By Diana Lambert
dlambert@sacbee.com
Published: Wednesday, May. 27, 2009 - 12:00 am | Page 1B
A Natomas Unified School District purchase of 41 acres of farmland for six times its value in 2007 should be investigated by the local, state and federal authorities, according to a Sacramento County grand jury report released Tuesday.
The report charges that Superintendent Steve Farrar failed to exercise proper oversight over the $13.3 million purchase of the school site, outside the city limits.
It also found that a lawyer representing the school district in the purchase did not reveal he had a conflict of interest until three months after escrow closed. The attorney, Martin Steiner, didn't return calls from The Bee.
The grand jury report followed a Bee investigation that found the district paid for the property based on an inflated appraisal.
The single appraisal of $24.6 million presented to the school board was based on property with houses that had sewer and water service and could be annexed to the city, said jury foreman Donald Prange Sr.
None of those conditions existed.
The appraisal purported to reflect fair market value of the property and failed to disclose it was based on a hypothetical situation of what the land might be worth if the city annexed it, according to the grand jury report.
In fact, the unimproved farmland sold by West Lakeside LLC, a partnership headed by developer Angelo K. Tsakopoulos, had environmental issues that prohibited building on much of it. City officials told The Bee last year that annexation of that property would be improbable.
"There's still a question whether they can get water out into that area," Prange said.
The district is planning to build a bio-science magnet school on the West Lakeside site that will focus on green technology, said Heidi Van Zant, district spokesman.
A senior property appraiser from the California Office of Real Estate Appraisers who testified before the grand jury said the property was actually worth $50,000 to $60,000 an acre in 2007, for a total value of about $2 million.
The property was originally appraised by Chris Ferguson, who was hired by Steiner, an attorney hired in turn by then- Assistant Superintendent Frank Harding, who handled the transaction for the district.
That arrangement meant the attorney was legally bound to keep his conversations with the appraiser confidential, making the district's actions protected instead of transparent, according to the report.
The Bee tried unsuccessfully to obtain a copy of the appraisal a month before the board approved the purchase in December 2006. Even then, the district refused to make public the appraisal for months afterward.
Ferguson's attorney, Greg Peterson, said Tuesday that the buyer and seller arrived at a price based on conditions that everyone knew. "Why they reached that deal or why they think it was a good deal is something they will have to answer to," Peterson said.
He said Ferguson appraised the land based on assumptions he was directed to use.
"What Chris did was reasonable," Peterson said. "He did not knowingly include anything false or misleading in his work."
Peterson said Ferguson was never questioned about his appraisal by the school district and wasn't asked to attend the meeting when it was presented.
In another matter, Harding, the Natomas official who was in charge of the land deal, was convicted last year of one felony count for directing contracts to a company in which he had a financial stake when he worked for the district. Before his conviction, Harding left Natomas for the same job in the Elk Grove Unified School District but was fired 13 weeks later.
Last year, district officials acknowledged they had spent too much for the land and hired a malpractice attorney to help bring the parties together to agree on a remedy.
"The district has been and is in sensitive ongoing negotiations with all the parties involved in the purchase of the site to hopefully resolve and remedy the problems associated with having relied on an erroneous appraisal for the West Lakeside site," the district said in a prepared statement.
On the advice of district officials, the superintendent and trustees declined to be interviewed for this story.
The district ultimately agreed to pay $325,000 an acre, or $13.3 million, for the property. The board hailed the purchase price as a bargain – based on the $24.6 million appraisal.
Because the selling price was below the appraised value or market value, Tsakopoulos could take a multimillion- dollar tax write-off. The developer has asked the school district for documents that would allow the tax break, said the grand jury's Prange. The district has yet to oblige.
The grand jury also questioned hundreds of thousands of dollars contributed to the Natomas School Foundation by a partner in West Lakeside LLC and Tsakopoulos' AKT Development firm during the property negotiations. The report said that Farrar, who established the foundation and sat on its board, actively solicited the donations.
The grand jury also expressed concern that Steiner waited until three months after the close of escrow to reveal that he had previously worked for West Lakeside LLC.
The board is expected to address the grand jury findings in the next 90 days.
City Councilman Ray Tretheway said he asked the board to investigate the purchase two years ago. He says some portions of the grand jury report "raise an eyebrow," but that he has faith in district officials.
"I have a lot of trust in the school board and their administration," Tretheway said. "I do have to believe the district will be able to achieve a resolution that will satisfy everybody."
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