BOND FUNDS WASTED; $74 MILLION SPENT ON PROP. BB MANAGEMENT, AUDIT FINDS.

Byline: Greg Gittrich Staff Writer

Wasting millions of taxpayer dollars, the Los Angeles Unified School District has paid out $74 million from Proposition BB bonds, nearly 20 percent of the total amount of money distributed, to manage the initiative's school repair projects, an internal audit revealed Wednesday.

LAUSD Chief Operating Officer Howard Miller dropped the bombshell charges in the face of a challenge by the Proposition BB bond oversight committee to his decision to recruit the U.S. Army Corps of Engineers to manage a billion-dollar school construction program for the district.

Coming a day after a critical financial review of the Belmont Learning Center, the allegation about the bonds touched off a nasty debate in which Miller was pitted against two members of the BB oversight committee: Steve Soboroff, the chairman, and David Abel.

Soboroff said management costs on Proposition BB school repairs were just over 1 percent of total costs and accused Miller of inflating the figure and grandstanding ``for the newspapers.''

Miller shot back an accusation that Soboroff, who is running for mayor, was motivated by politics and intentionally misrepresenting reasons for seeking help from the Army.

Miller said he has ordered Don Mullinax, the district's top investigator, to conduct an immediate probe into the audit's findings that management costs for the Proposition BB projects ate up 19.2 percent of the bond money distributed during the last two years.

``Twenty percent is abhorrent,'' said an informed source in the construction industry. ``It should be around 2 percent, maybe in the 2.5 percent range.''

Miller said the initial audit found no corruption, only waste.

The $2.4 billion Proposition BB bond issue has been beset by controversy virtually since it was passed by voters in 1997. Just a week after the approval, the school board said it would use funding from bond revenues for Belmont, and the oversight committee, which had helped sell the bond issue to voters, immediately accused the board of betraying public trust and ignoring advice from the committee.

It took a court order for the committee to get authority to review spending from bond revenues, and ultimately this source of funding was not used for Belmont. About $386 million has been spent on school repairs from the bond issue.

At Wednesday's meeting, Soboroff repeatedly held up the committee's key role in overseeing bond revenues and preventing their use on Belmont.

In response to Miller's charges, Soboroff offhandedly muttered ``audits, audits,'' and quietly referred to the chief operating officer's tactics as McCarthyism.

``Your statements are absolutely incorrect, demoralizing and irresponsible,'' Soboroff told Miller.

Miller argued lax oversight by the committee has contributed to the school district's inability to secure nearly $900 million in state Proposition 1A bond money to build new campuses.

He said the problems underscored his decision to recruit the Army to build 150 primary centers, a move backed by the school board on Tuesday without input from the oversight committee.

Miller said the school district's bureaucrats should have been pressed sooner for accurate information on building projects.

``This committee has to accept its own responsibility for being here for 2-1/2 years without pressing,'' Miller said.

Soboroff defended the committee and questioned Miller's figures.

``Hopefully, there has been more homework done on the Army Corps' background than the committee's background,'' Soboroff said.

A spokesman for the bond initiative's lead project manager, 3DI-O'Brien Kreitzberg, said the drastic difference between Soboroff's and Miller's estimates for the amount of bond money paid out to project managers resulted from using different variables in the audits.

The firm's project manager, Rob Robinson, said Soboroff's estimate included only 3DI-O'Brien Kreitzberg's services, and Miller's audit included the billings of 10 second-level managers, as well as the primary firm's fees.

The Daily News learned that another internal audit of the Proposition BB work, which has yet to be released, found that 10 percent of the billings submitted by 3DI-O'Brien Kreitzberg were unjustified, and the firm overbilled the district for more than $145,000.

Robinson said the unreleased audit was part of a normal process to determine the overhead rate for managing the project and in no way showed wrongdoing.

Miller said he also is trying to ensure that Los Angeles Unified gets its fair share of Proposition 1A state bond money for school construction and will be watching the outcome of a class-action lawsuit on the issue.

According to Miller, the lawsuit will claim that a 1974 state Supreme Court decision in the Serrano vs. Priest case should be expanded to require equality in funding for facilities for all public school students. The district will not be directly involved in the lawsuit that he expects to be filed in January, Miller said.

At the Proposition BB committee meeting, school board president Genethia Hayes tried to ease tensions by apologizing for failing to tell the committee about plans to bring in the Army to help manage the construction of 150 schools.

Soboroff said the committee viewed the board's action as a violation of the guidelines in the bond measure, which require the oversight panel to sign off on the use of all the bond money.

The district's agreement with the Army did not stipulate that Proposition BB money would be used to cover the federal agencies work, but left open the possibility.

The Proposition BB oversight committee plans to hold a special meeting to review the district's agreement with the Army.

Near the end of the discussion, Abel warned the district that the last administrator who acted with the same zeal as Miller was Dominic Shambra,who as head of facilities reported directly to the superintendent and had nearly autonomous authority on all projects.

Mullinax, in the critical audit of Belmont released Tuesday, concluded that Shambra should ``bear the ultimate responsibility'' for the financial problems associated with the construction of the nation's costliest high school.

Shambra has denied any wrongdoing and maintains the environmental problems plaguing Belmont have been exaggerated for political reasons.