The California Supreme Court has denied Fresno Unified School District’s request to review an appellate court decision that criticizes the district’s use of a no-bid contract.
The high court announced Wednesday it will not reconsider a 5th District Court of Appeal opinion released in June that said Fresno Unified misused a leaseback contract for the construction of Rutherford B. Gaston Middle School in southwest Fresno.
Leaseback agreements were designed to allow cash-strapped districts to build schools by going outside of the traditional competitive bidding process and handpicking consultants who will front the cost of a project and then be repaid by the district in increments over time.
But the appellate court said that was not the case when Fresno Unified signed a $37 million contract with Harris Construction to build Gaston Middle School. Fresno Unified had the money to pay for the project upfront and paid the project off as soon as it was completed.
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The court’s opinion has resulted in calls for Fresno Unified Superintendent Michael Hanson and some trustees to resign, with critics alleging the leaseback method was used to guarantee the project went to Harris Construction.
The FBI and the District Attorney’s Office have also become involved in the case.
Fresno contractor Stephen Davis, who took Fresno Unified to court, also alleged the school district broke conflict of interest laws because the district hired Harris Construction as a consultant on a project it was ultimately awarded.
Kevin Carlin, attorney for Davis, said he plans to continue to push the conflict of interest issue in court and wants the millions paid to Harris Construction for the Gaston Middle School project to be returned to Fresno Unified.
“Today’s Supreme Court decision accomplishes two very important things that promote good governance and protect school districts and taxpayers,” Carlin said. “It prohibits school district consultants from being awarded construction contracts for projects they have consulted on, i.e. no foxes guarding the hen house; and second, it requires competitive bidding for any lease-leaseback arrangement that is not a genuine lease or does not include bona fide contractor financing.”
Fresno Unified spokeswoman Amy Idsvoog said Wednesday night that the Supreme Court’s decision was “unexpected.”
“At this point in time, no ruling has been made at any level determining that Fresno Unified’s contract with Harris was illegal or that Fresno Unified may not continue to use the lease-leaseback process in the future,” she said.
Fresno Unified Superintendent Michael Hanson said at a school board meeting Wednesday night that for now, the district will look to legal counsel before using the leaseback method.
“We’re figuring out under what rules would we actually engage in a lease-leaseback [contract]. We haven’t figured that out yet. Once we figure that out in the future, then lease-leaseback becomes an option,” Hanson said. “I think it’s a safe bet to say we’ve got more work to do with counsel and you’ll understand more about how we’re going to operate with lease-leaseback.”
Fresno Unified asked the Supreme Court to review the 5th District opinion last month, saying it hurts hundreds of school districts and contractors across the state.
Los Angeles Unified – the largest school district in California and the second largest in the country – filed a brief in support of Fresno Unified earlier this month, saying the appellate court’s opinion has created “uncertainty and conflict” regarding school districts’ leaseback contracts and contradicts previous court decisions that upheld districts’ use of them.