Stockton Unified School District will not be required to pay back millions of dollars in federal funds used to purchase ultraviolet light air purification units in a deal that state investigators described as flawed if not illegal.
The district employed some financial maneuvering okayed by the California Department of Education that saw the problematic contract moved from COVID-19 relief funding to the district’s general fund.
In turn, the Elementary and Secondary School Emergency Relief Fund money, known as ESSER funding, that originally went to the air purification units was exchanged for other district needs that meet the federal government’s requirements, SUSD Superintendent Michelle Rodriguez said Thursday at a governing board policy subcommittee meeting.
“We are proud of ourselves on that,” Rodriguez said, as the district would have otherwise essentially lost out on more than $12 million.
SUSD was the subject of a year-long investigation by the state’s Financial Crisis & Management Assistance Team (FCMAT). The state audit, known formerly as an “Assembly Bill 139 Extraordinary Audit, of the district’s financial practices revealed “sufficient evidence to demonstrate that fraud, misappropriation of funds and/or assets, or other illegal fiscal practices may have occurred.”
The audit was requested by San Joaquin County Superintendent of Schools Troy Brown after SUSD employees reported irregularities in the procurement process and award of a contract to a company called IAQ Distributions, Inc. using federal funds for the purification units. The deal was reportedly worth more than $6 million.
Rodriguez said that the contract was ultimately “deemed an unallowable expenditure” and would need to be paid back to the federal government had the district not switched it to the district’s general fund instead. Thus, the district would have essentially lost the initial $6 million to the IAQ contract and an additional $6 million in returning the funds.
District officials spoke with the state’s education department last Friday regarding mandates it set for SUSD to review and revise, as necessary, district processes that do not meet state and federal requirements regulating purchasing of goods and services for the district, as well as those related to identifying conflicts of interest.
Rodriguez said that she asked state officials during that meeting what the district could do to avoid having to repay the more than millions of dollars in ESSER funds. The state advised the expenditure switch.
“So then, quickly, (SUSD Chief Business Officer Joann Juarez) and her team worked with the CDE, and we were able to recapture that money,” Rodriguez said.
The district is also pursuing legal action against IAQ, Rodriguez later confirmed to Stocktonia.
IAQ is a subsidiary of Alliance Building Solutions, Inc. Stocktonia’s attempts to contact Alliance were unsuccessful as of Friday afternoon.
What happened with the IAQ contract
Alliance was brought before the SUSD governing board by former Trustee Scot McBrian in January 2021 to make a presentation about ultraviolet disinfection technology, according to the state’s report. Though investigators indicated that there had been no evidence of discussions from previous board meetings the district needed such technology.
McBrian later told FCMAT investigators that the same presentation had been given previously by the company at a private holiday party hosted by former Stockton Mayor Anthony Silva with multiple current district board members and a future board member in attendance, characterized in the state audit report as “out of the ordinary and inconsistent with the district’s normal practice.”
Ignoring staff concerns about the vendor, the proposal process and apparent conflicts of interest, the board approved a multimillion dollar contract with IAQ with support from former Superintendent John Ramirez Jr. by a 5-2 vote in August 2021.
Out of the seven-member board, trustees AngelAnn Flores and Maria Mendez were the dissenting votes.
Investigators said the board did not conduct a formal bid process, relying on “less formal” handling that seemed to work in IAQ’s favor, such as allowing the company to work with staff on its proposal, extending deadlines and changes in vendor scoring and proposal requirements. Out of five possible vendors brought before the district’s governing board, IAQ was chosen despite being ranked the least suitable.
“(The) district and board ignored their own policies, procedures and past practice in order to award the contract to their preferred vendor,” investigators said in the FCMAT report, as well as noting that the holiday party likely violated the Brown Act, California’s open meetings law.
IAQ had also been found to not initially have registered its company with the state before being awarded the district contract, investigators said, and was not a licensed contractor with the California Department of Industrial Relations.
Most of the IAQ air filters were either never installed or not delivered to the district, according to a scathing 2022 San Joaquin County Civil Grand Jury report that gave SUSD “A Failing Grade in Public Trust.”
The district paid IAQ with federal Covid-19 relief funds. Federal grant money often comes with strict requirements as to how it can be spent. Investigators said that district leadership “may” have violated at least two federal regulations, which could have resulted in having to repay back those funds.
What’s next
Though the district plans to seek legal action against IAQ, Rodriguez said she couldn’t elaborate on the details at this point.
“Other than we are moving forward with all of our legal remedies,” she said.
Thursday’s policy subcommittee meeting centered on revisions to SUSD board and administrative policies surrounding procurement and ethical financial processes, which are due to the state by the end of the month. The CDE mandated earlier this year that Stockton Unified review and revise, when necessary, certain district procedures and regulations in response to the state’s audit findings or risk losing federal funding.
Some of the policies addressed, if followed in the future, will prevent contracts like the one SUSD entered into with IAQ from happening again.
Board President Flores says she’s excited that the district will not have to “cough up another $6 million.”
Flores was voted president of the board in December, taking over the gavel from Mendez amidst a political shift in board politics following the 2022 election. The three remaining trustees on the board who voted to approve the IAQ contract are Ray Zulueta, Cecilia Mendez and Alicia Rico.
“They have new leadership now at the head of our district who will hold everybody accountable and will ensure that every move that we make will be transparent along with processes that are accountable,” Flores said of what community members can now expect from the district.
This team of Rodriguez and Flores is paying huge dividends! Week Done!