Photo by Craig Carlson

Peed's critics Charles Corum and Norman Burchard. "I was so blasted mad about this."

MILLIONS OF DOLLARS HAVE FLOWED FROM THE SAN DIEGO Community College District into a shadowy, local, private foundation over the past half-dozen years. As this has occurred, one man has served as head of both entities, a former high school basketball coach named Garland P. Peed. Last month the fifty-seven-year-old Peed announced his surprise retirement from the chancellorship of the college district to work full time for the foundation — which this past summer freed itself from the last vestiges of college control. Now Peed’s critics are raising this serious question: Has Peed has played fast and loose with public funds?

The trustees of the San Diego Community College District (top row) Chancellor Garland Peed; (middle row) Dan Grady. Charles Reid; (bottom row) Richard Johnston, Gene French, Louise Dyer.

Judging from the comments that greeted Peed’s January 11 retirement announcement, that question seems almost unthinkable. “Of the thousands of decisions we have made in the past twelve years, the selection of Peed as chancellor was the best,’’ said district board member Gene French. Peed “made the district the model for the state that it is today,” added trustee Louise Dyer. A few days later, the San Diego Union carried a misty-eyed editorial farewell to the chancellor, whom the paper saluted as “one of the ablest college administrators in the state.”

Mesa College

Photo by Craig Carlson

San Diego has one of the nation's biggest and richest community college districts. Ranked among the five largest such educational districts in the U.S. (and the second largest in California), the San Diego Community College District has a current operating budget of $133 million; it is the fifth largest nonfederal employer in the county. Moreover, the district today boasts an A+ bond rating and a balance sheet brimming with cash reserves. “It’s a cash cow,” remarked one local accounting instructor who has studied the district's annual financial reports.

San Diego City College

Photo by Craig Carlson

Yet behind these golden highlights, shadows within the college district have gathered and deepened. Faculty leaders say teaching morale has deteriorated over the years to the extent that faculty senates on all three of the district’s campuses (Mesa College, San Diego City College, and Miramar College) have passed unprecedented resolutions of no confidence in the district administration. Faculty critics point out that teacher pay ranks sixty-ninth among the state’s seventy community college districts, and they mention signs of a demoralizing decay of the campuses' physical plants.

Miramar College

Photo by Craig Carlson

At Mesa College, for example, most of the classroom clocks have been broken for almost a year; librarians report they are unable to return thousands of books to their shelves, due to a lack of library workers. Disaffection with the district leadership has also spread beyond the teachers’ ranks. One of the district’s adult-education students, a retired naval lieutenant commander named Norman Burchard, became so outraged over various district actions that in 1986, he asked the San Diego County Grand Jury to investigate the district. That request brought results in the form of a sharply critical grand jury report issued last summer.

Garland Peed

More than anything else, the grand jury report centered on the activities of the foundation — the San Diego Community College District Foundation — that is Peed’s brainchild. That grand jury report, along with supporting public documents, indicates that the district has overpaid the foundation — to the tune of millions of dollars — for administering certain educational programs that the district provides to navy personnel. The foundation has taken some of these excessive profits and created an endowment fund, from which half the interest goes to benefit the college district. In effect, the district appears to have given away millions of dollars in exchange for half the interest on those millions.

Louise Dyer

THAT IS, OF COURSE, AN oversimplification of the financial arrangement between the district and the foundation. In reality, very little about the foundation is simple or straightforward. Although many colleges and universities have organizations that serve as fundraising arms, the San Diego Community College District Foundation has evolved into a unique sort of animal.

Dan Grady

Peed has been crucial in directing that evolution since the foundation's inception in the mid-1970s, when he was director of management services for the community college district (having long ago forsaken high school basketball and math teaching for a career in business administration). In December of 1974. Peed requested that he be assigned to work with Deputy County Counsel Timothy Garfield to develop the plans for a college district foundation. Their plans reached fruition February 9, 1976, when the foundation was formally established as a California nonprofit corporation.

Richard Johnston

For several years, the new entity was relatively dormant, acquiring less than $4000 in assets. Then the pace of foundation activities picked up in 1981, when the Copley Newspapers pledged $30,000 (to be given to the foundation over three years). Around that time, the foundation also undertook its first foray into an important area: the offering of classes provided on a contract basis. When a hepatitis outbreak closed a number of local restaurants and triggered a public scare, the foundation responded by offering a “food handlers training program,” which educated local restaurant employees on hygienic practices.

Charles Reid

But 1982 was really the pivotal year for the foundation. In the previous year, state legislators had passed new provisions relating to educational “auxiliary organizations,” and the San Diego board faced the question of whether it should abandon its nonprofit corporation in favor of setting up one of these new auxiliary organizations. In an April 1982 docket to trustees. Peed explained that the fundamental difference between the two was that nonprofit organizations were governed by the state corporations code, while auxiliary organizations were governed by provisions of the states education code.

Gene French

So which was better? It was Peed’s opinion, he wrote, “that as the state’s financial condition becomes less stable, the temptation of the legislature to rescind authority for auxiliary organizations ... will increase.” If state legislators did decide at some future point to do away with auxiliary organizations, “any assets [in those organizations would be made) immediately available to the district’s general fund, and therefore to the state legislature.” Of course. Peed allowed. the legislators could also change the state corporations code at some point to eliminate nonprofit foundations, but “this would cause such a furor in the state that it is unlikely this would ever occur.” “Therefore,” he judged, “from the standpoint of pure protection to the district, it would be better to have a foundation formed ... under the California General Nonprofit Corporation Law.” In other words. Peed argued, any funds acquired by a foundation — as opposed to an “auxiliary organization” — would be less vulnerable to a raid by greedy state legislators. (And precedent for some raiding had in fact been set in 1978, when the state took a portion of the San Diego college district’s reserve funds.)

SO THE COLLEGE TRUSTEES decided the foundation should continue as a nonprofit corporation. Although Peed did not mention it in the April 1982 docket, the choice of the foundation’s structure had other, important ramifications. The state’s education code tightly restricts the actions of auxiliary organizations: they are not permitted to offer classes, for one thing. And their meetings must be public. Moreover, such organizations must submit audited financial reports to the district board of trustees and to the California Community College Board of Governors. Nonprofit corporations, in contrast, are not subject to any such requirements. The sole financial information they must make public is an annual report to the state attorney general.

Charles Corum, a Mesa College geology teacher who has been one of Peed’s most implacable and energetic critics, points out another difference between auxiliary organizations and nonprofit foundations. Corum says the state prohibits community college districts from transferring any of their funds to auxiliary organizations “when the purpose of such transfer is either to avoid laws or regulations which constrain community colleges or to provide the district with an unfair advantage with respect to the application of any state funding mechanism.”

In other words, according to Corum, the state education code says college districts may not safeguard their funds from the state legislature by transferring them to auxiliary organizations. But there is no comparable law relating to nonprofit foundations. And by the summer of 1982, Peed had become determined to set up an untouchable endowment within the San Diego Community College District Foundation.

“The intent of the endowment,” Peed wrote in a memo to trustees dated August 31, 1982, “is to generate interest earnings which, in turn, can be used for purposes specified by the board of trustees. The endowment is being generated primarily through grants and contracts — locally, as well as on a national and international basis.” Although Peed didn’t mention the fact, the trustees presumably knew that by far the biggest contract at that date was between the college district itself and the foundation.

That contract had been drawn up just two months before, on June 23, 1982, and it stated that the district would employ the foundation “to perform coordination services in conjunction with its military programs and contracts.” District communications supervisor Janet Fialho recently explained that the local college district has contracted for many years with the navy to teach military personnel both “basic skills,” such as reading and mathematics, and specialized training. Fialho said that teachers employed by the district conduct these classes, which are held on navy bases and at times have taken the district far afield from San Diego. For example, the San Diego Community College District recently landed a $31 million contract to train recruits over a five-year period at the Memphis Naval Air Station.

So what were these “coordination services” the foundation was to provide for district military contracts? According to the 1982 contract between the district and the foundation, these services were to include such things as “initial liaison with the U.S. armed forces for provision of military education programs,” “needs assessment” on navy ships and bases, and the maintenance of military program records. In exchange for this, the district agreed to transfer “payments of supportive/indirect costs received from such contracts" to the foundation. (The district's bids for the military contracts always apportioned some percentage of the contract fees for such “supportive/indirect costs.” This figure varies from contract to contract and depends upon many factors. According to one district source, the range for military contracts has generally been between thirteen and twenty-three percent.)

The foundation, therefore, automatically was to receive this proportion of the military monies. The contract further specified that the “foundation shall use such funds to pay for the coordination called for in this agreement, and may use any excess funds for the operations of foundation |s/c] in the establishment of an endowment for the benefit of the district.”

This contract went into effect June 23, 1982. In the college district’s audited financial statements covering the 1981-82 fiscal year, there appeared an interesting tidbit relating to the foundation. Buried amid the “Notes” that followed the statements was the disclosure that by June 30,1982 — just one week after the contract had been signed — the district had paid the foundation some $866,000. A year later, the 1982-83 fiscal statement contained a similar note about a $1,212,000 payment from the district to the foundation, and more “Notes" about similar payments have appeared in the 1983-84 report ($1,325,000); the 1984-85 report ($1,241,000); the 1985-86 report ($1,379,000); and 1986-87 report ($1,310,000). Those six payments total $7,337,000.

How much has the San Diego Community College District Foundation actually spent to carry out the “coordinating” activities? Neither the district’s financial statements nor the foundation’s annual reports to the state attorney general contain that information. The best insight into the question so far has come from the report issued by the San Diego County Grand Jury last summer. In the course of its investigation, the grand jury asked the foundation to provide records disclosing just what its revenues and expenses for the military coordination had been for the period from July 1, 1985, through April 30, 1987. The foundation responded that it received $2,396,974 from the college district during that period, while its expenses were $352,717 — leaving the foundation with a net profit of $2,044,257.

“The grand jury is concerned that adequate examination and consideration are not given to the cost of services in such contracts before they are authorized by the trustees,” the grand jury reported. “It is unreasonable, if not irresponsible, to pay a contractor an overcharge of well over a million dollars to provide services costing less than a quarter of that amount to perform.”

But this was an unusual kind of an “overcharge.” Peed and. presumably, the college district trustees knew that according to the terms of that original 1982 contract, the excess money would be tucked away in the cozy little pocket of an endowment trust — a pocket nicely zippered shut against the intrusions of marauding state legislators.

THERE WAS ANOTHER question, of course: namely, whether that pocket would be firmly within the trustees’ control. That question arose even before the college district board approved the first contract between the foundation and the district. In a docket dated April 7, 1982, Peed wrote, “If large amounts of money were to accrue in a foundation or an auxiliary organization, the board of trustees has been concerned that there be some guarantee or control that those monies would be used for the benefit of the San Diego Community College District." Peed then went on to suggest a change in the foundation structure that would strengthen the trustees’ control. Although foundation directors at that time were supposed to be elected by the "members” of the foundation. Peed pointed out that “in actual practice, the foundation does not have memberships other than the persons currently serving on the board.” The chancellor thus suggested that the foundation’s articles of incorporation be changed to give the five college district trustees the power to select the foundation directors. In May of 1982, the trustees approved this recommendation and recommended another change that must have strengthened the impression that the foundation was a mere paper extension of the district: Peed should become the foundation’s chief executive officer, trustees Louise Dyer, Gene French, Dan Grady, Richard Johnston, and Charles Reid unanimously agreed.

Accordingly, by the summer of 1983, Peed and the foundation directors had followed the trustees’ directive and completely restructured the foundation, declaring that it henceforth would have no members. The five directors instead were to be appointed individually by each of the five college district trustees. This arrangement apparently soothed the district trustees for at least a few years. But as its assets quickly ballooned, the San Diego Community College District Foundation began to attract attention from other quarters, primarily from faculty leaders who began to question the foundation’s raison d’etre. “Why is it necessary to transfer money out of a public institution like the community college for that money to be used to benefit the community college and the community it is supposed to serve?” asked Walt Seymour, a certified public accountant who teaches accounting at Mesa College. By the middle of 1986, the foundation had set aside more than $5 million in its endowment fund. That money supposedly has been placed in a twenty-five-year irrevocable trust. Half of the interest from that trust is designated to go to the district, and Peed has stated that at the end of that twenty-five years, there will be a window of time in which the college district board can reclaim the principal.

By 1986 Walt Seymour’s voice had become just one in a chorus. Teachers in fact were so disturbed by various administration policies, including that of fostering the foundation, that they formed a political action committee, the Committee for Better Colleges, which undertook to field two candidates, Joe Abrahams and Maryann Zounes, for the 1986 election to the two trustee seats held by Dan Grady and Louise Dyer. “We knew if we elected one or possibly two trustees, they could appoint their own directors [to the foundation]. And that would have given us carte blanche. We would have known the internal workings of the foundation,” says Charles Corum, who worked on the formation of the PAC and currently chairs it. Both Abrahams and Zounes lost the election, however, although Abrahams logged just 1300 fewer votes than those garnered by Grady.

But while that indirect attack on the foundation fizzled, a fresh, unexpected charge was being mounted in another quarter: the Pacific Beach living room of Norman Burchard. A New York native and a veteran of the Normandy Invasion, Burchard says he came to an interest in community college affairs through “a backdoor sort of way.” The specific backdoor was Burchard’s interest in French. He had first begun to learn the language in the late 1950s, while serving as the naval controller at the American embassy in Saigon, and when he later retired to San Diego, he decided that “rather than sit on my duff and disintegrate,” he would take French classes through the community college district’s adult-education division. He started around 1974 and was delighted with the quality of instruction. The courses held his loyalty until early 1983. And then the district announced it was discontinuing all French, German, and Spanish classes.

Burchard was appalled. He says he distrusted the district administration’s assertion that those language classes were not attracting sufficient students to be self-supporting (particularly in light of the fact that the district had no plans to discontinue classes in other foreign languages). To show support for the French, Spanish, and German classes, Burchard mounted a petition drive that gathered 1200 names. But as Public Employment Relations Board hearings on the language teachers’ firings were held, Burchard began to see those firings in a different light. “It was a form of union busting!” he says indignantly. The seven teachers being fired all had tenure. Burchard’s French teacher, for example, had taught for twenty-seven years (most of that with the San Diego Unified School District) and was within a few months of being eligible for early retirement. Burchard’s suspicions hardened shortly after the firings were permitted, when the news spread that henceforth the San Diego Community College District Foundation would be providing French, Spanish, and German language instruction to the adult-education divisions. (Other foreign language classes were switched to the foundation almost immediately thereafter.) These classes would continue to be held in the same classrooms they always had been held in; and they would be advertised in the district’s adult education catalogues (with a tiny notation that those classes were being presented by the foundation). The main difference? The language teachers with one stroke became foundation employees — paid on an hourly basis, untenured, and eligible for no benefits of any kind.

“I was so blasted mad about this!” Burchard says. He saw Peed and the district trustees presupposing “that the general public is stupid. Well, the general public may be stupid in the vast sum, but they picked the wrong guy! I don’t classify myself as stupid.” Burchard says by the fall of 1983, he felt compelled to use his own money to hire a lawyer to investigate the language teachers’ rights. “I am not a rich man. I live on my navy pension, and I started paying the lawyer in installments as soon as I hired her.” But, he says, “I saw no other way of going.”

Eventually, the San Diego adult-educators’ union instigated an unfair labor practice action before the Public Employment Relations Board, an action that today, five years later, is still not fully resolved. As those legal proceedings slowly ground along, Burchard grew increasingly interested in and suspicious of the foundation, particularly as he learned about the large amounts of money the district was funneling to it. By 1985 he also learned that the foundation had won formal accreditation as a high school — called Foundation High School — and was granting diplomas to adults who finished their high school requirements in the district’s adult-education classes. Burchard says he began to have a disturbing vision of the direction in which the foundation might be heading — toward becoming a completely private, very well funded organization that could one day compete with the very public entity that had given it life. “That’s the privatization of public education!” Burchard thunders, his face reddening. “And it’s expressly forbidden by the California state constitution!"

Burchard also had become dismayed with the conduct of Peed and the trustees. “The more I got involved, the more I perused Peed’s documents, it became pretty apparent how he was operating and that this was the root of the problem. He snows the trustees, frankly.” Burchard also began to believe the trustees were disinclined to cross Peed because of their high salaries and benefits Peed had won for them. (Currently, they receive $18,000 per year for their work at one or two night meetings per week. After eight years of service, they also become eligible for lifetime health, dental, and eye-care benefits.)

SO IN OCTOBER OF 1986. Burchard wrote to the San Diego County Grand Jury, outlining his concerns and further questioning whether Garland Peed, as both district chancellor and foundation chief executive officer, was not guilty of a conflict of interest. By January of 1987, the grand jury had begun calling witnesses, and last June 30, its twenty-seven-page report was released.

That report leveled no charges of criminal behavior, a fact that Peed has since stressed repeatedly. However, the tone of the report was sharply critical, and it expressly “found merit” in a number of Burchard’s concerns. For example, the grand jury agreed that “public purposes would be better served” if the foundation held public meetings, given its “substantial financial support from a public agency.” The grand jury also restated Burchard’s worry that the foundation might be headed for direct competition with the community college district — particularly in light of the fact that the foundation in December of 1986 had begun to seek junior college accreditation. The report questioned whether this junior college would “offer the same classes [as the college district) at less cost. Would teachers be hired for less pay and no benefits?”

In addition to the college district's inflated payments to the foundation for the military “coordination services," the grand jury directed a fair amount of attention to juicy revelations about the foundation that had exploded in the daily newspapers in the spring of 1987. State records had revealed that the San Diego Community College District Foundation was donating large sums of money to state legislators in the form of “honoraria." When the grand jury asked for records of such contributions for the period between July 1, 1985, and April 30, 1987, the foundation disclosed that during those twenty-two months, it had spent more than $87,000 on such "honoraria” and lavish private luncheons honoring the politicians. State Senator Wadie Deddeh had accepted $12,000 during an eighteen-month period alone; in return Deddeh had made a dozen presentations to junior college classes. Other local honorarium recipients included Senator William Craven, Supervisor Susan Golding, Congressman Duncan Hunter, and Assemblyman Pete Chacon. “The grand jury questions the ethics of this particular system which may be perceived as a means of influencing lawmakers,” the report stated. “It particularly questions the prudence of the expenditure of large sums of money for the benefit of public figures by a private, nonprofit foundation whose largest single source of revenue comes from a public institution supported by public funds.”

Finally, the grand jury urged the college district trustees to take steps to ensure that they would retain firm control of the foundation and its endowment fund. College district trustees should continue to appoint the foundation’s directors, the grand jury recommended, and it expressed the further belief that “there is a need for the [trustees) to have control of the [foundation’s) bylaws and the articles [of incorporation), so that the purpose of the foundation [for the benefit of the district) may not be changed.” The recommendation was not followed. In fact, before trustees had even scheduled a meeting to discuss the grand jury report publicly, the foundation directors — in a closed meeting on July 28 — stripped the college trustees of any remaining control over the foundation. Most important, the foundation directors decided that in the future, they would no longer be appointed by the trustees at all but instead would appoint themselves. At the same time, the directors (now including Timothy Garfield, the former deputy county council who helped Peed plan the foundation) made other significant changes in their articles of incorporation and bylaws. Whereas those bylaws had always stated that directors could not be paid, the directors struck out that section about compensation — apparently opening the door for Peed (as chief executive officer) and the other directors to begin receiving salaries. The directors also deleted a section that had limited expenditures for foundation expenses to ten percent of the foundation's annual income.

Finally, the directors rewrote that section of their articles which pertained to the purpose of the foundation. Whereas its purpose had been “to promote the educational programs and the general welfare of the San Diego Community College District,” the new (and current) articles give the “specific and primary purpose" as being, in this order:

(1) "To engage in (he solicitation of grants and contracts"

(2) “The receiving of contributions"

(3) "The formation and operation of private elementary, secondary, and post-secondary educational institutions"

(4) "To promote the education programs and the general welfare of the San Diego Community College District" in a variety of ways.

Although these steps patently flouted the grand jury’s recommendations, they attracted no immediate public attention. On the contrary, Peed’s actions at a college district trustees’ board meeting, held eight days later, seemed designed to obscure what the foundation’s directors had just done. For that August 5 meeting, Peed prepared a nine-page review of the grand jury report, in which he responded to each of the grand jury’s specific recommendations. When he came to the jury’s exhortation that college district trustees should “continue to appoint directors separately,” Peed wrote, “The board of trustees and the board of directors should discuss this recommendation and come to an agreement.” Yet to the back of the docket package for the meeting. Peed at the same time attached a copy of the foundation’s “revised articles of incorporation” and “revised bylaws,” each clearly dated July 28.

However, the discussion that unfolded at the college district trustees’ meeting that August 5 gave observers the clear impression that the trustees had not even read those revisions; instead, they discussed at length the pros and cons of separating themselves from the foundation, and Garland Peed made no spoken effort to bring attention to the fact that the foundation had already done the separating. The trustees met again nearly a month later, on September 2, and spent at least an hour talking about whether or not they should further distance themselves from the foundation. Once again. Peed said nothing about the events of July 28. But finally, trustee Dan Grady interjected a stunning comment. He noted that the trustees’ discussion in effect was moot, given that the foundation directors already had removed themselves from the college board’s control. The next day, board president Gene French was quoted in the San Diego Union, expressing surprise and saying, “I have to admit that I thought we were still at the recommendation stage.” Trustee Charles Reid was even more blunt. “I feel dumb about this, just plain dumb,” Reid told a reporter. “We have taken up a lot of time with people thinking we were transacting business, and in truth we were just going through the motions.”

At that September 2 meeting, Reid put a significant follow-up question to Peed. If the foundation directors had been able unilaterally to change the way they were selected, what other changes might they be capable of enacting? Although the articles of incorporation stated that the foundation could not change its purposes so long as the foundation could use the name “San Diego Community College District Foundation, Incorporated,” could the directors simply change the foundation name and then forget about the benefit of the college district?

Peed responded that he had already gotten an opinion on the question from the county counsel. And based upon that opinion. Peed told the trustees, the only way the foundation directors could unilaterally change their purposes would be if “we deny them the right to use the name ‘San Diego Community College District Foundation, Inc.’ ” Peed added, “And we have no plans to do that.”

WHEN CHARLES CORUM reflects on that response from Garland Peed, chancellor of the district and chief executive officer of the foundation at the same time, he practically quivers with outrage. Corum asserts that it’s one of the most telling demonstrations of Peed’s “egregiously deceptive nature.” At the very moment that Peed was reassuring Reid, Corum points out, a bill was sitting on Governor George Deukmejian’s desk, awaiting signature. That legislation, known as Assembly Bill 995, specifically relates to community college districts. Among its provisions, the bill prohibits “contracting nonprofit public benefit corporations that are not organized as auxiliary organizations... from using the name of a community college or community college district...” Mary Bergen, the Sacramento lobbyist for the California Federation of Teachers, which backed the bill, points out that there are only two such entities in the state of California — the foundation here in San Diego and one other one in Kern County. (The local foundation changed from being a simple “nonprofit corporation” to being a rarer “nonprofit public benefit corporation” back in 1983.) Bergen adds that curiously little opposition to AB 995 materialized. She says at one point Bobby Wilson, the San Diego Community College District’s lobbyist, asked her if the bill sponsors would consider adding a grandfather clause exempting the San Diego Foundation. Bergen said no and says she subsequently heard nothing further from Wilson or any other opponents.

Even if neither Peed nor the trustees planned in September to deny the foundation the use of the college district’s name, how could the chancellor have failed even to mention the imminent signature into law of such an apparent prohibition?

That wasn’t the only puzzle generated by Peed’s behavior this past fall. Another developed in response to the grand jury’s unequivocal recommendation that foundation directors and college trustees separate the office of the chancellor and that of the chief executive officer and “ensure both positions are not served by the same person.” Peed’s initial, written response to this was brief, even demure. “Thomas Day is president of both the San Diego State Foundation and San Diego State University. This is true of many other two- and four-year, post-secondary institutions,” Peed wrote, continuing, “The chancellor does not believe that he can respond to this recommendation without bias. The board of trustees and the board of directors should decide this issue.”

But when the college district trustees finally sat down on November 4 to hash out precisely that question. Peed’s position turned combative. “You’re ... saying that Garland Peed cannot participate [in the foundation] as a private citizen ... [but] I don’t know that you really have that right,” the chancellor declared waspishly. “I’ve never hidden the fact that I’ve been very involved with the foundation, that I’ve treated it as my charity.” In return, the foundation over the past several years had brought the district an income of more than a million dollars over the past several years (half the interest from the endowment). Peed pointed out that the trustees contributed their time to private organizations, and he added, “I demand the same privilege as you do, and I will take that privilege.” With the exception of Charles Reid, the trustees then backed down and refused even to vote on whether Peed should retain both posts. “Instead of being hung. Garland Peed should have a bronze bust made and be honored for creating the foundation that has brought us a lot of money,” board president Gene French intoned.

Then just two months later. Peed mysteriously submitted his resignation from the $91,500 per year position as chancellor, stating that it was time for the district to have new leadership.

Considering the attention and press coverage that was showered on the question of Peed's dual administrative roles, it’s rather startling that another key consequence of the grand jury’s report went completely unnoticed by either the media or Peed’s opponents. This past October 27, the college district dramatically rewrote its contract with the foundation. The crucial change was in a section relating to compensation for the foundation’s work in coordinating the military contracts. Instead of receiving all the contract money designated for overhead — the million-dollar-plus amounts that the foundation previously received and with which it built up the endowment — the foundation now is being paid seemingly modest sums. For coordinating the San Diego military programs, for example, the foundation is receiving $117,198 for the eight-month period between October I, 1987, and May 31, 1988. For its work on year-long military programs in Mississippi and Florida, the foundation is receiving only $42,721. The contract was amended once more December 16 to include the new Tennessee contract, and for this work, the foundation is to be paid only $118,514 over the roughly five-year contract duration.

PEED WON’T BEGIN WORKING full time at the San Diego Community College District Foundation until August 31. The organization he will direct then has grown in many ways. For one thing, district employees say the foundation has become aggressively involved in the field of educational assessment. Over the years, it has apparently won big contracts to test the skill levels of welfare recipients, for example, and it also has administered the California Student Assessment System, which evaluates student vocational aptitude and skills. Besides the foreign language classes, it now offers a dazzling range of other private classes — everything from personal finance to gardening.

Through the end of July, Peed is continuing to serve as chancellor of the San Diego Community College District, and questions about the foundation have not died away. At a meeting February 8, board president Gene French asked Peed if he could ever envision a competition between the foundation and the college district for students, and Peed conceded this could come to pass — a reversal of his past insistence that the foundation classes posed no competitive threat to the district. Peed also was asked about the impact of AB 995, which went into effect on January 1 of this year. The chancellor replied that he had consulted with the county counsel and believed that the bill would not affect the foundation. (The chancellor’s apparent rationale is that the new legislation does not specifically say that it is retroactive.)

“They [Peed and the foundation] won’t do a goddamned thing until they’re forced to,” says Norman Burchard. “Somebody’s going to have to take them to court. That’s the way they’ve been operating all along.”

Burchard and other critics of the chancellor mention that last year Peed was banking lottery funds and using the interest for construction — although state legislation clearly says lottery money may only be used for instructional purposes. Peed got an opinion from county counsel affirming that use of the lottery interest was acceptable. But when the California Teachers Association took the district to court, the judge told Peed, “You have failed to perform your legal duty and abused your discretion.” Three months later, teachers reeled when Peed then sought authority from the trustees to use lottery money to pay for legal services in a lawsuit. Charles Corum points out that Peed twice assured the trustees that this use of lottery money was permissible. He only backed down when county counsel advised that a court again would rule against such a use of the funds.

Corum also thinks Peed and the foundation will probably try to ignore AB 995 and its prohibition against the use of the district's name. But regardless of what name the foundation operates under. Corum denounces what the foundation has already become — a private, independent corporation that has been built up with millions of dollars diverted from the public community college district and that now is nicely situated to compete with the district. Even if the college district does eventually get back its capital (when the irrevocable trust expires). Corum points out that Peed* and the foundation directors are under no obligation to add another penny to that trust. Corum says Peed will doubtless begin drawing a salary from the foundation this summer; plus, under new retirement provisions just passed at the district. Peed should qualify for an immediate state pension of about $70,000 a year. “At the very least, there’s been a serious breach of fiduciary responsibility,” says Corum, who vows that the Committee for Better Colleges will continue to press for the quick return to the college district of all the foundation’s endowment money.

Garland Peed has refused repeated requests for an interview. When presented with a series of written questions, through a spokesperson, he addressed only a query about what his salary and district pension benefits will be when he begins full-time work at the foundation this summer. “Mr. Peed considers his retirement income and his salary with the foundation to be personal matters,” according to communications supervisor Janet Fialho.

Peed and other foundation defenders have praised various aspects of the foundation’s operations over the years. They point to the undeniable benefit the district has derived from the interest income, and they say the foundation’s existence has benefited the district in many less tangible ways. For example. Peed argues that the fact that the foundation now grants high school diplomas has brought the college district many students (and substantial income) for its high school completion classes. (Peed argues that if the foundation didn’t offer the diplomas, many of those students wouldn’t be taking the classes because the only alternative, the San Diego Unified High School District, has much tougher requirements for diploma completion, requirements so tough that most adults would be discouraged from the achievement.) Another foundation defender within the district administration conceded that in certain areas, the foundation has also helped the district to “avoid all the bureaucracy and union contracts and all the rest of that.” That person also argues that had the millions of dollars remained within the district, rather than going to the foundation’s endowment fund, “the district would have pissed them away.”

With respect to Feed’s refusal to grant an interview about the foundation, spokesperson Fialho said, “He’s just not interested. He feels that this is old ground. That it’s been gone over a thousand times already.”

Yet it may be covered still further. Navy officials in Washington, D.C. are looking into the foundation’s role in the military contracts, and the 1987-88 grand jury has been conducting a wider investigation into the foundation. The grand jury is expected to release another report on it within the next few months. Also Peed’s opponents say local attorney Michael Aguirre has just agreed to file a taxpayers’ lawsuit against Peed and the trustees, individually and collectively, for mismanagement of public duty.