facilities.
    At the request of the school board, the foundation has also supported several other charitable, nonprofit and governmental agencies with projects that fall within our policy of providing facilities that benefit students within the district. They include the city of Santa Clarita Aquatics Center, Sierra Vista Junior High School and the Boys & Girls Club facility.
    The Boys & Girls Club project is a perfect example of projects that maximize the benefits to the children in the school district. The facility is used as classrooms by day, after-school programs in the afternoon, and other purposes in the evenings that contribute to the development of our children and community.
    With the foundation, our community has found a way to improve funding for our schools, reduce the taxpayers' burden and give our children the quality education they deserve.
    Achieving such goals does not come easily. It takes planning, cooperation and hard work. In the end, we have developed an institution and process that works. We invite the continuing input from the community.

Richard A. Patterson is president of the Santa Clarita Valley Facilities Foundation.