Who Poisoned the Well?

In early 1994, the school district couldn’t get hold of this property fast enough. It had a willing seller, the Japan-based Shimizu corporation, which was anxious to take advantage of expiring tax breaks in Japan. With property values plummeting in downtown L.A., Shimizu wanted to cut its losses.

And the buyer was motivated as well. L.A. Unified intended to use $30 million in state funds once intended for a high school project at the Ambassador Hotel site, but time was of the essence, because the Ambassador’s owners — a group led by New York mega-developer Donald Trump — were organizing a court challenge to block the transfer of funds. Cartwright was able to outwit Trump’s lawyers by closing the transaction earlier than the announced date.

Shimizu helped out by providing a required environmental analysis — it was hasty and did not conform to school-district standards, but it satisfied the state, which released the money. And L.A. Unified sweetened the deal by accepting the property "as is": Any environmental problems with the site would be the sole responsibility of LAUSD.

The 24-acre Shimizu property was then combined with an adjacent, recently acquired 11-acre property, and the Belmont plan was ready to roll.

The district again gambled on environmental fortune during negotiations with the Kajima Corp., the eventual builders, when it looked as though Shambra could not deliver on his promise to build a school faster and cheaper. The snag was over who would clean up the site. The district originally required that the builder take responsibility and include the cost in price projections. No one knew the tab for sure, but one of the losing bidders had estimated environmental cleanup at $8.5 million. Kajima didn’t want to agree to a low figure for cleanup, then get stuck with the tab if the actual cost came in higher.

Kajima’s position was explained by development-team member Art Gastelum in an interview with researchers for Assemblyman Scott Wildman (D-Glendale), a project critic. "The environmental documentation that had been before was not the best," said Gastelum, according to a transcript. "And [we] were afraid that there were some unknowns there."

District negotiators had a corollary dilemma. If they included a realistic amount for dealing with contaminated soil and other issues, the price of the learning complex would soar. And Shambra already was taking heat for an escalating price. His early scenarios, after all, had projected $45 million to $60 million in costs that would be recovered through a combination of state funding and Shambra’s hoped-for inclusion of a profit-making retail development.

As costs ballooned, Shambra shifted a variety of expenses outside of the price that was touted as a "guaranteed maximum." Off-budget items included legal and consulting fees, the speculative retail component, and the developer’s multimillion-dollar professional fees. It was only natural for the uncertain and potentially troublesome environmental costs to join the list.

Said Gastelum: "The school district was trying to, you know, cap their costs in terms of Kajima because of all the criticism, you know. They were afraid that even though it was not going to be anybody’s fault, right, if the costs went up on an item like environmental work . . . nobody wanted to take that risk."

So a deal was struck that served the purposes of everyone at the table. Kajima would have no responsibility for environmental remediation or its costs. And the district got to take that expense entirely out of the project budget. Both sides agreed that the district would ultimately foot the bill, whatever that turned out to be.

Of course, if school-board members suspected a major environmental problem might arise, they’d be more likely to question that "win-win" arrangement. So Shambra and Cartwright assured everyone that there was nothing to worry about. More than once, Cartwright reassured reporters and school-board members that the district had $2 million in state money to clean the site, an amount that should be more than enough.

It turns out that the $2 million figure was misleading. Cartwright and project Administrative Coordinator Ray Rodriguez recently acknowledged that these funds were actually a reserve left over from the purchase of several of the lots, covering about five acres of the 35-acre site. The money was available only to remedy problems in evidence on those lots before grading began. The remainder had to be paid to the former owners. In the end, only $700,000 of that funding could even be spent.

The school board got a glimpse of the issues when it was asked to certify an environmental-impact report for Belmont in November 1996. The general risks of the site were laid out by Richard K. Baker, a district deputy for the state’s Division of Oil, Gas and Geothermal Resources. He noted the dangers of exploding methane: "That’s what you don’t want to happen in any buildings in L.A., especially a school." The L.A. Oil Field was a particular hazard because "it was drilled at the turn of the century, and we don’t have all the locations of all the wells. We’re constantly finding wells that we didn’t know were there."