Pay to Play

08/04/15

The lease-leaseback scandal now threatening to undermine Fresno Unified isn’t really about bricks and mortar or a method of construction that confounds easy understanding. Rather, at the heart of the matter lies the relationships—I’ll scratch your back, you scratch mine—that bind together the main players.

There is, for one, the relationship between Superintendent of Schools Michael Hanson and his favorite builder, Richard Spencer, the owner of Harris Construction. It is a relationship of mutually beneficial business. Each man counts on the other to pass bonds and build schools; each man counts on the other to prosper.

And there is the even deeper relationship between Assistant Superintendent Ruthie Quinto and the Spencer family, a friendship that goes back decades and is rooted in a shared alma mater and the mutual cause of anti abortion.

These ties and friendships, which have yet to be examined by the media, help explain why Fresno Unified has bent its process of awarding hundreds of millions of dollars of school construction bond money in the direction of one company. It is the intersection of these business and personal realms that is now the focus of an FBI inquiry into public corruption in Fresno.

As scandals go, this one has been slow to catch the public’s burn. Maybe it’s the lethargy brought on by drought. Or maybe it’s our town’s arrested sense of propriety, what an old federal agent once bemoaned as “the Fresno Factor.” Or maybe the concept of “lease-leaseback” itself is to blame. The job of understanding its mechanism doesn’t exactly invite you in.

But the questions now frame a realtime drama complete with a half tragic, half comedic cast: the Nixonian superintendent of schools; his shrilly lecturing right hand deputy; the four feckless school board members in the grips of something akin to Stockholm Syndrome; the grabby builder whose avarice, and sway over public officials, has caught headlines before.

The first questions were raised more than three years ago. Not by me, a regular irritant to Fresno Unified, or any of the come-and-go journalists covering education for the Bee but by a gadfly in the best tradition of the word, a ponytailed firebrand named Tony Benjamin Taylor who was fighting brain cancer and got up one evening in the front of Supt. Hanson and school board members and wanted to know why the lion’s share of money for school construction was going, without competitive bid, to one firm: Richard Spencer’s Harris Construction.

Again and again over the next several months, Taylor rose to ask the same question. Again and again, no answer, not even a pretend one, ever came. His three minutes of public time was eventually cut to two minutes and then one minute, but the response from the folks on the dais was always the same: dead silence from Supt. Hanson, who never deigned to made eye contact as he texted away on his cell phone, and a “how-dare-you” glower from school board member Janet Ryan, Hanson’s mother-defender.

But Taylor’s questions never have gone away. In fact, they’ve become only more insistent with time.

How to explain the union that has developed between Supt. Hanson, Ass’t. Supt. Quinto and builder Spencer? By what decision in 2011 did Fresno Unified toss aside its duty to the public and begin awarding Spencer $117 million in no-bid school construction jobs—the larger projects coming by way of deceptive consulting contracts hidden from the public?

Is it coincidence or a function of “pay to play” when Spencer, the single biggest contributor to the campaign to pass the school bond, becomes its single biggest recipient, and then turns around and underwrites the political campaigns of the school board members who repeatedly vote the contracts his way?

The school board majority refuses to consider these questions, even in the face of Hanson lying twice about the lease-leaseback deals in recent weeks. Instead, the four board members continue their blinkered support of Hanson, Quinto and Spencer. They insist there is no smoke of impropriety even as the same FBI agents who uncovered Deputy Police Chief Keith Foster’s drug dealing and public thefts now dig into Fresno Unified.

Led by Janet Ryan, the board majority continues to mouth the practiced words of the district’s bloated public information unit. The only reason Spencer keeps winning school jobs, they say, is that no other builder in the valley can do the most challenging work with the same “quality and commitment to the bottom line.” So it’s time to hush the silly talk of corruption, they say. It’s time to return to the task at hand—“to the children.”

But documents and interviews and a detailed analysis of Fresno Unified’s use of lease-leaseback since 2011 clearly show that the school district has engaged in a coverup to hide its full dealings with Harris Construction. Over the past four years, the school district has entered into at least three “pre-construction” consulting agreements with Harris Construction—contracts never seen by the public or approved by the board.

In each instance, the hidden contracts had the effect of awarding the actual jobs to Harris Construction several months prior to the school board voting on the projects. To conceal the true nature of the deals, Supt. Hanson has told a series of public lies and hired two “spin doctors” to help him disguise Fresno Unified’s wrongdoing, interviews show.

A recent decision by the Fifth District Court of Appeal spotlighted one such illegal deal and lie. Records show that Fresno Unified attorney Martin Hom misled the court about a Feb. 2011 “pre-construction” agreement between Fresno Unified and Harris Construction (listen to audio on the right). Hom assured the court that no such consulting agreement to build Gaston Middle School existed. But the secret contract does exist. Had it been known to the court, the judges surely would have found a conflict of interest at the heart of the illegal deal.

In return for being Fresno Unified’s “builder of choice,” Spencer has not been shy about expressing his gratitude to Hanson. He funds the campaigns to re-elect the school board members loyal to Hanson; he buys radio ads praising Hanson’s leadership; he underwrites school district events such as Hanson’s annual “state of education” affair.

But there is no record of these gifts to the district from Spencer, at least no record that Fresno Unified is willing to share. In fact, as the controversy surrounding lease-leaseback has grown, district staff have been instructed to keep the name of Harris Construction off the list of “official sponsors” displayed in programs and on the jumbo screen at district events.

Over the past decade, community leaders and Fresno’s most powerful institutions have shown a willingness to protect Hanson, treating his previous lies and coverups and mistreatment of top managers, especially women, as minor misdeeds. In a town with few industries outside agriculture, Fresno Unified is the equivalent of “The Company.” It employs 10,000 individuals, operates 105 schools and collects an annual budget near $1 billion. No governmental body in the valley is bigger. Its trough feeds a thousand consultants and contractors. Its superintendent has the magic to make many things happen.

As part of his reach, Hanson belongs to an organization of power brokers in town known as the “Fresno Compact.” The group, dedicated to “mobilizing business and community support of local public schools,” includes Mayor Ashley Swearengin, Fresno State President Joseph Castro, county superintendent of schools Jim Yovino and Valley Children’s Hospital CEO Todd Suntrapek. Not long ago, the Fresno Compact selected its new president. He’s Michael Spencer, Richard Spencer’s son and the Vice President of Harris Construction.

Big town or small town, relationships matter. How did the relationship binding Hanson, Quinto and the Spencers evolve? The answer to that question is the story of lease-leaseback.

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It was in the early summer of 2010 when Supt. Hanson and Asst. Supt. Quinto joined forces with Richard Spencer to pass Measure Q, the $280 million bond to fund school construction projects. No one looked askance at the partnership, at least not at first. They were working together for the future of Fresno children.

Over that summer and fall, the trio became one team committed to selling the virtues of Measure Q. Spencer became the most generous patron of the campaign to pass the bond, records show, writing checks that totaled at least $25,000.

While superintendents of schools are precluded from raising money for school board races, Hanson has repeatedly crossed the line by asking wealthy friends, paid district consultants and even city councilmen to raise campaign money on behalf of trustees Cal Johnson, Janet Ryan, Valerie Davis and Christopher de la Cerda and past trustee Tony Vang, interviews show.

And so when it came time to raise funds for the Measure Q campaign, Hanson asked longtime deputy and trusted friend Ruthie Quinto to take the lead, along with his other top aide, Samantha Bauer. Quinto and Bauer worked closely with Mayor Swearengin and the local president of the League of Women Voters, Francine Farber. Together, they rallied community support.

As a backer of Measure Q, I went to one of the group’s first meetings in 2010. I sat with dozens of other supporters listening to a political consultant talk numbers and voting trends. It was the last Measure Q meeting I would attend.

Civic leaders committed to the effort noticed that Quinto was calling Spencer, his family members and subcontractors on her cell phone to raise funds for ads, yard signs and polling. Quinto would call before and after work, making sure her lobbying was not done on Fresno Unified’s official clock. “She’s raising money for the campaign, and Spencer is the go-to person,” explained one Measure Q committee member at the time.

It was during the campaign, the committee member recalled, that Spencer first suggested to Quinto that Fresno Unified use lease-leaseback as a method to award future jobs. The committee member said the conversation stood out because the topic didn’t seem an appropriate one to discuss. It was as if Spencer’s support for Measure Q hinged on Fresno Unified agreeing to award its future construction jobs without competitive bidding.

If Quinto felt comfortable asking Spencer and his family for money—and Spencer felt comfortable asking Quinto to end the school district’s practice of competitive bidding for construction jobs—they were drawing on the goodwill of a longstanding relationship. The Measure Q campaign wasn’t the first time that Quinto and Spencer had worked side by side on behalf of a cause. Quinto and Spencer and their families share a deep commitment to San Joaquin Memorial and the local “right to life” movement that bands together so many Panther alumni.

In 2006, Spencer had served as the chair and Quinto and her husband, Frank Hambalek, as “tee sponsors” of the annual “Pro-Life” golf tournament at Brighton Crest County Club. Quinto’s service on the board of San Joaquin Memorial further strengthened her ties to the Spencer family. Quinto’s mother, Pat, a fixture in the anti-abortion movement, was a longtime accountant at a local firm that did a great deal of work for Spencer.

In Nov. 2010, as Measure Q passed with 76 percent of the vote, Hanson, Quinto and Spencer celebrated a victory for the “schoolchildren of Fresno.” As it turned out, it was a major victory for Harris Construction, as well, though the public was never told that its “Yes” vote on Measure Q would usher in a new way of awarding school construction jobs.

Spencer was so pleased with the success of the Fresno Unified bond measure that, sensing a big opportunity ahead, he turned Measure Q into a model for other school districts across the valley.

Working closely with Terry Bradley, the former superintendent of Clovis Unified, Spencer began to franchise the model.

In early Dec.2010, four weeks after Measure Q passed, Spencer held a luncheon forum to sell his recipe. The event, hosted by his son Michael, was part of a series billed as “Empowering Your District.”

The speakers called upon that day to share the formula for Measure Q’s passage included an impressive trio:

Samantha Bauer was asked to detail how Fresno Unified ran the bond campaign from “the inside.” Mary Beth de Goede, the attorney representing Fresno Unified and the school board, was asked to list the legal “dos and don’ts” of running the bond campaign. Mayor Swearengin was asked to discuss how the campaign successfully linked the community’s needs to the schools’ needs.

As his luncheon gatherings grew, Spencer would invite scores of general contractors and subcontractors to his airport headquarters to hear local superintendents of schools speak passionately about the need for passing bond measures. The 71-year-old Spencer with his shock of gray would then stand at the door on the way out, soliciting donations.

“There was no shame involved,” recalled one contractor who attended a presentation by Sanger Superintendent of Schools Marc Johnson. “Spencer was shaking our hands as we were leaving. It was a shake down for donations. Some of the guys wrote checks that day. If you had any chance of working on one of these big jobs, it was understood that you had to support the bond campaign.”

Soon after the Measure Q luncheon, documents and interviews show, Fresno Unified put into effect its method of lease-leaseback. Over the next four years, without competitive bidding, Harris Construction would receive $117 million of the more than $200 million awarded by Fresno Unified, more than 50 cents of every dollar, locking out other qualified builders.

To steer construction jobs to Harris, Supt. Hanson and Asst. Supt. Quinto have bent what few rules there are to lease-leaseback. The method was designed to give cash-strapped smaller districts a way to build classrooms. School districts lease land to a contractor for a nominal amount, say $1. The contractor then covers all the upfront costs to build a school. The district then “leases back” the new building from the contractor and pays down the project costs over several years, as funds roll in.

But Fresno Unified isn’t a small, cash-deprived district. It’s one of the largest school districts in the state awash in bond monies. Records show that Fresno Unified never leased back the buildings from Harris Construction. It paid for the projects outright. In this way, critics say, lease-leaseback has become a mechanism for Fresno Unified to avoid open and competitive bidding. It has become a device to steer the contracts to Harris Construction and a few select other builders in a series of back room deals.

No lease-leaseback deal better illustrates these contortions than the one to build Gaston Middle School in 2012. The project called for $41 million in federal stimulus funds to construct the new middle school for the long-neglected west side. But what money was actually used and the school’s true costs—Hanson has recently stated that it cost $56.6 million— remain unclear to this day. On its website, Fresno Unified states that the school was built with $43 million in Measure K funds, a 2002 bond.

From the outset, records show, the school district negotiated in secret to award the Gaston contract to Harris Construction. Seven months before Fresno Unified and Harris Construction signed a public deal to build the school—a deal approved by the school board—the builder and the school district entered into a contract that only the two parties knew about.

This secret deal was signed on Feb. 14, 2012 by Ruthie Quinto. It allowed Harris Construction to become a “pre-construction” consultant on Gaston Middle School. As a consultant receiving no pay for his services, the builder was permitted to modify the scope of the work and makes changes to the materials, budget and project schedule in ways that could benefit Harris Construction.

In other words, Hanson and Quinto empowered Spencer to select himself as the builder and award himself what he saw fit—all in the guise of a “pre construction” agreement. Not only was the builder free of competitive bidding, but he wouldn’t have to face public scrutiny. Fresno Unified even protected Harris Construction with an indemnity clause. If the builder made a mistake, no legal or financial harm could come his way.

Hanson and Quinto never showed the “pre-construction” contract to the school board. Technically, they weren’t required to because the contract has been written in such a way that Harris Construction had agreed to do the “consulting work” for free. Only contracts for $15,000 and above require school board approval.

So Hanson and Quinto could be confident that the Feb. 14, 2012 deal between Fresno Unified and Harris Construction would remain a secret.

On Sept. 26, 2012, the school board, for the first time, was presented the scope of the Gaston project. The board voted to approve the $41 million Gaston job without ever knowing that seven months earlier, by dint of the secret agreement, Hanson and Quinto had already given the job to Spencer.

The hidden agreement, in time, would be revealed. Unknown to Hanson and Quinto, the “pre-construction” consulting agreement had been copied in 2012 and provided to San Diego attorney Kevin Carlin, who was suing Fresno Unified over its lease-leaseback deal at Gaston. Neither Hanson nor Quinto knew that Carlin had the secret agreement in his files.

Fast forward to March of this year. The lease-leaseback deal for Gaston has now come before the Fifth District Court of Appeal. Fresno Unified attorney Hom tells the court in his oral argument that no “pre-construction” agreement exists between the school district and Spencer.

A few weeks later, Supt. Hanson decides to repeat this lie to the school board. On June 3, in a closed door session, Hanson and school board attorney Mary Beth de Goede both tell school board trustees that no “pre-construction” consulting agreement between Fresno Unified and Harris ever existed.

A few days later, the secret agreement surfaces. Attorney Carlin emails it to me and to Bee reporter Hannah Furfaro. Supt. Hanson refuses to discuss the revelation with Furfaro. When questioned, he yells at her.

What follows is a board meeting closed to the public—a violation of the Brown Act—during which Hanson tells a second lie. He says the consulting contract not only existed but that board members were aware of it back in 2012. In fact, they gave tacit approval to it. Hanson is now on record calling his bosses liars.

Stockholm Syndrome makes a hostage do strange things. In the case of School Board Members Ryan, Johnson, Davis and de la Cerda, it makes them cover up for the superintendent who is calling them a liar. This may seem hard to fathom, but it is consistent with the way the superintendent has dealt with school board members over the years. He’s completely dismissive of them one moment and then completely solicitous of them the next. He brings them into his fold, gives questionable job promotions to their children and grandchildren (Davis, Ryan) and hands out the plums of projects dear to their districts. But at the first sign of independent thinking, he casts them out. As a result, they’ve become afflicted with a deep need to please the very man who holds them hostage.

His relationship with Carol Mills, the board member who represents the Fresno High area, is particularly instructive. When Hanson first became superintendent, Mills, a lawyer by training, questioned his actions and tried to hold him accountable. Then Hanson showed his petulant side and persuaded his friends on the Fresno County Grand Jury to investigate Mills for “micro-managing” him. The ensuing grand jury report—critical of Mills—had the effect of defanging her. In its wake, Mills turned into one of Hanson’s staunchest supporters, going so far as to turn her back on her pro-union roots. Not surprisingly, Hanson pushed through a $19 million remodel of Fresno High School, a job that went to Harris Construction.

Now Mills, facing re-election next year, has returned to her old form. She has joined school board newcomer Brooke Ashjian and trustee Luis Chavez in calling for an outside investigator to look into the Gaston deal. Ashjian, a wealthy, take-no-prisoners businessman who is fond of quoting Sun Tzu’s “art of war” teachings, is clearly the one leading the charge.

As owner of Seal Rite Paving, Ashjian knows the ins and outs of a construction deal. He says he is troubled by the district’s hidden agreement with Harris Construction because it is a conflict of interest for the same builder to provide consulting work on a contract he will be awarded. If all was kosher, he asks, why did the school district hide the “pre-construction” agreement from the board and public?

“We know the hidden agreement was signed Ruthie Quinto,” Ashjian said. “But what we don’t know is who wrote the actual terms of the agreement?” Did Fresno Unified write the terms favorable to Harris Construction? Or were they written by Harris Construction and merely rubber stamped by Quinto? In other words, how deeply did the fox enter the henhouse?

The bending of lease-leaseback, documents show, did not end with Gaston Middle School. An even stranger and more problematic deal took place a year later with a massive modernization project at Bullard High.

In Sept, 2013, Fresno Unified entered into a “pre-construction” agreement with Harris Construction—this one for $14,999 to consult on the Bullard project. Like Gaston, the contract had the effect of awarding the full job to Harris Construction without the public ever knowing about it.

The Bullard contract stated that Harris would strictly adhere to a construction budget of $26 million. But this agreement, one year later, was replaced by a second “pre-construction” agreement that bumped up the project costs by $9 million, even though the job descriptions were the same. Hanson and Quinto never explained to the school board the reasons for the $9 million increase. They didn’t have to. The school board never knew of the first agreement for $26 million.

On the night of Sept. 10, 2014, the school board took up the matter of the $35.2 million Bullard project. It is a meeting that stands out because one school board member, Michelle Asadoorian, did something that no other school board member had done. She called to task the superintendent, his top staff and her fellow board members for agreeing to award yet another job to Harris Construction.

In the discussion before the vote, Asadoorian (my sister, I should disclose) branded Fresno Unified as “Harrisland” and urged the public to follow the money trail. Before lease-leaseback, there is no record of Spencer showing up as a significant donor to school board races. After lease-leaseback, tens of thousands of dollars go from the pockets of Spencer and his family members into the campaign coffers of trustees Mills, Ryan, Davis, Johnson and de la Cerda (View Contributions PDF). This was the board majority that Hanson counted on to keep his $430,000-a-year job. The donations even included wine from Spencer’s Cru winery in Madera.

But the “pay to play” gifts went even further. Harris Construction had purchased radio ads on KMJ praising the fine job and good work of Hanson. Harris Construction helped fund Supt. Hanson’s annual “State of Education” event and Fresno Unified’s annual rally known as “The Convocation”. Indeed, Hanson had come to count on Spencer’s largess as his own political slush fund. But this money – tens of thousands of dollars – is unaccounted for in district records.

As Asadoorian delivered her remarks, Trustee Ryan, who had taken more than $10,000 in campaign donations from lease-leaseback contractors, took umbrage. “I find Member Asadoorian’s comments inaccurate and offensive, and I call for a roll call vote.”

Trustee Mills chimed in. “I share Trustee’s Ryan’s concern, and I am fine with a roll call vote.”

Karin Temple, associate superintendent for operations and facilities, then confirmed that the district had taken bids from five other builders for the Bullard project. This was a concession to the critics of lease-leaseback whose voices were growing louder. But in reality, the five bids amounted to a dog-and-pony affair. Yes, one builder had bid a half percent lower than Harris Construction. But Fresno Unified, Temple said, was still going with Spencer because the other builder had yet to do a project with the school district. “This is not the right time for them,” Temple said.

What Temple concealed from the public that night was the fact the Fresno Unified had another reason for not giving the job to the lowest bidder: Harris Construction, by force of the hidden agreement, had already sewn up the job a year earlier.

Temple would later concede her lie. During a press conference a few weeks ago, she indicated, with no apparent shame, that the district’s acceptance of bids on the Bullard project was a sham. “In no case did we engage a firm for pre-construction services and then later on do a competitive process for that same project,” she said. The whole purpose of the pre-construction process, Temple said, was to award the project to a chosen builder months before the public knew about it. “It was our intent that they build the project when we engaged them in pre-construction services,” she said.

When it came time to vote on the Bullard project last September, Trustee Asadoorian cast the sole “No” vote opposing Harris Construction.

In the months that followed, Fresno Unified would stick to this same script—a hidden “pre-construction” agreement, a lower budget morphing into a much higher one—with another lease-leaseback builder, Bush Construction.

This job was for a new $5.5 million aquatic center at Hoover High School, the flagship of Janet Ryan’s district. Coincidentally, the campaign contributions from Bush Construction to Ryan added up to $5,500.

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Is Michael Hanson’s time as superintendent running short? Does he still have the undying support of Pete Weber and the men and women of the Fresno Compact to outlast this scandal? As long as the school board remains 4-3 in Hanson’s favor, and the FBI doesn’t uncover anything criminal, there’s a decent chance he will. Fresno doesn’t seem to mind so much his fondness for cover up. Lease-leaseback, after all, isn’t the first time that the superintendent has gotten away with a public lie.

When it was discovered that his loyal school board president Tony Vang was deceiving voters by living in a house in Clovis Unified, Hanson and Quinto met with Vang behind closed doors and helped him concoct a false story that he still lived in his district. Hanson then directed his newly-hired public information officers to lie to the public and media about Vang’s true residency.

When it was discovered that Hanson had refused to close the troubled New Millennium Charter School, where trustee Cal Johnson was being paid $4,000 a month as a “crisis counselor” and never showing up to work, Hanson covered up the matter and again lied to the public. He said the state department of education wouldn’t allow him to shut down the school. State education officials said this wasn’t true.

If our local watchdogs failed in their role back then, they have been no more vigilant in their oversight of lease-leaseback.

The Fresno Unified Citizen’s Bond Oversight Committee, required by state law to ask real questions about how bond monies are spent, has never asked a single question about lease-leaseback. Francine Farber, the longest running member of the group, believes such inquiries are “outside the purview of the committee.”

The same excuse can be heard from Jim Yovino, county superintendent of schools. Likewise, the women of the League of Women Voters—Farber and Kay Bertken and Jacquie Canfield—seem to have forgotten the League’s historic role as a voice for transparency and honesty in government. They, too, have failed to raise any questions about lease-leaseback. Canfield is especially conflicted. As the chief financial officer for Fresno Unified, she would know more than anyone where to look.

An outside investigation into the school district would appear long overdue. Five years ago, Fresno voters passed by an overwhelming margin a bond measure to build new schools and renovate old ones. They surely expected the money to be spent in honest and above-board way. Along the way, the process somehow became perverted. The citizens now deserve to know how and why.