For more than five years, the California Public Utilities Commission has wrangled with a consortium of five Los Angeles community organisations over a $450,000 grant that was supposed to be used to produce particular broadband education programs. Three of those groups were exonerated in tentative settlements reached with CPUC enforcement staff. Another agreed to pay a fine. But the fifth – Community Union – is contesting accusations of, among other things, “false claims”, “false reports”, “inadequate and incomplete” record keeping, and “adamantly” refusing to provide documentation to CPUC staff and to auditors from the state controller’s office.
Four days of hearings are scheduled to begin next week. That alone tells how messy the proceeding is: the CPUC’s review of the federal deals that allowed the multi-billion dollar T-Mobile/Sprint merger and the asset spinoff to DISH only required two days of hearings.
CPUC enforcement staff will have to show that the consortium – known as “California’s One Million New Internet Users Coalition” or NIU Coalition for short – was reimbursed for activities and expenses that didn’t happen as described or promised, and/or weren’t properly documented. They’re pushing for the NIU Coalition to “return at least $197,764 in improperly collected grant funds”.
Community Union would be responsible for repaying most – likely, all – of that amount. On top of that Community Union and its president, Larry Ortega, could be fined for their conduct.
Community Union’s defence tactics resulted in additional complaints against it and Ortega. In an unusual step, the commissioner overseeing the proceeding, Clifford Rechtschaffen, added contempt and violations of CPUC procedural rules to the list of issues that the investigation is supposed to resolve.
“Since the initiation of the…proceeding Mr. Ortega, president of Community Union, has exhibited uncooperative behaviors that have frequently disrupted the investigation. These behaviors have continued throughout the proceeding and are consistent with the actions described in the [order instituting investigation]”, Rechtschaffen wrote. “Mr. Ortega and Community Union have continually engaged in uncooperative behavior throughout the proceeding, hindering efficient administration of justice”.
One member of the NIU Coalition, Korean Churches for Community Development (KCCD), agreed to pay a $15,000 fine for its failings in its role as the “fiscal agent” – money manager – of the consortium, which was funded through the CPUC’s California Advanced Services Fund regional broadband consortia program in the first round of grants in 2012. If approved by commissioners, it appears that the settlement will wash away $47,000 in disputed reimbursements for KCCD’s administrative costs.
KCCD was otherwise absolved by the investigation. CPUC enforcement staff agreed that it maintained its bookkeeping as best it could, given that Ortega “refused to provide KCCD with access to financial and other business records”, and that it properly “carried out its own technology training separate and apart from the training led by Mr. Ortega on behalf of the NIU Coalition”.
Although KCCD was nominally the fiscal agent, “authority for making program-related operational and budget decisions is concentrated solely with one person, the NIU Coalition’s co-founder”, according to state auditors. Ortega is that co-founder.
Two groups – the Black Business Association and the Soledad Enrichment Action – Charter Schools – will be “dismissed” from the proceeding, assuming the CPUC gives final approval to all the settlements. Neither group “received CASF grant funds or were involved in CASF grant related activities”, according to their settlement documents.
The Asian Pacific Community Fund will likewise be dropped from the investigation. It completed its initial work for the consortium, and properly accounted for its expenses, before deciding “that it would terminate its membership in the NIU Coalition due to difficulties in working with Community Union”, according to its settlement documents.
That leaves Ortega and Community Union to respond to allegations that 1. digital literacy training and other tasks were not completed in a way that matches the terms of the NIU Coalition’s CASF consortium grant, 2. that the reports it filed with the CPUC are inconsistent with those activities, and 3. that it didn’t comply with CPUC financial requirements, including accounting standards and allowable expense rules.
CPUC enforcement and CASF management staff submitted hundreds of pages of documents and statements to back up their assertions. For example, they say…
- Hours of training performed didn’t match up with Community Union’s obligations or with quarterly reports submitted to CASF staff.
- “The coalition failed to schedule classes until [CASF staff] notified them of an upcoming site visit”.
- “Questionable expenses” – including dentist bills, a fitness club payment and a bar tab – were identified, although perhaps not reimbursed by the CASF consortia grant.
- Community Union’s financial records did not come close to meeting accounting standards. It finally gave state auditors “what appears to be another check register” but “no documents, accounting records, or source documents were made available to authenticate the check register recorded transactions”.
Ortega’s first and often repeated line of defence is to insist “liability related to administrative, financial and legal has been assumed by the fiscal agent”, so any disputes the CPUC has with the NIU Coalition are KCCD’s responsibility and not Community Union’s.
The administrative law judge managing the case, Zhen Zhang, has consistently rebuffed that claim. “The fiscal agent has responsibilities set forth in the fiscal agent agreement”, she said at one point. “But the fiscal agent’s responsibilities do not relieve any member organisations performing what was promised in the work plan”.
In a pre-hearing brief, Ortega set out his formal defence, arguing that CPUC staff isn’t qualified to evaluate discrepancies in hours of training done versus hours promised and reported, and that state auditors misread the revenue and expense numbers Community Union provided, which was a fraction of the data they requested.
Otherwise, Ortega’s defence veers sharply away from the core questions under investigation. His motions, responses and declarations include accusations of racism and persecution, demands for payment of $80,000 withheld by the CPUC, a claim that he’s generated $600,000 in publicity for the CPUC, objections to Rechtschaffen’s participation, and complaints about the attitude, competence and gravitas (rather, lack thereof) of CPUC staff, state auditors and others, including this Humble Blogger.
The drama still has months to run. Years, if appeals drag on. This kind of proceeding is supposed to be wrapped up in 18 months. The commission voted to extend the investigation twice, most recently at its 6 August 2020 meeting. In making the request for a second extension – to next March – Rechtschaffen briefly described the case and its trajectory. The only comment came from CPUC president Marybel Batjer.
“Wow”, she said.
Links to documents I’ve collected regarding the NIU investigation are here. Some key documents are below:
Correction: The T-Mobile/Sprint proceeding took a total of six days of evidentiary hearings (four in February 2019 and two in November 2019), not two as I previously said. Thank you to a Gentle Reader for the correction. The text above is updated to reflect that.
I do a lot of work for regional consortia, some of it paid, some of it not. I’m proud of what I do, but not of some of the other crap that goes on. I am not a disinterested commentator. I am flippant and stroppy, and lack gravitas. (But face it, the last Californian endowed with gravitas was Warren Christopher). Take it for what it’s worth.