Eighteen years ago, computers were just emerging as classroom learning tools promising improved instruction.

So when Walter Marks, then superintendent of the former Richmond Unified School District, ordered hundreds of IBM computers costing millions, he received praise from all corners.

But few knew the district was sinking deep into debt and didn't have the money to pay for the machines.

Now those computers -- like other poor financial decisions made by administrators in the late 1980s -- are coming back to haunt the West Contra Costa Unified School District.

Next year, the district owes the first of four $1.25 million payments to IBM for computers it ordered in late 1989 and early 1990 but never paid for, according to a long-buried settlement agreement dated 1993.

That means West Contra Costa school district's yearly debt payments will increase from $2.5 million to about $3.75 million -- not a small chunk of change for a district with declining enrollment and all the typical budget problems of a California school system.

And today's students will be the ones to suffer, several school officials said.

"The district understands we have a contract and need to repay their obligations," said Paul Ehara, spokesman for the district. "But this was a management error, and the children who will end up paying for the error weren't even born yet when it happened."

A good idea?

The computer order was a mess from the start, several former district board members and administrators said.


Advertisement

Whether Marks, who made several questionable budget decisions as superintendent, actually had the authority to buy the machines remains unclear, said Fred Basalto, then the associate superintendent of business services. Marks did not return calls for comment.

Former school board member Frank Calton said he remembers the deal with IBM being touted by Marks as a mutually beneficial partnership.

"This was submitted to us as kind of a joint venture where IBM could showcase computers as learning tools for students," Calton said. "It was supposed to have a PR angle for IBM."

When asked by the Times last week, the district could not track down invoices for the purchases, so it is unclear how many and what type of computers were ordered. But administrators agree the computers already were outdated when the district got them.

"I think they were out of date before (Marks) even decided to buy them," Basalto said. "Every one of them was obsolete; they were absolutely useless."

Where the computers ended up also is a mystery. Basalto recalls that some were installed in schools, but some sat in warehouses, possibly never turned on.

The district tried to return some of the computers, said Ruth Vedovelli, West Contra Costa school district's current finance chief. IBM refused to take them back, leading to a years-long fight that also included battles over the actual cost.

Negotiations often got ugly, with Fred Stewart, the state trustee appointed to oversee the district's finances after it went into debt in 1990, often getting into shouting matches with IBM representatives, says Herb Cole, Marks' successor.

"He said, 'We can't pay you, so if you want them, come and get them,'" Cole said, adding that Stewart threatened to put the computers on the curb. "He was tough as nails with them at the time."

Stewart, who recently retired as the state trustee, declined to comment.

In late 1993 -- four years after the district agreed to buy the computers -- the parties reached a settlement that called for deferring the first major payment until 2008. That was the year the district, under its previous loan structure, was scheduled to be finished paying back $28.5 million it owed the state.

The agreement with IBM required the district to pay $5.15 million -- an initial $150,000 payment in 1993 and four $1.25 million payments from 2008 through 2011 -- instead of the $6.2 million IBM said it owed.

"It was putting it off until hopefully the district had their finances together," said Cole, who signed the agreement with Stewart. "I think we were hoping everyone would just forget about it."

Not forgotten

But neither the district nor IBM has forgotten. The debt has remained on West Contra Costa school district's books, albeit quietly, for 14 years; Vedovelli recently brought it to the attention of current board members and administrators, who are incensed the district is responsible for yet another debt resulting from questionable decisions of past leaders.

"This was the folly of one superintendent," board President Karen Pfeifer said recently. "And it penalizes the little children today."

The district has decided to fight the repayment. Superintendent Bruce Harter sent a letter to IBM Chief Financial Officer Mark Loughridge in late March requesting that the company consider dropping the debt from its books as a good-will gesture. Harter noted in the letter that the "obligation to IBM represents the equivalent of the salaries of 20 teachers which would further hamper our ability to provide high quality educational services."

Loughridge responded with a two-paragraph letter, dated April 6, in which he declined to forgive the debt and asked the district to "adhere to the agreed to generous payment schedule and include this obligation in your budget process."

A spokesman for IBM declined to comment Friday.

Ehara said Harter intends to continue discussions in the hopes that IBM will work with the district either to reduce or forgive the payments.

Many debt payments

Questionable spending by Marks and the school board, as well as budget shortfalls, were the main reasons the district spiraled into debt and eventually became the first school district in the state to file for bankruptcy.

In addition to ordering the computers it could not pay for, the district used certificates of participation -- bonds designated for use on capital improvement projects -- for operating expenses. It also authorized a 17 percent raise for teachers even though there was no money to fund it. And schools were converted to "System for Choice" magnet programs, a costly endeavor, and state integration funds were used to pay for that program -- a move later determined to be an improper use of funds; the district is still repaying the state.

The state bailed the district out in 1990 with a $9.5 million loan and again in 1991 with a $19.5 million loan. Neither was enough to prevent the district from filing for bankruptcy in 1991.

To date, West Contra Costa school district has paid back more than $31 million and is making $1.4 million in annual interest payments through 2018.

The district also makes almost $800,000 in annual payments on the certificates of participation debt it defaulted on during the budget crisis and $300,000 in annual payments to the state for misusing integration funds. In all, the district's current annual debt payments are more than $2.5 million -- the equivalent of about 10 teachers' salaries, including health and retirement benefits.

When the IBM debt is added to the mix next year, the district will pay $3.75 million annually, a price that many say the students can't afford.

"I don't quite understand why these types of situations have to be shouldered by our next generation of kids," said current board member Charles Ramsey. "I don't think that's fair."

Reach Kimberly S. Wetzel at 510-262-2798 or kwetzel@cctimes.com.