The link between donors and contracts at San Dieguito
By Marsha Sutton
The award to architectural firm Lionakis on Feb. 7 of two San Dieguito Union High School District contracts worth a combined $2.8 million makes Lionakis’ $25,000 donation to San Dieguito’s bond campaign seem, on the surface, suspect.
In a meeting with SDUHSD superintendent Ken Noah, deputy superintendent Rick Schmitt and associate superintendent for business services Eric Dill last week, I asked if this was “pay-to-play.”
The answer, in essence, was, “They were already playing.”
Noah explained, saying Lionakis and other major donors were “pre-qualified” and selected to do the work well before the $449 million bond measure was narrowly approved by voters in November 2012.
The public can expect to see contracts awarded to most other big donors to SDUHSD’s Proposition AA bond campaign, for the same reason.
For architectural services, Dill said the district advertised in Feb. of 2011 through a general, open Request for Proposals process.
From the RFP, the district received responses from 25 firms, interviewed eight over six months, and selected four, he said.
Without knowing in advance which projects or schools they would be working on, the applicants were asked by the district to give their professional qualifications.
They were evaluated based on past projects, expertise with educational facilities, reputation in the industry, and fee structure.
The job of the four selected firms was to work with the district in the pre-construction phase for projects at each of the school sites identified by the district’s facilities task force. This occurred over a year before the bond was finalized and approved by the school board.
“We assigned them to work on specific schools to develop the preliminary master plans for each of those schools,” Dill said.
This work, finished before the bond came before voters, was fully paid with Mello-Roos and other capital building funds in the district’s coffers, said Dill, adding that the district will not be reimbursed for these expenses with bond money.
“Whether we had a bond or not, we knew we needed to do this work because we had … a vision,” he said. “We needed to develop master plans for each of our school sites.”
The four architectural firms the district selected are Lionakis, MVE Institutional, Roesling Nakamura Terada, and Westberg & White.
“All four did a great job so we decided that we would continue working with them,” Dill said.
Westberg & White, MVE Institutional and Lionakis each contributed $25,000 to the Prop. AA campaign, while Ralph Roesling of Roesling Nakamura Terada contributed $1,000.
Dill said the district is using the master planning process as a way to do a long-term interview, “to determine how they work with us, how their approach is to the work that they do, their creativity and problem-solving, and coming up with cost-effective solutions.”
Construction firms and finance team pre-selected
After the bond passed, each design firm was assigned to particular projects and asked to provide proposals.
Lionakis is the first to be awarded contracts – $1.8 million for work on the new middle school in Pacific Highlands Ranch and about $1 million for work at Canyon Crest Academy.
Dill said all the projects are still subject to negotiations on price and performance and the district reserves the right to shift work around as needed.
“While we were pleased with the work they did, nothing is a done deal,” he said.
California’s Division of the State Architect provides a scale of reasonable fees so districts can quickly identify firms out of line.
For both the Canyon Crest and new middle school projects, the fees “are far below what the DSA scale rates are,” Dill said, by several hundred thousand dollars.
The district will also judge how well the architectural firms work with construction managers, all of whom were also pre-selected before the bond was approved by voters.
The district used the same process with construction firms. An RFP was issued in 2011, and 10 firms submitted proposals.
“We ended up with five firms that we worked with in the pre-construction phase and cost-estimating,” Dill said. Two firms didn’t measure up, so the final list included three: Balfour Beatty, Erickson-Hall and Gilbane.
Later, in October 2012, each firm made a contribution to the bond campaign: $11,000 from Balfour Beatty, $15,000 from Erickson-Hall and $25,000 from Gilbane.
The district’s finance team was also “pre-selected.”
Bond underwriter De La Rosa & Co., which contributed $25,000 to the Prop. AA campaign, was hired by the district in Feb. of 2012 to work on the pre-bond planning phase, but was also told the firm would be the district’s underwriter if the bond passed, Dill said.
“That decision was made over a year ago,” he said.
Financial advisor The Dolinka Group and two bond attorneys, DLA Piper and Orrick Herrington & Sutcliffe, were also selected before the bond passed.
De La Rosa contributed $25,000 to the bond campaign, Dolinka $5,000, and $5,000 was given by Orrick Herrington & Sutcliffe.
All four firms that make up San Dieguito’s bond finance team are contracted through the first issuance of the bond, which is scheduled for this April. There are no guarantees after that, Dill said.
“Where we will be in 2015 when we anticipate going out for our second draw, it may be a different environment,” he said. “Things might happen with those firms between now and then. We’re evaluating the firms every day.”
Underwriter De La Rosa may receive up to $800,000 for the first issuance, but Dill said that number is still being negotiated.
“The cost of issuance is capped at 2 percent by law,” he said. “We’re at .829 percent.”
Superintendent Ken Noah said that selecting vendors before the bond measure goes before voters is a more ethical, if less profitable, way to do business.
“The more common experience we’ve seen in school districts is contracts are awarded not before the fact like we did, but afterwards,” Noah said. “One could make an argument that … that is pay-to-play.”
But San Dieguito’s scenario is completely different, he said, because the district picked vendors before the bond campaign began “who have proven their worth” and “who know that they’re going to complete that work when the bond passes.”
So, “in fact, they were already playing, to use that term,” Noah said.
“Of course they have an interest in seeing it pass because then the work continues,” he emphasized. “But it wasn’t, ‘I’m going to contribute so I can get the work.’”
“We think this has been a really healthy way to go about this,” Dill said.
Noah said if the district had not pre-selected vendors for the projects, there might have been 25 firms contributing to the campaign, thinking it would give them an advantage.
So this pre-selection approach resulted in fewer dollars to the campaign, Noah said, because “to some degree [it] limited the number of people who might be interested in contributing.”
When asked if the district discussed possible contributions to the bond campaign with the applicants before making its selections, Dill replied in an email, “Absolutely not. That was not an evaluation criteria, nor was it discussed with any [firm]. That is simply not our culture.
“Because issues like this had been brought up in the media about other districts and their relationships with their vendors, we were very cautious in our interviews and subsequent discussions to stay clear of any conversations that could give rise to the very wrong conclusion that the district awarded contracts on the basis of political favors.”
Appearance of impropriety
Heightened sensitivity to the issue of pay-to-play and the rampant corruption within far too many governmental agencies has alerted the public to any appearance of impropriety.
And frankly, the appearance of impropriety at San Dieguito is there, since major contributors to the bond campaign have been or will be awarded lucrative contracts on the taxpayers’ nickel.
But it appears improper only until questions are asked and explanations given. When the public – and the media – pass judgment without allowing districts to comment on apparent irregular behavior, we condemn them without a proper hearing.
Because San Dieguito’s bond is worth nearly $500 million, district officials are under intense public scrutiny, yet feel confident their ethics pass the test.
It’s doubtful every district acts this way, so there is justifiable criticism when legitimate abuses occur.
But voters did approve this bond, and vendors must be chosen – although in this case it didn’t necessarily happen in that order.
However, there’s a larger issue here than exonerating San Dieguito.
If a district asks for RFPs through an open process two years before a bond is placed on the ballot, and then selects vendors from many applicants based on an extensive evaluation process, it’s not pay-to-play.
But those firms know in advance that they will get the work should the bond pass. So it’s in their self-interest for these “pre-selected” vendors to donate to a campaign, but not because they are vying for the job.
Even when vendors are chosen on merit and the selection process is open and clean, it still feels like elections are being bought.
What are we to make of a system that permits businesses and individuals not residing within the district to contribute huge sums of cash to a campaign to tax other people’s money so the donors can make a profit?
These firms want bonds to pass not necessarily because it’s good for the community but because it’s good for their bottom line.
From Oct. 1 through the final reporting period, $196,100 was given to San Dieguito’s Prop. AA campaign, and $185,000 were major donations of $1,000 or more from vendors all located outside San Dieguito’s boundaries.
As it stands, it’s not wrong for these firms to give to bond campaigns. But clearly money unduly influences voting. The infusion of cash, even in this case from vendors long ago selected to do the work, affects the outcome of elections. Large war chests matter.
That, it seems, is the real problem – not a school district playing by the rules, but that the rules are seriously flawed.
Marsha Sutton can be reached at SuttComm@san.rr.com.