Sweetwater's Funds for Education

Last week, Sweetwater’s interim superintendent Ed Brand suspended the Funds for Education Committee, saying, “I can stop the grief right here.” This is the second time Brand’s private-sector fund-raising efforts have ended in controversy.

Brand was Sweetwater’s superintendent from 1995 to 2005, when he retired. Last June, he was rehired to clean up the district after superintendent Jesus Gandara, indicted by the district attorney last week, was forced out.

Back in the 1990s, Brand set up a committee called the Corporate Development Team to negotiate contracts with prospective school-district vendors. Headed by former Sweetwater coach-turned-consultant Gary Zarecky, the team made deals that included up-front payments. The advance money went into the newly created Master Associated Student Body Fund, controlled by the district.

An example of a deal the team negotiated was a district-wide contract for senior class rings and caps and gowns. Previously, contracts and funds for this were handled by students at each school. According to a June 6, 2002 Union-Tribune editorial titled “Students Gouged,” the contract put $50,000 into Brand’s master fund, but students ended up paying as much as $50 more for their rings.

The editorial asks: “Are government contracts that require vendors to make an upfront donation to the government agency actually proper and legal? And what about Brand’s taking a larger and larger chunk each year of upfront monies for his own spending priorities, and trustees even getting a slice for their own discretionary spending?”

A more controversial contract was the one with Pepsi. A November 30, 2001 “Profit and Loss Statement” for the “Master Associated Student Body Accounts” shows an “Initial Pepsi Deposit” of $1.4 million and “Pepsi Deposits” of $611,000. Among disbursements are “Bonus Payments” of $87,000, “Commissions” of $1.2 million, a “Board Allocation” of $5000, and “Superintendent Allocation” of almost $92,000.

The 2002–2003 San Diego County Grand Jury’s final report cites issues at Sweetwater worthy of deeper investigation, including “the handling of money (about $40,000/yr) returned to the District by sales from the Pepsi-Cola machines” and “money issues related to other vendor contracts such as senior class rings.”

Given the concerns voiced by the grand jury, citizens, and editors, it is surprising that Brand would reestablish his committee to raise funds from vendors. But Sweetwater’s August budget authorized a $35,000 contract for Brand’s old friend Gary Zarecky, as well as a $30,000 contract for consultant Bill McLaughlin.

The new committee, called the Funds for Education Committee, included two parents, Stewart Payne and William Perno. Payne and Perno were to provide community oversight and transparency.

The committee began holding monthly meetings in September 2011.

On November 22, Stewart Payne resigned.

In his letter of resignation to Brand and the school board, Payne wrote: “I cannot support the manner in which the committee is proceeding.” None of the board members, including trustee Jim Cartmill, who attended some committee meetings, contacted Payne to ask why he resigned.

At the school board’s December 12 meeting, Payne went to the microphone numerous times to express concern about the committee. Perno also spoke to trustees at the December meeting.

Perno told the board that he was initially honored to be appointed to the committee by Brand. However, after he began to question the ethics and legality of the new contracts, the committee tried to silence him.

Perno said that he was counseled not to take notes during meetings and warned at the December meeting that he was not allowed to discuss publicly what had transpired in the meetings because they were covered by the Brown Act.

In December’s contentious Funds for Education meeting, Perno was asked if there was anything that the committee had done that he liked. He said there were a number of things, including soliciting individual donations. Finally, however, when he balked at approving a contract, one member told him, “I invite you to reconsider if you want to be on this committee.”

To negotiate new contracts, or renegotiate old ones, the committee invited vendors to a meeting at district headquarters. Vendors were asked what they could bring to the table; for example, newer vending machines, help in caring for athletic fields, or scholarships. Zarecky and the committee then negotiated elements of the vendor’s contract.

An example is Rainbow Vending, which has a current contract with the district to provide and service vending machines. During renegotiations, the company offered the district an increased percentage of its profit plus $50,000 up front in return for removing a 30-day cancellation policy from Rainbow’s contract.

In a recent interview, Perno said that one of his concerns was the length of the contracts. The district was offering seven-year contracts, and he questioned whether that was legal since the California Education Code limits a service contract to five years. And he questioned whether the committee should be negotiating new contracts or renegotiating old ones without putting them out for bid. Committee members told him that Sweetwater attorneys had already examined these issues. Perno asked to see their conclusions in writing, but that was not provided.

In a December 24 Union-Tribune article, Payne used the term “shaken down” to describe how vendors might have felt about the fund-raising committee’s tactics.

At the December meeting of Funds for Education, among the suggestions of ways to raise money was Zarecky’s idea of placing ATM machines on campuses. When students used the ATMs, a portion of the fees would go to the district. According to Perno, Zarecky said he knew a former law officer “up north” (Zarecky comes from Cupertino) who would handle the machines. (Contacted by phone on January 3, Zarecky declined to comment.)

Superintendent Brand attended the December meeting. According to Perno’s notes, Brand had many suggestions on how to raise money. One of them was signage — on vending machines, buildings, and the outside of school buses. Asked whether signage on school buses was legal, Brand told the committee he could get legislation passed to allow it.

Brand mentioned that some of the district’s buildings have great freeway exposure, like the adult education school in National City. Then, Perno recalls, Zarecky asked Brand if the Metabolife sign was still there.

A Metabolife founder, Michael Ellis, was among the people invited to meetings. Ellis has a history with Brand and his program Compact for Success, which guarantees high-achieving Sweetwater students admission to SDSU. In 2000, Ellis gave Compact for Success $500,000.

Ellis also has an interesting history of his own. In l988, he and a friend were arrested for conspiring to make methamphetamine; the friend went to prison, and Ellis got probation. In the early ’90s, he founded Metabolife, a company that made diet pills whose key ingredient was an amphetamine-like stimulant called ephedra. In 2008, Ellis was sentenced to six months in prison and fined $20,000 for lying to the FDA about customer reports of serious illnesses suffered after taking the diet pills. One hundred fifty-five deaths were associated with ephedra. In addition, Metabolife pled guilty to several counts of tax fraud.

Ellis came to the Funds for Education meeting to suggest a new plan to help Compact for Success. He said he wanted to place “cups,” featuring the district logo, throughout the community to collect donations for schools. Perno’s notes indicate that Ellis was willing to pay for the cups and put seed money into them so they wouldn’t appear empty.

Why did Brand appoint two parents known to be sticklers about ethics to the Funds for Education Committee?

The answer may be found on Brand’s wish list for how to spend the money the committee generated. Two carrots dangle for Payne and Perno: $100,000 for “New [California Interscholastic Federation] Section” and $10,000 for “Anti-Drug Program.”

Although Payne has opposed California Interscholastic Federation leadership in the past, he has been keenly interested in seeing a new section come to the district. Perno has worked tirelessly to bring awareness to the community and to legislators about the dangers of the synthetic drugs known as “bath salts” and “spice.” When asked if the $10,000 in unassigned antidrug money had tempted him to be more compliant with the committee, Perno replied, “I can’t be bought.”

Last week, following the district attorney’s indictment of five people connected to the school district, Brand waved the white flag — temporarily. In addition to Funds for Education, he suspended the Sweetwater University project and contracts with GCR, which had served as district counsel until recently, and Seville Group Inc., the company that has been managing construction funded by Proposition O.