SCHOOL COST A SHAM; BELMONT'S FINAL PRICE LIKELY TO BE DOUBLE LAUSD'S `GUARANTEE'.

Byline: Greg Gittrich Staff Writer

The ``guaranteed maximum price'' to build the Belmont Learning Center was a sham from the beginning, a figure manipulated by Los Angeles Unified officials to gain public support for what would become the nation's costliest high school, a Daily News investigation has learned.

Financial documents and correspondence obtained by the Daily News reveal the district shifted several key items out of the guaranteed maximum price of the school to other budget lines before signing a deal with the developer, Temple Beaudry Partners, a consortium led by Kajima Urban Development.

The eventual cost for the entire complex now looks like it will be more than double the guaranteed maximum price.

In a recent request for payment, Kajima's project executive referred to the creative LAUSD bookkeeping, noting costs were moved around by the district to ``reduce the apparent cost of the school.''

Documents littered throughout 6,000 pages of evidence cited by a scathing internal audit of the public works fiasco paint a similar picture.

The $85.8 million ``guaranteed'' price - touted by LAUSD officials in 1997 when the deal was narrowly approved by the school board - never represented the true cost of building a giant mixed-use complex on a downtown oil field plagued by potentially explosive and deadly gases.

Health threats posed by methane and hydrogen sulfide seeping from the oil field now threaten the entire project.

Mismanagement and concealment by administrators prompted the recently reorganized school board last week to begin disciplinary proceedings against nine officials, launch a malpractice lawsuit against one of Los Angeles' most prestigious law firms and support calls for criminal investigations.

Hidden costs, along with handfuls of changes to the project submitted to the district for approval - when added to the guaranteed price - bring the originally anticipated costs for construction of the school facilities alone to $103 million or more.

In actuality, the district so far has paid out almost half of that - $47 million - to the developer, and has run up $79 million in other expenses related to the complex.

The project is slightly more than half complete.

The final price tag - for the school, retail, and recreation components of the complex - will likely surpass $200 million when environmental mitigation costs, construction delays and consultant fees are factored in.

Don Mullinax, director of the LAUSD Internal Audit and Special Investigations Unit, plans to review the project's finances during the next two months to determine where the money went.

The review will follow a more than 200-page report Mullinax released last week which exposed widespread incompetence in the nation's second-largest school district. Mullinax blamed consultants, contractors, and current and former employees, including the chief administrative officer and general counsel. He recommended they be fired or otherwise disciplined.

``This school district is built so that everyone can deny responsibility for everything,'' said David Barulich, a representative for the Howard Jarvis Taxpayers Association, who has reviewed the finances of the Belmont project as a member of the Proposition BB bond issue oversight committee.

``The guaranteed maximum price was the district's way of justifying the project. They could say, look, this is all we're on the hook for. Aren't we real good negotiators?

``The guaranteed maximum was their way of placating a skeptical public.''

Barulich's concerns about the guaranteed maximum price contributed to a decision by the taxpayers association in February to resign from the Proposition BB committee, which monitors the disbursal of local bond money for school construction.

The oversight panel had considered giving funds to Belmont but eventually made the money contingent upon state approval of the project, which has not been granted.

Key costs left out

Belmont was never intended to be just a school.

As conceived by Dominic Shambra, a now-retired LAUSD administrator, and designed by architect Ernesto M. Vasquez, the original concept featured retail, recreation and housing components, along with the school. The housing component has since been scrapped.

Costs above the developer's guaranteed price for the school component were always known to the district in broadly defined terms. The trick was revealing the true costs incrementally to avoid losing public support for the controversial project.

``I didn't believe this contract did what it purported to do, and I was right. The costs weren't guaranteed,'' said Tim Lynch, administrative deputy controller for the city.

``The guarantees were replete with major exceptions, and those major exceptions were likely events that would result in cost overruns,'' said Lynch, former vice chairman of the Proposition BB committee.

In early 1997, when a team of LAUSD consultants was hashing out the final details of the development agreement with the Kajima team, Belmont was by no means guaranteed support from the school board.

Board members believed Belmont's capacity to serve more than 5,000 students would help alleviate severe overcrowding at schools in the downtown area. They wanted to give the community a school. However, major financial concerns existed.

In 1995, the district's selection team, coordinated by Shambra and guided by attorney David W. Cartwright of O'Melveny & Myers, had chosen the Kajima team to design and build the complex.

As noted by Mullinax's report, the Kajima team proposal was ``the highest-cost, `Cadillac' design-build development proposal'' on the table. Its winning proposal was at least $30 million costlier than the other two finalists, according to documents reviewed by the Daily News.

In July 1996, an internal audit of the project concluded Belmont's preliminary budget exceeded ``state guidelines for new school construction.'' The analysis advised the district to ``use value engineering and other cost-reduction methods to try to reduce'' expenses.

Nine months later, Shambra and his selection team presented a development deal to the school board for approval. The proposal now contained the $85.8 million guaranteed price for the school.

Grass not included

The price tag, however, only referred to one portion of the complex, the school facilities. The combined cost for the retail and recreation components, $24.5 million, was listed separately but approved simultaneously in the same development agreement by the school board.

While the costs could be roughly differentiated on paper, the architectural design combined the components into one complex, making it impossible to build one without the other two.

For example, the recreational component included the complex's tennis and basketball courts, outdoor lighting, running track, landscaping, grading and grass, as well as a significant amount of concrete work and paving.

The district planned to pay for the recreational component through a joint funding agreement with the city. But concerns about the site's environmental conditions, as well as political influence from a local labor union that opposed Kajima's role as the developer, blocked that plan earlier this year.

The deal was supposed to be worked out before construction began in September 1997.

Kajima billed the district in May for an additional $4.8 million to cover the ``required work'' the district had placed in the recreational component.

``These costs were transferred (out of the guaranteed maximum price) by representatives of the district prior to approval of the (development agreement) in order to reduce the apparent cost of the school,'' noted Kenneth J. Reizes, Kajima's project executive.

If approved by the district, the costs would be tacked on to the guaranteed maximum price of the school.

When asked about the billing request, a district administrator who helped negotiate and craft the development deal with the Kajima team confirmed Reizes' contention.

``A large portion of the grading costs and some other things were placed in the (recreation component),'' said the administrator, who asked not to be named.

``But they (Kajima) should have realized that when they signed the deal. They knew what was going on, and we shouldn't pay them for it unless we get the city money like we were supposed to.''

Nonetheless, the development agreement contains a clause making the district responsible for certain unavoidable costs associated with the retail and recreation components.

Kajima officials could not be reached for comment for this story and generally have declined to comment on the Belmont matter.

Fast-food joints

The district's luck hasn't been good with the retail component, either.

Unable to lease the space at a rate covering the cost of building the retail component, the developer has given the district two options. Los Angeles Unified can either pay $4.8 million to subsidize the rents of the fast-food joints and a shoe store, or it can ``buy back'' the space for $9.3 million. The school board hasn't made a decision.

In either case, the money would be added onto the guaranteed price - a tab that also never included remedying the site's environmental problems.

``The guaranteed maximum price is not a GMP, and it never was,'' said Assemblyman Scott Wildman, D-Glendale, a longtime Belmont critic who oversaw the state's Joint Legislative Audit Committee probe of the project.

``By excluding the environmental costs and moving other factors around, you never had a true GMP for the school.''

District officials and consultants, including Cartwright, have maintained they decided not to incorporate the environmental mitigation costs into the guaranteed maximum price in order to retain control of health and safety issues and to prevent the developer from inflating the potential costs.

The decision also had the effect of keeping the guaranteed price from increasing, the recent internal audit concluded.

``The result of including these costs in the GMP would . . . have increased the stated maximum costs of Belmont substantially from a base that already exceeded the corresponding state standards,'' Mullinax charged.

``While such an approach might have elicited even more scrutiny, it might also have been a more accurate representation of the true costs of building on this site.''

Mullinax noted the development deal with Kajima could have ``provided a cap for these costs and shifted responsibility to the developer.'' But ``LAUSD rejected this approach.''

Financial records indicate the district has paid about $4 million for environmental work at the site. But those costs will rise, officials said.

A recent round of soil, vapor and groundwater samples determined methane pervades the property. According to state experts, the potentially explosive gas needs to be mitigated through a system of vacuums and blowers before the complex can be opened.

District officials originally placed the mitigation costs at between $4 million and $10 million. They have since backed off that estimate, indicating the tab could be even higher than expected.

Deny, defend, deflect

Following recommendations in Mullinax's report, the school board filed a civil lawsuit Thursday against Cartwright and his firm O'Melveny & Myers, the prestigious downtown legal counsel that represented the district on key issues related to Belmont.

The 19-page lawsuit, filed in Los Angeles Superior Court, charges Cartwright ``engaged in a pattern of conduct which breached the duty of care he owed the district, as its counsel, to give it objective, impartial advice as to the risks it was assuming in proceeding'' with Belmont.

After construction began, Cartwright monitored the district's payments to the Kajima team, the lawsuit claims.

``Cartwright not only failed to assure that the district had in place sufficient policies and procedures to adequately manage the project,'' but he ``affirmatively advised'' district personnel to ``relax their customary standards of accounting review'' when handling requests for payment from the Kajima team, the lawsuit charges.

In a statement, O'Melveny & Myers called the district's lawsuit ``unfortunate and without merit.''

Board President Genethia Hayes said the school board is relying on Mullinax's follow-up review, scheduled to be complete in November, to sort out Belmont's muddled finances.

``We are concerned about it to the point that we need to know where the money was spent. It is critical for us to understand how that money was spent and know what benefit it gives our clients, the taxpaying citizens of the city and in some cases the county of Los Angeles,'' she said.

``We should be able to tell the public precisely what happened to that money and how much the project will cost.''

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Photo: The Belmont Learning Center had a ``guaranteed'' maximum price of $85.5 million. It now looks like the cost will double that.

David Sprague/Staff Photographer