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News Analysis: Questions Raised Over State’s School Takeover Legislation

By J. Douglas Allen-Taylor
Tuesday July 24, 2007

A residential development company founded by Los Angeles billionaire Eli Broad purchased property owned by the state-operated Vallejo City Unified School District last year, raising questions about the relationship between Broad and his urban public education Broad Foundation as well as about the sale of property of school districts taken over by the State of California. 

Last year, Vallejo Unified’s state-appointed administrator agreed to sell 18 acres of property to Los Angeles-based KB Home for between $17.5 and $22 million, depending on contract incentives.  

Vallejo Unified was taken over by the state in 2004 after it was forced to take out a $60 million state line of credit in order to balance its budget and, according to a recent article in the Vallejo Times-Herald newspaper, “school district surplus property is being sold to generate a steady stream of income to make yearly payments on the $60 million state bail-out loan.” 

According to San Francisco Chronicle columnist Chip Johnson, KB Home plans to put a 214-home development on the 18-acre spot, replacing four baseball diamonds currently being used by some 300 local Little Leaguers. 

In addition to the KB Home property, the Vallejo Unified state administrator has sold four other parcels of property to a resaler for a possible price of $10 million. 

While there is no evidence that the Broad Foundation, which Broad (pronounced “brode”) founded in 1999, played any role in the Vallejo City Unified School District during the years since the 2004 state takeover, the Foundation has played a key role in shaping the Oakland Unified School District under state control. 

The foundation trained former Oakland Unified School District state administrator Randolph Ward, who then hired several Broad Foundation-trained personnel in key positions with the district while it was under state control. In 2005, the Broad Foundation teamed with the Bill & Melinda Gates Foundation and the Michael & Susan Dell Foundation to contribute $24 million in investments to Expect Success!, a program that radically altered Oakland Unified’s education direction. In addition, support for charter schools is one of the Broad Foundation’s major purposes, and under state control, Oakland Unified has rapidly increased the number of charter schools under its jurisdiction. 

Meanwhile, the Broad Foundation has become a major financial player in other school districts, particularly in support of charter schools. In November of last year, Business Wire reported that the foundation had given a $10.5 million grant to public charter school operator Green Dot, which Business Wire called “the largest single private grant to public charter schools in California.” 

At the same time, Broad has become a major player in state and national politics, contributing more than $336,000 to Democratic candidates between 2000 and 2006, and more than $41,000 already for the 2008 elections. 

Eli Broad co-founded Kaufman and Broad Building Company (which later became KB Home) in 1957, but gave up his chairmanship of the company in the late 1980s, and a company spokesperson said that Broad “has no relationship” with KB Home “at this point.” However, Broad continued to hold large shares of KB Home stock past that point. As late as 1996, however, the last time he had to report to the SEC on his KB Home stock holdings because his shares dipped below 5 percent, Broad held more than 1.5 million common shares of KB Home stock, amounting to 4.89 percent of the outstanding shares. Broad also reported that he gave 765,000 shares of KB Home common stock to the Eli Broad Foundation in July, 1995. 

And Broad continues to hold a financial relationship with at least one KB Home official.  

Broad has recently made a bid to buy both the Chicago Tribune and the Los Angeles Times with fellow Los Angeles billionaire Ronald W. Burkle, who serves on the board of directors of KB Home. 

That creates a circular relationship in which Eli Broad holds influence over state education policy—including state school takeover legislation that now includes provisions allowing easier sale of state property—and then has a financial relationship with a director (Ronald W. Burkle) of his former home development company (KB Home) that has recently benefited from the property-sale provisions in state takeover legislation. 

While nothing about these relationships appears to be illegal, it raises further questions about whether the property sale provisions were placed in the state takeover law solely to benefit the districts and the state—as proponents say they were—or whether they were placed there to benefit real estate developers. 

The provisions of the 2004 Vallejo state takeover legislation that suspend portions of the state education code to allow Vallejo Unified to sell property to help pay back its state loan were borrowed directly from the 2003 Oakland Unified state takeover law, where they first appeared.  

Last year, State Superintendent Jack O’Connell announced he was invoking the Oakland provisions to sell 8.25 acres of Oakland Unified property to an east coast developer, including the district administrative headquarters and five schools. A broad coalition of parents, education activists, teachers, students, and local politicians—including Oakland Mayor Ron Dellums, the Oakland City Council, the OUSD Board of Trustees, the Peralta Community College District Board of Trustees, and State Assemblymember Sandré Swanson—eventually forced O’Connell to back out of the proposed deal.