Posted: September 12, 2008
By Jeff Ferguson
courtesy of Champion News
This article first posted on July 23, 2008. The author is a guest on Champion News Talk Radio this Sunday, September 14, 2008 at 8:00 a.m. (AM560 on the radio dial).
In 2003 I began investigating a local school construction project in my town that had been resoundingly defeated by the voters of that district in a 1999 referendum. How could our district proceed with this program when the voters had rejected it? And how did they intend to get the money for it?
What I learned was that although district voters had rejected that referendum, our district administration used a loophole in the state School Code to get their building program anyway. Article 17-2.11 of the School Code provides that if a licensed architect certifies that the cost of repairs on a given building exceeds the cost of replacing that building, the district is then free to sell bonds without voter approval in order to finance their building program.
Unfortunately, my five years of investigating similar projects has revealed that this scenario is not unusual. In fact, as I dug further into the School Construction Program (SCP), I found that of the 506 projects in Illinois at least 250 were done without the approval of the local voters of those districts. As a result, many school districts in this state had accrued significant obligations to pay back the municipal bonds for these projects, in effect leaving huge tax loads for future generations of district residents.
Like layers of an onion, my investigation into these projects revealed a network of professional associations and governing bodies that were involved in a hidden industry.
Local Problem with Statewide Roots
After the 1999 referendum failed, my local school district decided to change direction to get around the voters. They were assisted by a network of professional agencies and associations, most of which stood to profit from such building programs. The documentation trail they created was riddled with conflicting statements and revealed several illegalities.
The district’s first step was to “justify” the building project to qualify for the state’s School Construction Program (SCP). Previously approved repair estimates on the two buildings in question in our district were cancelled. These estimates had been prepared by our district’s first architect and approved by a staff architect at the Illinois State Board of Education (ISBE) assigned by that office to our Health and Life Safety survey process.
The cancelled estimates were marked as ‘District considering SCP” and the project was then reassigned by a director at the ISBE to a different staff architect, one who was much more cooperative. Interestingly, the final estimates included an admission by our new architect that their firm could not build our new building for the lowball estimate that was submitted. Additionally, due to an obviously flawed “state formula,” the bid they submitted was for less than half what the planned building was actually expected to cost.
At the same time, a bank Vice-President had come to town courting and coaching our district on how and when to sell bonds for local matching funds. All this was months before any replacement or repair estimates were even submitted by our new architect.
In spite of a large number of irregularities and outright violations of the required approval process, a particular law firm that participated in the creation of the Build Smart publication was willing to rubber stamp our bonds stating they were legal and valid and complied with all State Statutes.
Eventually, having obtained approval to proceed with the building program, our district had successfully used the SCP’s playbook to hire architects, engineers and building contractors and the building program was completed. Although the original plan rejected by voters was to build one new high school, the district ended up with two new school buildings that were significantly larger and costlier than what was approved. But to the board, that just meant more bonds had to be sold. Local taxpayers were left holding the bill.
Citing procedural irregularities and glaring violations of state laws to challenge the district’s legal authority to sell bonds for that project, a group of local taxpayers sued the district. But in court, the district did not even address the merits of their complaint and made no effort to refute it. The court acted similarly, dismissing the complaint due to untimeliness although the taxpayers had been aggressively seeking resolution to these issues all along, which the school board refused to hear.
The bottom line is that the taxpayers had already rejected plans to build a new school. Rather than abiding by that mandate, the school district manipulated the process by which they got approval to sell bonds to fund the schools anyway at a final cost that was millions of dollars more than the original estimates. Many glaring irregularities and outright legal violations throughout the process were ignored by the courts to avoid taking action on the matter, thus allowing this network of public school system affiliates to continue to disenfranchise taxpayers.
The Birth of a Bureaucracy
In 1998, under former Governor George Ryan, funding for school construction in Illinois was statutorily guaranteed at a minimum of $500 million per year for at least 7 years. Under the direction of the Capital Development Board (CDB), a collection of private and public interests were gathered to create a process whereby school districts could navigate (or circumvent) the statutory requirements to secure funding under the School Construction Program (SCP). The fruit of their labor was published in 2002. It was a book entitled “Build Smart: School Construction in Illinois,” a publication that has been touted as the “Bible” for districts wishing to build new schools, with or without voter approval.
The School Construction Program is jointly administered by the ISBE and the CDB. The SCP has led to state matching grants ($3.1 Billion) for over 500 projects in Illinois, about half of which have been completed without the approval of the local voters in their respective districts. Research into the SCP’s matching fund program using general obligation bonds revealed that it is a focal point for a relatively small network of groups and individuals that control the SCP, manipulating it to make a tremendous amount of money.
Working against Taxpayer Interests
It would be reasonable to wonder why the ISBE or the CDB would allow such glaring conflicts of interest to operate unchallenged. The answer is that they actually assist the process and work to ensure that this network profits regardless of the taxpayers’ interests. Members of this network include:
The Illinois Association of School Business Officials (IASBO): Contains a variety of committees controlled mostly by law firms and financial organizations that benefit greatly from the public school system. The real reason for this board’s existence is to ensure control over local school boards and to manipulate legislation.
The Illinois Association of School Boards (IASB): Touted as a professional support association, the IASB conducts “training” of local school board members to show them “how things are done” in the Illinois public school system. At its Joint Annual Conference hosted by the IASBO, IASB, and IASA, board members are courted by the same professional network whose contracts for services they may one day vote on in their home district. Ironically, businesses and individuals can contribute tax free charitable donations to the IASB for purposes of training school board members.
The Illinois Association of School Administrators (IASA): This advocacy organization for school administrators purports to seek education excellence through “continued school improvement.” It is actually a networking organization whose member benefits include “professional and legal services.”
The Illinois State Board of Investment (ISBI): This board manages and invests assets of various pension funds, including retirement systems for general assembly members, police and firemen, municipal, county and state retirees, university retirees, and judges. This board controls over $12 Billion in investments. It is highly probable that due to their high rates of returns and federal tax exempt status, general obligation bonds for school construction are included in those holdings. This fund also shares reciprocity with various other retirement systems, including the infamous Teachers Retirement System and several Cook County systems.
The Illinois Finance Authority (IFA): Created by Governor Blagojevich in early 2004, the IFA’s first director was Ali Ata although he had no financial experience. The IFA is a State agency fully funded by private interests such as LaSalle Bank. A quick Internet search of the IFA will show they have financed over $12 Billion in various projects since their inception, much of which were projects initiated by Governor Blagojevich.
The Illinois School District Liquid Asset Fund Plus (ISDLAF+): This fund was created by the IASB, the IASBO, and the IASA and is administered by PMA Financial Network, Inc. Its purpose is to “enhance the investment opportunities” and “provide financial management resources” for Illinois public school districts. In actuality, it is a regulating body that controls local school district investments.
The Illinois School Purchasing Network (ISPN): Created by Governor Blagojevich in 2005, this agency provides many “benefits” for school boards, including financial assistance from the IFA and the ISDLAF+; energy contracts offered by the Illinois Energy Consortium, another IASBO/IASB/IASA-sponsored program; and elimination of “administrative burdens associated with the bidding process.” The result is a closed, controlled process for purchasing such goods and services as energy utilities and supplies, office supplies and furniture; technology products; physical education and playground equipment; janitorial materials; carpeting and flooring; and office machines.
These organizations operate “under the radar” to maintain control of public school building construction in Illinois. They have created a closed, tightly controlled system for new school construction that includes assistance in navigating regulatory requirements to get projects approved, providing financing options for building projects, and controlling which architects, engineering firms and construction companies to use.
Bullet-proof system
As evidenced by our local case, and in spite of the conflicts of interest riddling these programs, Illinois courts and numerous state agencies have turned their heads and ignored these matters.
Before filing our lawsuit, we appealed to the Inspector General to investigate our concerns. At the direction of Governor Blagojevich’s office, our complaint was dropped in 2003. Recent findings have given rise to speculation that this move may have been connected to financial contributions to the Blagojevich campaign by the president of the architectural/engineering firm handling our local building program.
The Network of Associates
Another interesting component of this “network” is how they work together, and how individuals jump from agency to board to company within the network. Here are some examples:
•The ISBE director who switched staff architects in our local district case has since left the ISBE to work for LaSalle Bank and the Illinois Finance Authority, both key members of this network of manipulators.
•At the local level, our former Building Administrator who worked so closely with the architect went on to retire, only to join the payroll of the architect’s firm to do some construction management on the very project he helped push through.
•Our district’s attorney, who approved the contracts for two new buildings a month before the required BINA hearing was held (and nine months before the CDB grant was approved) was actually litigating construction cases on behalf of the CDB at the same time.
•Additional research has revealed that the current director of the IFA, Kym Hubbard, was a former portfolio manager for the Illinois State Board of Investment.
•Nearly all of the people involved with my local district’s building program participated in the creation of the SCP’s “Build Smart” publication, including the ISBE director, CDB administrator, bond underwriting law firm, and the financing bank’s Vice-President. Others who benefitted shared an affiliation with the creators via the Illinois Association of School Business Officials (IASBO). The IASBO operates as a form of “central command” for this bureaucracy, as a closer look at this network would reveal.
•The CDB’s SCP administrator was a state-licensed architect who also happened to serve in various capacities with a chapter of the American Institute of Architects (AIA). In spite of this obvious conflict of interest, this architect’s job was to approve submissions from fellow architects who were AIA associates and to award grants to districts allowing them to secure the services of such architects to build new schools.
•Ali Ata, appointed by Blagojevich to be the first director of the IFA, is a co-defendant with Tony Rezko, who was convicted this year in Chicago for illegal influence-peddling. At the Rezko trial, Ata testified that he had received his appointment as IFA Director in part by donating big bucks to Blagojevich’s campaign.
•Former division director of the ISBE Nona Myers left that position to work for LaSalle Bank, a financial institution deeply involved in financing school construction projects. In making this move, she positioned herself to steer business to LaSalle through the newly created IFA.
•A former LaSalle Bank employee, Linda Rafanello, was also involved in courting and coaching school districts on the sale of bonds. She continues to work with districts to get bond referenda passed, and at last check, was a Senior VP with PMA Financial Network, Inc.
But perhaps the best part is that school board members are approving the payment of their IASB voluntary membership dues from your local school district’s funds and getting away with it. After all, who’s going to do anything about it? Surely not a Judge who is an adjunct professor at the same University where our former Superintendent’s son serves on the legal staff.
And you might not want to waste your time with the Illinois Attorney General’s office, the Inspector General’s office, the Auditor General’s office, the Illinois State Police Public Integrity Unit, the Governor’s office, the ISBE, the CDB, the Secretary of State’s office, the Dept. of Professional Regulations, or many other agencies. They all refused to address our local issue, thereby providing a shield from angry taxpayers getting fleeced by the very system meant to protect their interests.
Click here to read another Champion News article on this topic, and here to watch an interview with Jeff Ferguson.
Jeff Ferguson is the founder of the Illinois Coalition for Public Awareness.
