blog 2018 06 30 the fraud that passes for bond oversight
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The Fraud That Passes for Bond Oversight
June 30, 2018

A Case Study of the South Whittier Elementary School District

This is a case study using the methodology I employ to evaluate a district's citizens' bond oversight committee (CBOC). If I can find a web page (it's rarely a web site), I just go over each published element and links from those elements to compare what I find or don't find to the California Constitution, the four oversight committee statutes (Education Code 15264, 15278, 15280, and 15282), the full text of the bond measure, and the ballot statement.

This district was picked because it had a recently passed bond and it's in a primary coverage area for one of the newspapers in the Southern California News Group which is investigating the issue of bond oversight. I did not need to examine the on-line materials on the web page before beginning this case study because my premise is that there is no oversight of any bond measure in the entire state of California. To one extent or another not a single district complies with all the laws with respect to oversight. Some don't have a CBOC. Some don't have a web page. Some don't post agendas or minutes. This one is what it is, but it was not pre-selected using a set of criteria designed to put it in a bad light. You can test my premise for yourself if you familiarize yourself with the relevant law and pay attention to detail.

The case study reflects what I did on June 29 and 30, 2018. To document the way the page looked at the time, I preserved it in the Wayback Machine (archive.org) which is a very handy way to create a trail of evidence. This was the first time the Bond Measure QS was captured on the Wayback Machine.

Bond Measure QS Page

Wayback Machine Capture

Some people ask me how I know all this stuff. I can some that up in three points. I have an interest in finding out how things work. People ask me questions. When I don't know the answer or don't understand something, I ask questions of people who do, especially government officials, both state and local, lawyers, and accountants. I can apply reason and logic to solve problems. It didn't happen overnight. I've been doing this for three years. I can honestly say that I learn something new almost every week. There are fewer and fewer missing pieces in the jigsaw puzzle. The big picture is starting to reveal itself. It's downright ugly. You're being fleeced by a public-private partnership that I call the school bonds cartel.

DISTRICT BOND HISTORY

The information below are facts that you will never get in the "information" mailings, paid for with your taxes, that districts use to pass bonds. It illustrates how forgetful voters are. They keep paying for the same things over and over.

The first measure, below, required a two-thirds vote to pass, but as you can see, each measure for this district exceeded even the two-thirds threshold by double digits. This is a pattern you often find in poorer or financially distressed districts. Many voters are led to believe that bonds are free money. Then they wonder why they find it hard to make ends meet.

1998-04-14 Measure:W Yes:1,003 No:180 Total:1,183 Margin:84.78% 2/3

To improve neighborhood schools, including health and safety conditions, such as inadequate unsafe electrical and heating systems; repair of deteriorating roofs, plumbing/sewer systems; elimination of asbestos hazards; make seismic upgrades; and provision of adequate restroom facilities, shall the South Whittier School District issue bonds in an amount not to exceed $15 million, at an interest rate within the legal limit, for the acquisition, construction and modernization of school facilities?

2004-11-02 Measure:I Yes:4,577 No:1,333 Total:5,910 Margin:77.45% 55%

To improve student safety, repair and upgrade every neighborhood school, shall the South Whittier Elementary School District upgrade fire alarm systems, install security locks, improve outdoor security lighting, upgrade classrooms to meet current standards, upgrade electrical wiring for technology, repair, construct, acquire, equip classrooms, libraries, sites and facilities, by issuing $7,500,000 in bonds at legal rates, with guaranteed annual independent financial audits, citizen oversight, and no money for administrators' salaries?

2016-11-08 Measure:QS Yes:5,975 No:1,253 Total:7,228 Margin:82.7% 55%

To improve the quality of education with funding that cannot be taken by the State; repair or replace leaky roofs; update inadequate electrical systems; replace deteriorating plumbing and sewer systems; upgrade/modernize 50-year-old classrooms, restrooms and school facilities; and replace outdated heating, ventilation and air-conditioning systems; shall the South Whittier School District issue $29,000,000 of bonds at legal interest rates, with independent citizens' oversight, annual audits and NO money used for administrative or teacher salaries?

There was no requirement for a CBOC for the first bond measure. There was and is for the next two.

If you notice how the same things are being sold in each measure, congratulations. That's part of the deception that the school bonds cartel uses to get bonds passed. None of these measures will actually pay for even a fraction of the types of things listed. But they are all time-tested, focus-group approved, proven selling points. And that's just the tip of the fraud iceberg.

WHERE TO BEGIN

How do you find the CBOC web page for your district? Usually, by guessing or by trial and error.

The district's web site has seven menu selections.

Home, About Us, School Board, Departments, Parent Resources, Staff Resources, Employment

I started at the left and worked my way to the right.

Home Page

Search (Ctrl-F) for words 'bond' or 'measure' or 'oversight.' The words are not on the page.

About Us

When you hover over it, there are 10 options. The fourth option is 'District Committees.' Promising, but no medal. It results in a very fancy-looking '404 Page Not Found' error.

School Board

When you hover over it, there are 5 options. Nothing about bonds, committees, or oversight.

Department

When you hover over it, there are 11 options. The eighth option is 'Bond Measure QS.' That looks promising. It has the word bond in it. That's a hit.

It's a single page, with four main sub-headings and one minor sub-heading. There are no links to sub-pages, but there are links to PDFs. The sub-headings are:

1. Bond Measure QS Citizens' Oversight Committee
2. 2016-2017 Audit Report Conclusion
3. COC Meeting Agendas
4. COC Meeting Minutes
5. Measure QS District Contacts:

1. COMMITTEE

The names of seven committee members are lists under #1. (Good.) The list does not identify when the members were appointed (bad), what statutory categories they fill (bad), what the length of their terms are (bad), when their terms expire (bad), or how to contact them (bad). For those members that fill a statutory category, it does not list qualifying organization or school nor the position held within the organization or school. (Bad.)

2. AUDIT

There's been one audit. It was delivered on August 22, 2017 by Cossolias Wilson Dominquez Leavitt CPA of San Diego. (Why San Diego?) There's a link to it. (Good.) According to the State Controller's Office, this firm performs annual financial audits (not bond audits) for five school districts. The audit is for the year ending June 30, 2017. (The CBOC's first meeting was June 28, 2017.) The audit document combines both the financial audit and the performance audit. It's 24 pages long. Page numbers cited refer to the page index of the PDF and not numbers printed in the documents. Excluding boilerplate, the financial section is a two-page long balance sheet, Note 4 describes committed expenditures of $859,000. Note 5 contains the 30-year amortization schedule for the $10,000,000 in bonds issued on March 9, 2017 which is heavily back-loaded -- only $850,000 of the principal is paid down over the first 10 years. (Bad.)

The audit lists the CBOC members and their categories. (Good.) Why doesn't the web page?

Mr. Joe Duardo Chairperson Active in a senior citizens' organization
Mr. Rafael Gonzalez, Jr. Vice-Chairperson Active in a bona fide taxpayers' Organization
Ms. Marcela Carrillo Member Parent of a student
Ms. Esmeralda Cruz Member Parent of a student
Ms. Alejandra Sanchez Member Parent of a student and active in PTA
Mr. Gabriel Trinidad Member Active in a business organization
Mr. Clemente Villareal Member Active in a business organization
Ms. Mary Jimenez Alternate Member Parent of a student and active in PTA

Wait a minute. There are eight people listed. One is listed as 'Alternate Member.' (Bad.) The statute (15282(a)) is very specific and detailed. It preempts the field and cannot be modified by the governing board of the district. There is no provision for alternate members. Of the seven other members, two of the five statutory categories have two members. (Bad.) The district has imposed additional requirements on membership so that no one who does not qualify under a category, such as a person who does not have a child in district schools or is not an active member of one of the designated organizations is prevented from being on the committee. In another sense, the district is stacking the committee with points of view.

The list indicates neither the qualifying organization or school nor the position that qualifies the member as active. (Bad.)

The auditor repeats the ballot statement as the purposes for which bond proceeds may be used (PDF 9). (Bad.) The purposes are defined in the California Constitution and the specific projects (if they existed) required to be listed in the ballot measure. If this is what the auditor used as the basis of the performance audit, the performance audit is meaningless.

The auditor states that the CBOC is an advisory committee to the board (PDF 9). (Bad.) The auditor does not understand the nature of the committee, which is an "independent citizens' oversight committee," (15278(a)) whose purpose is "to inform the public concerning the expenditure of bond revenues." (15278(b))

The balance sheet shows expenditures of $674,473 for 'Facilities acquisition and construction.' (Later you'll learn that this falsely represents the expenditures.)

The performance audit begins on PDF 19. On that page, the auditor starts out referring to Measure QS, but then refers to Measure I. (Bad -- the perils of boilerplate.) Measure I is referred to three times in the performance audit. (Bad.)

The auditor quotes the criteria for the performance audit from the language of the constitution "not for any other purpose,

including teacher and administrator salaries and other school operating expenses." (PDF 20.) (Good.) Then states it's objective is to "Determine whether salary transactions charged to the Building Fund were in support of Measure QS and not for District general administration or operations." (PDF 21.) (Bad.) The auditor cites no law to support that objective. This is how the school districts embezzle money from bond funds. All the allegedly independent professionals know the game. They make easy money for their part in the scheme.

The performance audit sampled $526,881 (78%) of the expenditures. Without identifying and any specific projects, the auditor concluded that "Based on our testing, we verified that funds from the Building Fund (Measure QS) were expended for the construction, renovation, furnishing and equipping of District facilities constituting authorized bond projects." (Bad.) The auditor hides the actual facts from the public with conclusions based on unknown data. Additional digging would be required. The auditor states that "We obtained the general ledger and the project expenditure reports prepared by the District." (PDF 21.) Those are public records that one could request.

Below the link to the audit, is a slide show promoting the district's use of bond proceeds. What's the first thing it spent money on? Digital marquees for five of the district's seven schools. To be fair, that work could be done while school was in session without disrupting classes, so its not unreasonable for it to done first. We are unable to discern a marquee or signage project or anything that could conceivably be interpreted to include marquees in any of the vaguely described projects listed in Measure QS. (Bad.)

The slides are a piece of propaganda promoting the district. (Bad.) Propaganda and self-promotion have no place on a CBOC web site. Here the district is using the sole page it has provided for the CBOC for its own, self-interested purposes. There's no distinction between CBOC materials and district materials. (Bad.) Everything is intermingled which is further support for the legislature's mandate for a web site.

Since there is nothing on the district's web site about Measure QS, I refer to my measure library. (Only site members are able to access the library materials.)

Measure QS

2. A. ISSUANCE COSTS

What's not explained in the audit are disbursements of money that appear to be hidden from the public by all districts in the state. These are often referred to collectively as issuance costs. Depending on who you ask, these can range from the payments made to firms involved in the documentation and sale of the bonds to all kinds of incidental costs. To put it mildly, everyone has their fingers in the pie, mainly because any bond issuance is a big pie. I suspect the idea is that all those involved think that their slice of the pie is so small that no one will notice. It seems to me that for transparency purposes, who gets a slice should be required to be disclosed. If you've not ever seen the breakdown of these costs before, it's an eye-opener. Here is a rare find for a Temecula Valley Unified bond issuance in 2016. (Tweet)

Of all the costs, the two that are pure graft are for bond insurance and the ratings fees. Fitch, one of the three major ratings agencies, has concluded that school and college district general obligation bonds are the most safe investment possible. Why? A maximum of 3.75% (combined school and college district debt load) of all the taxable property in the district is secured by 100% of the district's property value. Once bonds are issued, there is no limit as to high the tax rate can go. Fanciful tax rate estimates go out the window when a recession hits or a natural disaster destroys property on the tax roll. You've likely heard of insurance required for home mortgages where the loan to market value ration is 80% or more. With these bonds, the loan to TAXABLE value ratio is 3.75% tops. The loan to market value ratio is likely in the sub-one-percent range in California because of Proposition 13's tax limitation. That's equivalent to saying that you are guaranteeing the repayment of the loan with assets worth more than 100 times the loan amount. Bond insurance for Proposition 39 bonds is a pure scam.

The ratings fees are the other scam because they too are based on this 100 to 1 or better value to loan ratio. The ratings companies get paid the fee to issue a rating. AAA+++ doesn't even come close to the security provided by these kinds of bonds. The ratings agencies write the same paragraph for every Proposition 39 bond issuance. They charge a fee to the issuer on the front end and then charge customers of the ratings service fees for access to the ratings on the back end. The bottom line is these bonds will never default unless California slides into the ocean. The ratings fees are pure profit to the ratings agencies. In addition, they act like it's a big deal and interview the district superintendent, business officials, and trustees in their swanky Montgomery Street offices in San Francisco. Guess who pays for the travel expenses for a few days in San Francisco? The districts charge (illegally) the travel expenses to the bond proceeds, so you pay, with interest, for 25, 30, or 40 years.

The naive and clueless district officials get totally snowed buy the private side of the school bonds cartel. If anything, the ratings may mean lower interest rates for other kinds of debt that a district can issue that isn't repaid with ad valorem property taxes. But the bond proceeds are free money, so they go along with it criminally knowingly or blissfully ignorantly. And then of course there's that free trip to San Francisco during the work week on your dime as well.

Issuance costs, as reported to the State Treasurer, for the Series 2017A bonds were $248,593.86 including $40,000 to bond counsel (Jones Hall) and $65,000 to financial advisor (Isom Advisors). The interest rate for the bonds was 3.878 (TIC). The discount premium was $290,665.30. None of this was reported in the audit. The difference between the premium and the issue costs is $40,071.44. On the balance sheet (June 30, 2017), $36,420 was stated as accounts receivable and $39,965 was stated as other local revenues. Interest on the cash in the county treasury is not identified.

Note that Attorney General Brown issued a controversial (to the school bonds cartel) opinion about refunding bond sale premiums in 2009. I have tried to pin down over many years how premiums (extra money resulting from a higher-than-market-price interest rate) and interest on county treasury cash investment are accounted for. From observation, it appears that the interest rate on negotiated sales (almost all are) is manipulated in order to give the district the full face value of the bonds after the sale. Sometimes, however, it appears that districts walk away with, literally, millions and often hundreds of thousands of dollars over and above the issuance costs. The districts treats this as free money. Some county treasurers go along with it. These moneys should go directly to pay down principal and not be added to a district slush fund.

3. CBOC AGENDAS

There are links to three meeting agendas. Each of the links contains a simplistic, formulaic agenda without any documents supporting agenda items. The agenda is prepared by district staff, one 'pbowman.' from a Microsoft Word document. If it is like 99.44% of CBOCs around the state, the CBOC has no say in what goes on the agenda. (Bad.) The agenda is a tool to exercise the district staff's control over the CBOC.

What do the oversight statutes say about agendas? "notice to the public shall be provided in the same manner as the proceedings of the governing board of the district." (15280(b)) The governing board uses the AgendaOnline tool and, in the past, separate pages for Board Meeting Agendas and Minutes and for Meetings both accessible from the top-level School Board menu item. The CBOC's notice is buried in a menu tree that doesn't even identify it. (Bad and bad again.) That correlates with the oversight statute's mandate for a web site.

Meetings are scheduled at 4 p.m. That's convenient for staff who will ALWAYS attend every meeting to make sure the CBOC doesn't wander off the reservation and start doing any real oversight. When a district sets CBOC meetings during the regular workday, it automatically excludes a whole pool of working people from serving as a member. For working people, well, they're still at work. CBOC meetings almost never have public in attendance, excepting, once-in-a-while, familiars of CBOC members who are there for the show. Why not have a meeting on a Saturday? Staff don't want that. Remember staff control 99.44% of all CBOCs in the state. Convenience for the staff attending and overseeing, i.e., restricting, the CBOC's activities is the primary consideration in every staff decision.

Each agenda ends with this statement:

"[Note: As required pursuant to Education Code Section 15280, the minutes of this meeting will be posted on the District's internet web site]"

What does the law actually say?

"Minutes of the proceedings of the citizens' oversight committee and all documents received and reports issued shall be a matter of public record and be made available on an Internet Web site maintained by the governing board of the district." (15280(b))

The committee is to have a web site. A web site is a URL that points to a main page, e.g., http://cboc.swhittier.k12.ca.us/ or http://www.swhittierbondoversight.com/ or http://measure-qs-oversight-committee.blogspot.com/. A web site may have more than one page accessed by links that may be organized into a menu.

It is not a web page with an unspeakable URL, like this:

http://www.swhittier.k12.ca.us/apps/pages/index.jsp?uREC_ID=815648&type=d&pREC_ID=1200975

I conclude, based on irrefutable evidence, that the first CBOC meeting on June 28, 2017, was called only because district staff suddenly woke up and remembered that there was a CBOC that was supposed to be reviewing and reporting on expenditures; AND the fiscal year for bond proceeds from Measure QS was ending on June 30, 2017, AND the CBOC that was appointed on March 21, 2017 had yet to meet. So on June 26, 2017, in a panic, district staff started throwing together an agenda and some reports, called up all the CBOC members, and pleaded with them to come to a meeting on Wednesday.

What's the evidence for this?

Exhibit 1: The Expenditure P.O. Report that ended up being pasted into the CBOC annual report was dated June 26, 2017.
Exhibit 2: The agenda was created on June 27, 2017 at 9:22:09 AM by Pamela Bowman, Business Services Secretary.
Exhibit 3: The project management report that ended up being pasted into the CBOC annual report was dated June 28, 2017.

If, as 99.44% of all districts and their lawyers claim, but which I factually and legally dispute, the CBOC is subject to the Open Meeting Act (Brown Act) for local government agencies, the agenda and the materials would have had to have been posted for the public and distributed to the CBOC members at least 72 hours before the meeting which was set for June 28, 2017 at 4 p.m. That means the posting of the notice would have had to have been before June 25, 2017 at 4 p.m. The cut-off was on a Sunday, so the posting would have had to have been made sometime on Friday, June 23, 2017. Since school was already out for summer recess, the district may have been on summer hours and not even open on Friday. Regardless, district staff could have scheduled the meeting for Friday, June 30, 2017 at 4 p.m., but that would be cutting it close. Friday was both the close of the fiscal year and the start of the July 4th holiday weekend. Why would district staff -- Mark Keriakous, Stuart Moe, Irving Sanchez, and Pamela Bowman -- want to hang around late on a Friday of a holiday weekend, even if they could get the CBOC members to the meeting?

My conclusion is that violating the Brown Act did not factor into the calculation for district staff. Once again, law? What law? We don't have to follow no darn law!

4. CBOC MINUTES

There are links to three meeting minutes.

While the CBOC was appointed on March 21, 2017 and $10,000,000 bond proceeds had already been received on March 9, 2017, it met for the first time on June 28, 2017. (Bad.) By that time, between expenditures and commitments, the district had already spent $1,533.473 (15%) of the bond proceeds on hand. The committee had no opportunity to perform its other reviews as authorized by the oversight statutes. At the meeting, it did not even discuss this and decided it would meet no more frequently than three times a year. This is the way district staff set the expectations of the CBOC members. Staff always knows what it's doing. CBOC members follow the lead of staff. No independent oversight is ever performed.

I note with some amusement that the minutes of the first meeting are titled "Citizens Bond Oversight Committee Minutes Measure I" -- the consequences of thoughtless copying and pasting.

At the first meeting, "Members of the committee reviewed the Expenditures to Date documents." (Good.) Those documents are not to be found on the web page. (Bad.) "... all documents received and reports issued shall ... be made available on an Internet Web site ...." (15280(b))

CBOC members questioned "Election expenses, advertising and Director of Facilities Expenses." (Good.) Their instincts were 100% correct. Apparently they were satisfied with the answers of the district staff. (Bad.) Thusly, district staff train CBOC members to not perform oversight. Thusly, prohibited "administrator salaries and other school operating expenses" are stolen from the bond proceeds in plain sight.

There's no indication in the minutes that the committee received the secret bylaws "on file with the Superintendent." Neither do the minutes indicate that the CBOC members reviewed their statutory mandate of "Ensuring that, as prohibited by ... the California Constitution, no funds are used for any teacher or administrative salaries or other school operating expenses." (15278(b)(2)) The patronizing district staff don't like the CBOC members knowing too much. They might ask questions. They might perform oversight.

The CBOC members also "learned that the Marquee sign projects had been completed." Earlier in the meeting they did review the "Full Text of Bond Measure QS." (Good.) But they had no questions and took the documents home. These documents are not on the web page either. (Bad.) The CBOC members' other statutory mandate is "Ensuring that bond revenues are expended only for the purposes described in ... the California Constitution." (15278(b)(1)) Those purposes are "for the construction, reconstruction, rehabilitation, or replacement of school facilities, including the furnishing and equipping of school facilities, or the acquisition or lease of real property for school facilities" (Article XIII-A Section 1(b)(3)) AND itemized on "A list of the specific school facilities projects to be funded ...." (Article XIII-A Section 1(b)(3)(A)) Marquee sign projects are not listed in Measure QS. (Bad.)

The CBOC members also learned of future projects among which were "paving projects ... at the District office and Warehouse locations," and "dry rot repairs, arborists services and the relocation of the Administrative Office at Lake Marie." The CBOC members didn't blink an eye -- or care to check those projects against the intentionally non-specific project list in Measure QS. None of those projects were listed or could even reasonably be implied.

Note that all these projects and expenditures were the district's first priorities. While we don't know, because there are no expenditure documents available on the web site or in the audit, it appears that a significant amount of bond proceeds have already been illegally transferred from the segregated county bond account to the district's general fund. This is the definition of embezzlement, one of the many forms of theft.

To finish off its first meeting, the CBOC members reviewed and adopted the "Annual Report of the Citizens' Oversight Committee." The oversight statutes require that "The citizens' oversight committee shall issue regular reports on the results of its activities. A report shall be issued at least once a year." (15280(b)) Did district staff write the report? (Bad.) Where is it? (It's not on the web page.) (Bad.)

A determined person could actually find the report by using the reference in the minutes to the meeting at which it was presented to the board. For a discussion of the report see ANNUAL CBOC REPORT, below.

END OF PAGE

So that's the page. There is no link to what was printed in the sample ballot booklet for Measure QS. (Bad.) There is no link to a policy or procedure that describes how the CBOC members are selected. (Bad.) There is no link to an application and instructions to apply to become a CBOC member. (Bad.) There is no link to the law (Constitution and oversight statutes) that govern oversight. (Bad.) There is no link to the rules (bylaws) governing the CBOC. (Bad.)

But, if you have questions, who ya' gonna call? District staff, of course! (Bad.) So what happens if there is a whistle blower district employee or parent? Do you think the whistle blower would report the violation to district staff? Do you think any individual CBOC member would ever learn of allegations of misuse of public moneys? For that matter, would a whistle blower attend a public CBOC meeting and report a violation to the CBOC in public session? Will district lawyers threaten advise CBOC members with legal mumbo-jumbo, if they were to even consider conducting a closed session meeting? (How would the district prevent real oversight, if district staff can't watch the watchers?) Would cheerleaders leak closed session discussions to district staff? With no background on how or why the CBOC members were selected, how would a whistle blower even determine who are and who are not cheerleaders? Can you see the subtleties that inexorably militate against any oversight ever occurring by anyone?

BEYOND THE OBVIOUS

Additional research yielded some additional, relevant oversight information. The web page was missing a lot, so I explored other ways to find the missing pieces of the puzzle picture.

At its January 17, 2017 meeting, the board received the financial and performance audits for the year ending June 30, 2016 for Measure I (a previous bond measure) from Vavrinek Trine Day. At that same meeting the Board entered the results of the November 8, 2016 election for Measure QS. It also authorized the issuance of $10,000,000 of bonds from Measure QS.

The board also adopted bylaws for the Measure QS CBOC. (Bad.) The oversight statutes give it no authority to impose rules of any kind on the CBOC. The statutes preempt any board action in this regard. The imposition of bylaws informs the CBOC that it is not independent, but subject to the board.

The bylaws are not included in the adopted resolution, but are "on file with the Superintendent." (Bad.) The board also had a first reading of its Board Policy 3470 Debt Issuance and Management which is required by SB-819 before it issues debt. (Bad.) The debt policy was written by CSBA (California School Boards Association) lawyers to check off that box, but to avoid any restrictions on the board's actions. The policy can be summarized in a single sentence. "The board can do anything it wishes in issuing debt."

Although I have not been able to crack the superintendent's secret file containing the bylaws, I expect that they will be much like those at 99.44% of the CBOCs around the state. Besides an enormous listing of restriction after restriction about what the CBOC members cannot do, the very last item will be an ethics policy. The ethics policy was written for district employees and appointed members of other committees that the board may establish. The oversight statutes provide no authority for the board to impose an ethics policy of any kind on CBOC members. Here's what the last sentence says:

"COMMITMENT TO DISTRICT. A Committee member shall place the interests of the District above any personal or business interest of the member."

So in this coup d'etat, the district eviscerates the legislative intent of the oversight statutes and places the district's interests above those of the taxpayers which the CBOC was formed to protect.

The CBOC members were appointed on March 21, 2017, a few days later than the 60 days required by law. (Ok.) The appointment resolution does not specify the CBOC member terms. (Bad.) The board based the appointments on the superintendent's recommendation. (Bad.) The recommendation is conclusory in the sense that the board is not given information about the number of applicants, the selection process that the superintendent used, and the information about each applicant. (Bad.) The board, therefore, has no basis to choose one or more different applicants. There is no evidence that the Board established a policy or procedure setting the manner and procedures or policies to be followed for selecting CBOC members. (Bad.) In other words, the board abrogated its duty to select and appoint CBOC members, and tacitly delegated its duties to district staff. (Bad.) There is no indication that any of the appointees are taxpayers. (Bad.) The legislature clearly stated its intention that oversight be conducted by taxpayers. (15264(b)) It should be no surprise that the resulting CBOC consists of district cheerleaders.

ANNUAL CBOC REPORT

Note that the district uses CSBA's Agenda Online service, which has very good search capabilities. The district began using it for its May 17, 2016 meeting, yet continued to post agendas and minutes as individual PDFs on its Board Meeting Agendas and Minutes page until May 17, 2017.

Since the June 28, 2017 CBOC meeting minutes stated that the annual report would be presented to the board at its July 18, 2017 meeting, it was easy to locate that meeting. The agenda item had an attachment representing the report.

The report is shocking in its boldness. It is 10 PDF pages in length. On PDF 1 staff wrote a bunch of boilerplate words that it placed into the mouths of the CBOC members. It is likely identical to the reports of the CBOC for the district's previous Measure I, if any were actually produced. (See IN SEARCH OF MEASURE I, below for the elusive CBOC activity.)

The report makes two claims that can only be characterized as propaganda (lies) -- one regarding District Support and one regarding the conclusions. There is no evidence of any district support at that time. There wasn't even a CBOC web page yet as we learn from the subsequent meeting minutes. The report hides the presumptions made in coming to its conclusions. It didn't report the actual facts. The CBOC members acceded to whatever the district staff told it. The CBOC's only authority is to report -- report to the public, not to the district.

The whole dog-and-pony show of the annual CBOC report, written by district staff, approved by district staff, and produced by district staff comes from the imagination of school bonds cartel bond counsel to make the CBOC subservient yes-men and yes-women in the thrall of district staff and board. The conceit here is that making the report to the board in pubic session is a report to the public. I can confidently guarantee that except for the parties to the dog-and-pony show, no member of the public has ever or will ever see the report. It's also actually a violation of the oversight statutes which require that the district "shall provide ... sufficient resources to publicize the conclusions of the citizens' oversight committee." (15280(a)(1))

Maybe I'm being too hard on the district. It is likely that the district will actually provide resources to publicize the conclusions of the CBOC. That will occur a few years down the road, when the district is hawking its next bond measure. Then it will trumpet the conclusions of the CBOC, in full-color, glossy, highly-produced mailers for "information" purposes, paid for by district taxpayers, that the district has spent all of the bond proceeds from the previous bond measure in complete and excruciating compliance with the law. But seriously, folks, I have seen one district mail out to all district voters a full-color, glossy, highly-produced annual CBOC report. That was a few months ahead of an election where the district had two bond measures on the ballot AND two trustees were up for election.

The report in this case is a modest production, consisting only of written content and copies of reference materials. Many reports are full-color, highly produced propaganda brochures on a par with corporate annual reports, minus the detailed financial information of course. Many annual CBOC reports, besides the pro-forma, mandatory conclusions, sing the praises of the district staff and trustees. It should embarrass good-intentioned people to put their names to such an unctuous report, but peer pressure, going along with the crowd, is a powerful psychological mechanism to ensure that all voices are unanimous.

District staff accomplished their mission -- a whitewash of all the unlawful expenditures by its hand-picked acolytes. (Bad.) The district encompasses modest working-class neighborhoods. District staff take advantage of their lack of means and knowledge to force the district to follow the law. The taxpayers trust in the district staff's motivation is entirely misplaced.

All is not lost, however. The marquee signs will "improve the quality of education" in the district.

On PDF 3 through PDF 5, the full text of Measure QS from Appendix A of the board resolution is pasted into the report. On PDF 6 and PDF 7, the "Expenditure P.O. Report," presumptively the "Expenditures to Date documents" the CBOC members reviewed at their June 28, 2017 meeting, is pasted in as well. On PDF 8 through PDF 10, an untitled project management report of some kind with Gantt charts is pasted in too. That's the entirety of the report.

The inclusion of the expenditures, however, does shed light on what the district actually spent, but more importantly what it embezzled from proceeds through reimbursements to itself.

This part of the report appears to be a print-out of a self-made spreadsheet. The report is a summary of expenditures already rolled up in to categories that make it difficult to know, who was paid, how much, when, and for what -- what one might learn from a simple checkbook register. The report is not coded with any kind of accounting codes, but uses descriptions, so even if it were to be tediously transcribed, it would not be very useful for analysis.

Sprinkled throughout the report are descriptive categories like Travel and Conferences, Advertisement, Printing, and, the ever popular, Other Services. Each has a dollar amount associated with it. The big payoff comes at the bottom of PDF 7 where a Project described as Undistributed totals up $227,506.67 (25%) of the $909,410.07 grand total (which doesn't quite jive with the audit). This is the area that raised the most interest from the CBOC members based on the minutes of the meeting. Three of the four biggest category items are $105,186.22 for Director of Facilities, $29,301.07 for Election Expenses, and $20,000.00 for Legal Attorney Fees. By any stretch of the imagination, are these for "construction, reconstruction, rehabilitation, or replacement of school facilities, including the furnishing and equipping of school facilities, or the acquisition or lease of real property for school facilities?" Or rather are they for prohibited "administrator salaries and other school operating expenses?" These are all overhead expenses. The tip-off, perhaps, is that they are under a project labelled "Undistributed." They would be incurred by the district whether it were spending Proposition 39 bond proceeds, state allocated funds or bond proceeds, or the district's own money, set aside for maintenance, repairs, and purchases of equipment or furnishings.

Under Proposition 39, payments going back to the district are prohibited. Proposition 39 was an accountability initiative. The proponents of Proposition 39 admitted that misuse of bond money under Proposition 46 by districts was pervasive. Scandals exposed that districts were using the money for anything they wished. Proposition 39, as part of its accountability provision, completely cut-off districts' ability to embezzle borrowed money, secured by taxpayers' property, and paid back with interest. The California Attorney General at the time agreed. He stated exactly that in his Official Title and Summary: "Prohibits use of bond proceeds for salaries or operating expenses." The companion accountability oversight statutes set up an independent group of taxpayers to alert the public if the district wasn't keeping its promises, represented by the "list of the specific school facilities projects to be funded," but instead spending bond proceeds on projects that the voters did not approve, in advance.

Proposition 39 is an offer by the people of California to the districts to fund school facilities, not overhead expenses. The other terms of the offer were a mandatory list of specific projects, and two independent annual audits. The offer is non-negotiable -- take it or leave it. The benefits to the districts were tremendous -- 13 point lower voter approval level to fund facilities construction, the inclusion of non-capital expenditures (furnishings and equipment) which were prohibited under Proposition 46, and the expansion of real property dealings to leases as well.

So in exchange for restrictions placed on the district's use of bond proceeds, the district got a lot of goodies that it would not otherwise be able to avail itself of.

CONCLUSION

The school bonds cartel, which includes virtually every district in the state, likes the benefits, but not the restrictions. So district by district it started violating its part of the bargain. The more terms it violated, the bolder it become. It wasn't being challenged in court. (What working stiff could afford it?) The cartel learned how to train the CBOC members to not challenge anything it did. It even got CBOCs and auditors to make false statements in annual reports and audits. That brings us to where we are now, which is in an even worse position than the corruption that reigned prior to Proposition 39 in the year 2000. The school bonds cartel has taken all of the benefits of the offer and eviscerated all of the restrictions. Districts have blank checks.

There is no oversight of Proposition 39 bond proceeds expenditures anywhere in the entire state of California. The districts pile on debt like there's no tomorrow, in some cases maxxing out their overall statutory debt capacity and in many cases maxxing out their taxing capacity on individual bond measure elections. No matter though, the California Department of Education, owned lock, stock, and barrel by the school bonds cartel, can grant waivers, for any reason it wishes, to exceed those maximums.

It's a bad situation of government corruption run amok. But at the local level, it rarely makes news. The taxpayers think its all about their local children's education. In reality it is the wealthiest of the wealthy leeching local property taxes from the regular folk -- the ones that produce for a living.

The school bonds cartel is at war with the property owners of California. The art of war is deception. It has honed its skills to the point that it can, in effect, print money by deceiving voters into passing Proposition 39 bonds for the same reasons, over and over and over. The cartel depends on the short memory of voters, the flux in the local population, and the fraudulent promises and argumentative language that it prints on every single ballot in the state.

The biggest impetus for the stratospheric debt being proposed by the cartel is pension and benefit promises, along with recent accounting rule changes, that are driving every district in the state toward insolvency. Every million dollars that a district can embezzle from bond proceeds is a million it can use to shore up its balance sheet due to stratospheric pension and benefit liabilities. It's going to get even worse. Then the bubble will burst, as all bubbles do.

When the gravy train ends, property owners will be saddled with debt that they, their children, and their grandchildren will be still be paying off when their grandchildren's children are of school age. It's not going to be pretty. The perpetrators will be gone -- retired and living the living the lifestyle of the rich and famous, or dead.

The solution is simple. Demand that your district strictly follow the law. End the fraudulent elections. AB-195 provides the mechanism to do that for the first time in California history, if the registrars require that ballot statements to conform to it. Don't pass bonds that are blank checks.

As seems to be a theme in this state, you don't need more laws that have no consequences. You need to enforce the laws you already have and add teeth to them. Compel your district attorneys to prosecute those who are embezzling public moneys to the tune of 10s to 100s of millions of dollars a year. If you're ready to act, Sign Up on this site.

EPILOG: IN SEARCH OF MEASURE I

This case study started out being about one measure. But as I answered questions about Measure QS, it raised the question of where were the CBOC materials for Measure I?

Measure I was a $7,500,000 Proposition 39 bond measure that passed on November 2, 2004. According to the board minutes of January 17, 2017, the final annual financial and performance audits for Measure I funds were completed for the period ending June 30, 2016. That's a span of nearly 12 years where the district was required by law to have an oversight committee, have meetings, maintain a web site, and report expenditures to the public.

There's nothing on the district's current web site to suggest that there ever was an oversight committee or even a Measure I, for that matter. What to do? Use the Wayback Machine (archive.org) and see what we can turn up.

The Wayback Machine does not contain every page that the district has ever had on its web site, but it does have individual pages that were captured between 2003 and 2017 (now 2018). The home page has the most captures, so that's where I started.

The links below are all found on the Wayback Machine, which automatically dates and time stamps every instance of every page it captures. That's how you can tell when these pages actually existed on the web site you're looking at.

2013-11-13 Home page

The menu on this page is very similar to the current menu:
Home, About Us, School Board, Departments, Schools, Parent/Student Resources, Staff, Community, Employment
No Measure I or CBOC selection on any of the drop-down menus.

2012-03-09 Departments page

This page has an earlier version of a similar drop-down menu.
Home, About Us, Schools, Parents, Employment, Contact Us
There is still no reference to anything remotely suggestive of Measure I material.

2009-06-10 Departments page

This is the earliest capture of the Departments page. The top level of the menu is the same as in 2012, but items on the drop-downs have changed.
Home, About Us, Schools, Parents, Employment, Contact Us
Still no hint of any materials about Measure I.

2012-01-12 Home page

My strategy wasn't yielding results, so I tried a different way of exploring earlier pages.

2006-04-09 Education Complex page

This page is interesting. It starts off talking about Measure W, passed in 1999[sic], a $15,000,000 bond under Proposition 46. The bond was actually passed on April 14, 1998. It lists accomplishments that were funded by the money. Then it talks about how Measure I will continue improvements.

This page was captured four times, so I went to the most recent version.

2008-05-05 Education Complex page

In two years, the page didn't change in any ascertainable way.

One can surmise that it was likely a one-shot deal and was posted for the first time shortly after the 2004 election.

I then used the current web site's Google Custom Search feature to search for "Education Complex." That search found nothing. Again, one can surmise that since the current web site design began sometime around 2009, that all the pages from the previous design were discarded when the new site was implemented.

So I went back to look for versions of the home page to see if I could pinpoint when the new design was implemented.

2008-01-05 Home Page

This version of the home page shows the old design, Significantly, the last paragraph on the page refers to the 1999 bond (Measure W) but doesn't even mention Measure I which was passed in 2004.

2008-10-26 Home Page

The next version of the home page shows the first iteration of the new design. So it's established that the new design was implemented in the middle of 2008.

The primary menu is identical to the one captured on 2019-06-10 for the Departments Page.

Home, About Us, Schools, Parents, Employment, Contact Us

It's fair to conclude from this exercise that the district never complied with the oversight statutes regarding the maintaining of CBOC agendas and materials for the entire life of Measure I. To determine whether it ever had a CBOC at all, I had to look elsewhere.

Searching the agendas in the searchable Agenda Online service, I find only two references to Measure I. One was the final audits which was discussed earlier. The other was the appointment of committee members for the period June 1, 2016 to June 1, 2018 at the May 17, 2016 board meeting. The only information provided in the agenda is the names of the appointees.

1) Joe Duardo [Measure QS]
2) Adrian Romero
3) Gabriel Trinidad [Measure QS]
4) Barbara George
5) Ken Arnold
6) Melody Gonzalez
7) Toby Chavez

So the district appointed two Measure I CBOC members to the new Measure QS CBOC. One of them, perhaps by, wink-wink, arrangement, became the chair. Also, note that those two members had overlapping terms on two committees from March 21, 2017 to June 30, 2017 at which time the board dissolved the Measure I CBOC.

Since the online agenda only covers the period from February 16, 2016 to date, I went to the Board Meeting Agendas and Minutes page which posts agendas dating back as far as July 27, 2010. Based on the June to June even year appointments made in May 2016, I searched for the words 'measure' or 'oversight' in May, then April, then June agendas for 2014 and 2012. No agenda used either of those words. It's reasonable therefore to conclude that the district had no CBOC for many years.

Since a CBOC is required to meet at least once a year and report once a year (15280(b)), where is the evidence of a meeting and report and the audits for the two years ending June 30, 2016 and June 30, 2017. This is the kind of low-level corruption that district staff and the board expect that no one will ever notice.

Besides being required by law, the board covenanted (promised) to follow the law, even going so far as to repeat it in the ballot statement for Measure I -- "with guaranteed annual independent financial audits, citizen oversight, and no money for administrators' salaries." You have to disabuse yourself of the idea that the oath to the California Constitution, legislative acts, and even contractual promises on which you are expected to be able to rely upon mean anything. The only thing that matters to the school bonds cartel is the money they are able to extract in property taxes that will be taken from you, at the point of a gun, if necessary.

TO SOUTH WHITTIER SCHOOL DISTRICT OFFICIALS

District officials are welcome to respond, but only with authenticated records or documents. Hiding behind responses from lawyers will tend to confirm that the district is covering up its misdeeds. I will accept calls from the superintendent or other district officers or board trustees. The calls will be recorded. If there is documentation that supports different conclusions, then district staff must post those documents on a web page that the district maintains that is accessible to the public at large and that identifies the date and time it was posted. If the district posts its own version of events, then it agrees to post my responses in the same location, for all to see.

Let this be a public, public records request for any records, un-redacted, in any form, via either district-owned or private devices evidencing the procedures in place and the circumstances surrounding the recruitment of applicants for the CBOC that resulted in the appointment of eight people on March 21, 2017 to the Measure QS CBOC.

CBOC members for either Measure I or Measure QS may also provide records or their recollections of how they came to be appointed and their activities in connection with the CBOC.

If district officials wish to dispute my characterization of the transfer of public moneys from the restricted bond fund to any other district fund or to satisfy any related district obligation, then they must cite the constitutional provision or statute that authorizes each, specifically-described record of expenditure transferred.

If any of these conditions are not clear, I'm willing to clarify them

I could be wrong, but leopards don't change their spots.

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