Ethics Fine Brings Call for School Inspector

News that a close affiliate of the company managing the Los Angeles Unified School District’s massive bond construction program has been fined for laundering campaign contributions brought demands Wednesday for the district to hire an independent inspector general to investigate such problems.

“It’s time for the superintendent to get an inspector general in place, and one of their first jobs ought to be to look at this issue,” said Timothy Lynch, Los Angeles’ deputy city controller and a member of a citizens committee that is overseeing the expenditure of the $2.4-billion bond fund.

Lacking that impartial judge, the district faces the complex task of determining whether O’Brien Kreitzberg Inc. told the truth when it checked the “no” box on a qualification form designed to uncover whether it was the subject of any investigations of wrongdoing.

The firm maintains its “no” answer was truthful because the company has been reconfigured since 1994, when the $15,571 in illegal contributions were made to officials of a variety of public agencies.

However, many of the principals remain, causing critics to suggest that such a response is legal sleight of hand--especially since the former company’s work history helped the new company gain the top bond post.

“Reslicing salami, you still have salami,” said state Sen. Tom Hayden (D-Los Angeles), who advocated Wednesday that all bond work be halted until an inspector general is hired and a full investigation is completed.

The timing of the disclosure--putting the Proposition BB management under a cloud just as pressure is mounting to pick up the pace of construction--creates a political quandary for the district:

Should it retain O’Brien Kreitzberg and risk a further erosion of public confidence in the district’s ability to manage the voter-approved bond money? Or should it fire the firm, delaying the district’s best hope of restoring that confidence through visible repairs at schools across the city?

“It’s an ugly choice,” board member David Tokofsky said.

Proposition BB--the largest local school bond in U.S. history--was approved overwhelmingly by voters in April to repair long-damaged campuses and build new facilities. The measure included creation of an oversight committee.

The committee’s chairman, Steven Soboroff, said Wednesday that the timing of the O’Brien Kreitzberg disclosures could not be worse. After months of setting up the network of project managers who will subcontract the work, the district is poised to begin major renovations at more than 400 campuses.

Although Soboroff expressed concern that the inspector general could “add another layer,” he said he would support any truly independent evaluation.

“If something like this were to happen again, it would be our responsibility for overlooking it the first time,” he said.

The pressure to hire an inspector general and the questionnaire at the center of the current controversy both grew out of concerns raised by Tokofsky and Hayden about myriad links between construction companies bidding on the school district work and those previously involved in controversies at the Metropolitan Transportation Authority.

A Hayden bill awaiting Gov. Pete Wilson’s signature provides that the district “shall not contract or do business with any firm that knowingly provides false information.”

But Hayden withdrew the bill’s requirement that the district hire an inspector general, similar to the one employed by the MTA, after Supt. Ruben Zacarias agreed in mid-July to follow that advice voluntarily.

Zacarias said Wednesday that he had been planning to appoint an inspector general once a source of funding was identified, either from the Legislature or by school board action. Now, aware no state money is forthcoming, he will urge the board to allocate the funds, he said.

District General Counsel Richard Mason said he was looking into the FPPC matter but wanted to give O’Brien Kreitzberg an opportunity to respond before reaching any conclusions.

“The question is: Was their answer to this questionnaire honest and forthright?” Mason said. “If it was not forthright, then what does that mean for the district?”

The FPPC agreement was reached earlier this month after an investigation involving 23 contributions made from 1993 to 1995 by individual employees of O’Brien Kreitzberg & Associates Inc. The employees were reimbursed by the company through their expense accounts.

Public officials and campaigns in Los Angeles, Long Beach, San Diego and the San Francisco Bay Area received the money, including members of the MTA board who ultimately selected another company for the Eastside subway project the firm was seeking. The company maintained that it was not intending to influence decision makers; it said that until it began cooperating with the FPPC in March 1996, it did not know that reimbursing employees violated state law.

After the donations were made, O’Brien Kreitzberg & Associates split into two separate companies, one of which is O’Brien Kreitzberg Inc., the manager of the school projects.

The school district questionnaire, sent to O’Brien Kreitzberg Inc. after the firm had already been chosen by the school board, asked whether the firm “or any of its current or past key people or affiliate firms” had been subject to investigations of alleged violations of federal, state or local law.

“We maintain we answered the questions correctly, and, given the opportunity to fill them out again, we would answer the same,” said company President Alan Krusi. He said that after the old company split, its assets went to the firm now associated with the school district, while its liabilities went to another firm--the one that agreed to pay the FPPC fine.

However, secretary of state records indicate Fred Kreitzberg, the president of the old company, became president of both new companies, both of which were incorporated at the same San Francisco address. It was Kreitzberg--now O’Brien Kreitzberg Inc.’s chief executive officer--who signed the FPPC agreement to admit guilt and pay a $40,800 fine.

Krusi also acknowledged that at least three of the eight employees named by the FPPC as participating in the laundering also work for the firm managing the school bond. Furthermore, the former firm’s work for New York public schools was part of its application to the district, and Ruth Hobbs, who is heading the Los Angeles Unified School District project, played a similar role in New York.

Krusi said Hobbs, who signed the questionnaire, did not know about the investigation of the former O’Brien Kreitzberg firm.

Such technical distinctions and claims of ignorance provoked a sharp retort from a Los Angeles-area ethicist who consults with businesses.

“This is the kind of technical evasion that just discredits lawyers,” said Michael Josephson, president of the nonprofit Josephson Institute of Ethics in Marina del Rey. “The fair question is, had they told all the facts to the school board, would the board have been concerned? And the answer is, of course they would.”

A consortium that included O’Brien Kreitzberg was at the center of a bidding controversy at the MTA when the transit agency’s former chief, Joseph E. Drew, recommended it for an $85-million Eastside subway contract, overruling a technical committee that rated other contractors higher.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

A Question of Disclosure

The excerpts below show the failure of the Los Angeles school bond manager to disclose a state investigation of a closely affiliated firm.

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The FPPC agreement signed earlier this month by officials of O’Brien Kreitzberg & Associates outlines campaign contribution violations that occurred before the firm split, forming two new companies.

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As a condition of being hired to manage the massive Los Angeles school bond project, one of those new companies, O’Brien Kreitzberg Inc., filled out the questionaire below in June, while the FPPC investigation was underway.