A newly amended bill would allow contractors whose lease-leaseback school construction agreements are declared illegal to keep their payments.
The legislation is aimed at counteracting the impacts of a state appellate court decision in June that a construction contract issued by Fresno Unified School District violated both competitive bidding and conflict-of-interest statutes.
Fresno Unified is now appealing to the state Supreme Court but contractors who made similar deals with other districts have expressed concern that should the ruling hold, they could be required to return money paid by the districts under the state’s “disgorgement” law.
Ever since the decision came down, contractor lobbyists have been circulating potential measures to either overturn the ruling or counter its effects.
Late Tuesday, Assembly Bill 975, which had been languishing in the Senate Education Committee, was shifted from Assembly Member Jim Frazier, D-Oakley, to Assembly Member Kevin Mullin, D-South San Francisco, and completely changed.
Its contents were stripped out and a new bill was substituted, declaring that a contractor who worked “in good faith” on school projects, even if the contract was later found to be invalid, “shall be entitled to be paid…”
The revised measure is an “urgency bill” that would take effect immediately upon being signed by the governor, but that means it also would require two-thirds votes in both legislative houses.
The underlying case has become very controversial in Fresno. Fresno County District Attorney Lisa Smittcamp said last month that her office is “monitoring the situation” involving a multimillion-dollar deal that Fresno Unified made with Harris Construction to build Rutherford B. Gaston Middle School. Trustee Brooke Ashjian said FBI agents have been seeking information about how the agreement was handled.
Lease-leaseback contracts are a long-standing feature of law governing school construction. Typically, a school district leases a school site to a contractor for a nominal sum, the contractor builds the school and then leases it back to the district with payments stretching over many years.
It’s seen as a way for districts to build new schools without asking voters to pass bonds.
In the Fresno Unified case, however, Harris was retained as a consultant for the project, then was given the construction contract. The district made payments to Harris during construction from bond proceeds, and paid off the school as construction was completed.
A rival contractor, Stephen K. Davis, sued, saying the specifics of the deal violated conflict-of-interest and competitive bidding laws, lost in Superior Court, but won in the 5th District Court of Appeal.
Fresno Unified Superintendent Michael Hanson has received intense criticism in local media for his close relationship with Harris Construction’s owner, Richard Spencer. Fresno Bee editorial page editor Bill McEwen, has written extensively about the relationship, including Spencer’s buying radio ads to praise Hanson’s performance and underwriting his “state of education” event.
Hanson has continued to defend the contract, saying “it eliminates the need to conduct a traditional hard bid process for construction projects, which can often slow progress in making facility upgrades.”