Draft Audit Faults $2.4-Billion L.A. Unified Bond Program

A draft of a state audit alleges that voters may have been misled into approving a $2.4-billion Los Angeles school repair and construction bond program in 1997 and that the funds were extensively mismanaged. But after protests from the school district, the report will be reworked to reflect recent oversight improvements, officials said Monday.

The draft audit from state Controller Kathleen Connell’s office says the Los Angeles Unified School District improperly paid consultants, failed to report millions of dollars in spending, dipped into bond funds for some unrelated district expenses and paid excessive management fees. One striking contention is that the district may have led voters into thinking that the measure, Proposition BB, would pay for all needed repairs as well as build 85 new schools. The auditors project that a shortfall of $1.52 billion remains to reach that goal.

The draft audit, a copy of which was obtained by The Times, also stresses that the committee of residents set up as a watchdog for Proposition BB spending was ineffective.

Connell’s office presented the draft to the district earlier this month for comment. Outraged district officials launched a rebuttal accusing the auditors of dredging up old history and misrepresenting the intent of Proposition BB.

From the inception of BB, school district officials and members of the citizens committee have said the completion of the needed work would require another bond measure.

After a meeting Monday, Connell and L.A. Unified Supt. Roy Romer said they agreed to clarify that most of the problems occurred before he installed a new management team. Romer, the former governor of Colorado, became superintendent in 2000, the third year of the spending program.

In an interview Monday, Connell conceded that most of the problems identified in the audit preceded Romer’s new team and that many have been solved.

“Everyone agreed that there had been a transition,” she said. “Everyone agreed that we were on higher ground today.”

The district is particularly sensitive to the criticism because it is preparing a new bond measure for the November ballot to complete the massive construction program. The mounting allegations of waste--some from the district’s own auditors--may hamper the district’s efforts to convince voters that it can handle a new bond measure, the size of which is still uncertain.

That local bond vote may be on the ballot at the same time as a $13-billion statewide school construction bond measure. After hearing testimony about BB two weeks ago, the Los Angeles City Council rescinded its endorsement of the state bond measure and intends to urge the state to include a mechanism for accountability.

Connell said she was disheartened that The Times planned to publish details of the draft. It is not unusual, she said, for early stages of an audit to have strong language that is later modified or cut.

Among other charges, the draft says the district wasted nearly $20 million in a failed effort to put a big chunk of the 300 air conditioning projects in a single “fast track” contract. After two years of bidding and negotiations, the district signed a $155-million contract with a Denver-based joint venture.

According to the draft, contract disputes arose and the district eventually agreed to pay the firm $19.3 million without any air conditioners being installed. A district spokeswoman said the contract was so flawed that the district realized it could do the work faster and more cheaply on its own, even after the big payout.

Proposition BB was touted to voters as the antidote to decades of neglected maintenance and stagnant new-school construction.

The draft audit faults the district for not making it clear in the 1997 ballot statement that “the bond proceeds would not fully fund all projects.”

Voters “may have been led to believe” that the money would bring all the district’s 800 schools into good condition and add enough classrooms for bulging enrollment. The district says it never intended for BB to pay for all that and denies any deception.

Connell and Romer said the redrafted audit will include a timeline showing which of the problems predated the current team and which ones still need to be addressed.

District officials conceded last year that the program to repair hundreds of schools was $600 million short of its goal. Two internal audits have blamed excessive management costs and inefficiency.

Based on school district records, The Times reported in February 2000 that work on the 12,000 school repair and modernization projects was over budget and at least two years behind schedule.

The next month, district Inspector General Don Mullinax delivered the first of two audits denouncing the management of the bond program.

He found that the outside firms overseeing BB projects were charging an average of 20%--far in excess of what other school districts pay for management costs. The new state audit says the management fees were actually 24%.

In November 2001, school district officials acknowledged a $600-million shortfall in BB, which they attributed to escalating costs, contractual disputes and poor oversight. The shortfall is jeopardizing the completion of more than half the 12,000 projects.

Romer vowed at the time to make up the funding gap with revenues such as earned interest, loans and state grants, and he predicted no further delays in work. All Proposition BB repairs, he said, will be finished by the end of 2004.

Three months later, Mullinax delivered more bad news in his second report. The inspector general’s consultant, Deloitte & Touche, found that the team overseeing new school construction had greatly improved, but that the repair work was still mired in such problems as poor lines of authority and inadequate cost controls.

Among other findings were that there were too many outside project managers and that the district’s computerized financial system “may not be capable of providing reliable, detailed or timely data management of the BB program.”