Did City College use its foundation to launder public funds for political purposes?
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The violations were purported to be accidental. Top administrators broke the law in two separate incidents in 2005 when they diverted a total of $30,000 belonging to City College of San Francisco to a local bond campaign committee, although they said it was an innocent mistake.
Now new documents obtained by the Guardian show an apparent pattern to this misuse of public funds. A special audit indicates that on Nov. 7, 2006, administrators from the school district transferred $38,670 to a bank account controlled by the Foundation of the City College of San Francisco, a nonprofit that seeks donations for the school and funds scholarships.
Just one day before, on Nov. 6, 2006, the foundation made a $35,000 cash contribution to the Community College Facility Coalition Issues Committee, which lobbies for and promotes statewide bonds to benefit schools like City College. State law bars City College from using public funds for such political purposes.
When asked about the money transfers, Vice Chancellor Peter Goldstein conceded to the Guardian that $28,670 of the newly uncovered funds were improperly moved to the foundation to replenish the Nov. 6, 2006 contribution, but he referred questions regarding who made that decision to outgoing chancellor Phil Day, who did not return a call.
The firm that conducted the audit, Louie & Wong, based in San Francisco, could find no evidence that the foundation's board approved the contribution, and a lawyer hired by the foundation says the directors were not aware of the transfer of district funds into the foundation bank account at that time.
Although some of the board members later recalled authorizing the contribution, it wasn't reflected in meeting minutes, and the directors say they never intended to launder public funds into a political contribution.
These revelations further damage the credibility of City College administrators, who for several months have undergone an investigation by the District Attorney's Office into political fundraising efforts by the school. Spending public funds to support or oppose a ballot measure or candidate is against California law.
Two school trustees, Rodel Rodis and Julio Ramos, confirmed for the Guardian that the district attorney in recent weeks requested documents related to the transactions and will be interviewing senior administrators at the school soon, presumably including Day, who is leaving for a new job in Washington, DC, as this story goes to press. Both say the trustees only learned about the audit's conclusions this month, although it was completed last summer.
"The way it's always been presented to me is the foundation is supposed to give the district money in order for the district to fulfill its function of educating students," Ramos told us, "not vice versa."
The District Attorney's Office will neither confirm nor deny the existence of such probes, but its investigation has been confirmed by sources and reported in both the San Francisco Chronicle and the Guardian (see "Day's Dilemma," 8/8/07).
Day characterized the earlier diversions from the 2005 bond campaign as a simple misunderstanding when they were publicized last year. His administration wasn't trying to do anything illegal, he wrote in a public statement at the time, and a resulting internal investigation called for by City College's board of trustees seemed to confirm his claim.
"The 2005 campaign was compressed into little more than three months, and as a result of this rush, we made some mistakes," Day wrote in response to the report when it was released in January. "As the chancellor and CEO of this college, I take responsibility for these missteps."
But despite the breadth of the internal investigation, which filled 232 pages and detailed the history of the hastily organized 2005 bond election, its scope never reached the foundation's political activities.
Now it appears that after the Chronicle published stories last April exposing the misdirected funds from 2005, the foundation's board of directors asked for a special audit to ensure that all its financial transactions between 2005 and 2007 were free from any association with public funds the board wasn't aware of.
The foundation at that time hired a lawyer, Peter Bagatelos, who told the Guardian that the board didn't know $38,670 was transferred to the foundation's bank account on the day of the November 2006 statewide election, when voters were asked for $10.4 billion in bond money to support California's public schools.
"It was never done with their consent or knowledge or participation," Bagatelos said.
During the same two-year period covered by the audit, the foundation made cash donations to other political action committees (PACs) totaling $110,000, including $75,000 that went toward City College's $246.3 million local bond election in 2005.
Those transactions appear to be legal because the foundation is a 501(c)3 nonprofit that technically operates separately from the school and can promote political causes that benefit community colleges within certain parameters, according to a coalition lobbyist. Each of those contributions were approved and properly documented by the foundation's board, unlike the transactions from early November 2006.
Goldstein also said that the foundation's board was not happy about the discovery and that the directors returned the money last April, just as the Chronicle's stories were breaking. He said the remaining $10,000 was legally acquired from yet another nonprofit controlled by the college and through a private vendor, but the foundation's board elected to return that money as well on the advice of legal counsel "to avoid any appearance of impropriety."
"Any funds that the college is entitled to cannot and should not be transferred to the foundation," Goldstein told us. "The particular item that you're asking about was absolutely a mistake. It should not have been transferred. It was found internally, corrected, and the funds were distributed to a variety of student organizations."
The Community College Facility Coalition, which received the $35,000 donation, was formed by a small group of school presidents in the spring of 1993 and today includes 52 districts across California. Its "issues committee" was created expressly for financing statewide bond campaigns.
The political action committee's state election filings show that the foundation's contribution was actually made on the same day City College transferred the $38,670 to the foundation's bank account, rather than a day earlier as the audit states.
City College has aggressively sought such state money nearly $200 million since 1998 to match funds raised through local bonds from San Francisco taxpayers to help with its ongoing capital projects like a new gymnasium, a performing arts center, and campuses in the Mission and Chinatown.
The $35,000 contribution was among the largest made to the coalition's PAC leading up to the election, and Paul Holmes, a lobbyist for the coalition, said only 10 to 12 schools use their foundations to support ballot measures each year. Rarely does it receive a donation of more than $20,000, he said. Holmes added that many colleges use their supporters for donations.
Judy Iannaccone, a spokesperson for the Rancho Santiago Community College District in Orange County, which helped raise $13,600 for the 2006 election, said they did so by forwarding the names of potential donors to the coalition, which allowed the school to remain impartial.
"The money was absolutely not from the general fund," Iannaccone told us.
Colleges and universities commonly form nonprofit foundations to raise money on their behalf from alumni and other supporters, like the behemoth $1.1 billion endowment of the UCSF Foundation, which encourages and administers private giving to the medical school and health-related research of the University of California-San Francisco.
City College's foundation is considerably smaller. It had $22 million in net assets at the end of the 2007 fiscal year, according to district documents, and describes itself in an audit as a discrete component of the school. The foundation gives out hundreds of relatively small scholarships to students every year, some worth up to $3,000, but most for smaller amounts of between $250 and $500.
The foundation also maintains a separate board of directors that, like many higher-education foundations, contains top officials from the school itself, like Chancellor Day and Vice Chancellor Goldstein.
Most of the foundation's other directors, however, are simply civic leaders who support City College's mission but don't work for the district and aren't affiliated directly with Day's administration.
The two entities are still close enough that the district handles bookkeeping for the foundation and shares its employees. For instance, the audit shows that the foundation's finances including its political contributions were often prepared by City College's chief administrative services officer, the title carried by Stephen Herman, who was implicated in the first round of illegal diversions made public last year.
"People literally thought that the college was obligated to make a contribution to this statewide campaign and that meant funds that would otherwise be under the college's control could be eligible for a donation," Vice Chancellor Goldstein told us. "But, of course, that's incorrect."