A late-blooming bill aimed at protecting school construction contractors from financial losses if their “lease-leaseback” deals are voided by the courts appears to have died just a week after being introduced.
Sen. Carol Liu, D-La Cañada Flintridge, who chairs the Senate Education Committee, spurned pleas by lobbyists for the contractors to hear the measure, Assembly Bill 975.
A spokesman for the bill’s author, Assemblyman Kevin Mullin, D-South San Francisco, said the issue will be set aside for the remainder of this year’s legislative session, which has scarcely two weeks to run. “We won’t be pursuing it at this time,” the spokesman said.
The issue arose when the 5th District Court of Appeal in Fresno declared that a lease-leaseback contract issued by Fresno Unified School District for the construction of Rutherford B. Gaston Middle School violated state competitive bidding and conflict of interest laws.
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Fresno Unified is appealing to the state Supreme Court but if the decision is upheld, it could invalidate contracts for completed school projects totaling several billion dollars around the state including, potentially, one in Mullin’s hometown. And under state “disgorgement” law, contractors could be compelled to pay back the money.
Lease-leaseback contracts have been authorized for years, generally involving long-term leases at the end of which schools become the property of the districts, but in Fresno’s case, the lease lasted only for the construction period and involved a contractor, Harris Construction, which had been retained as a consultant before receiving the contract.
A rival contractor, Stephen Davis, sued, alleging that the Harris deal misused lease-leaseback authority and won on appeal.
Ever since, lobbyists for contractor groups such as Associated General Contractors and the Coalition for Adequate School Housing have sought legislative relief. Last week, Mullin, through a gut-and-amend maneuver, placed in AB 975 a provision that contractors would be entitled to keep lease-leaseback payments even if their contracts were voided, as long as they had dealt in “good faith.”
Opposition developed from taxpayer groups and lawyers who had pursued the Fresno case and after meeting with stakeholders on Monday, Liu decided not to hear AB 975 and pursue, instead, a broader look at lease-leaseback arrangements next year.
The case has become a burning controversy in Fresno with critics saying that Fresno Unified Superintendent Michael Hanson had become personally chummy with the owner of Harris Construction. Hanson, however, has defended the contract as saving money and time. Fresno Unified Trustee Brooke Ashjian has said that FBI agents had sought information about the disputed contract.