The way schools have managed Village I Mello-Roos district funds outrages home builders who have paid millions in fees.
Elected school trustees who were supposed to oversee the fund, meanwhile, now promise to seek answers for why millions of dollars more in taxes and fees have been collected than originally authorized.
"There are some real crooks in government. They hide behind saying they're doing it for the good of the public," charged Bill Zoslocki, who built Davante Villas in Village I and is a past president of the Building Industry Association of Central California. "We in private industry would be thrown in jail if we operated that way."
School officials insist everything they did was legally allowed and properly approved at public meetings. They based their decisions on legal documents written by a San Francisco law firm.
The building association and the city of Modesto, however, negotiated a separate deal with the Modesto and Sylvan school districts in 1994. That agreement was designed to limit Village I's contribution to school construction to $52.7 million, minus whatever state school building funds eventually were received.
The schools already have collected nearly $51.8 million in Village I taxes and fees, plus $37.2 million in state building funds and $5.8 million in interest. But property tax collections continue because the schools borrowed $23.5 million more based on their ability to tax Mello-Roos district homeowners.
"The BIA had good faith that the school districts were doing what they were supposed to do," Zoslocki said. "The contract they really broke is with all the homeowners. Those homeowners are the ones being taken advantage of."
Most Village I homeowners continue to be billed an extra $390 per year in property taxes to pay for school construction, and the schools plan to keep taxing for another 27 years.
"The truth needs to shine," said Zoslocki, suggesting a civil grand jury investigation be launched. "What's frustrating is that I don't know what the resolution should be."
Developer Rod Lowe, who built Autumn Glen in Village I, said it is ridiculous how the Mello-Roos district has operated.
"I see a big lawsuit coming. There's got to be accountability at the government level," Lowe said. "It's obviously blatant fraud going on on the school districts' part."
Lowe does not accept school officials' contention they didn't know the 1994 School Impact Mitigation Agreement limited how much could be collected.
"You can't plead ignorance," Lowe said. "They've got a major problem on their hands."
Sylvan Union School District Trustee George Rawe, who has been on the board that governs Mello-Roos district spending since 1998, said he had "never heard of that document" before The Bee started asking questions.
"No one has ever brought up that there was any other document" limiting how Mello-Roos funds could be spent, Rawe said. "We'll find out what's happened. The best way to deal with this is at a public meeting. ... Lawsuits will only harm the people."
Rawe said every decision made by the Mello-Roos district -- formally called the Schools Infrastructure Financing Agency, or SIFA -- was based on staff recommendations.
"We were voting on a legal opinion that was brought to us," said Rawe, explaining why board members repeatedly voted to raise the tax "obligation" on Village I residents.
Rawe said there is a silver lining: "We're not building that third elementary school in Village I. There's going to be a huge savings there."
SIFA's budget shows an "obligation" to spend $14.6 million on another Village I elementary school, which the Sylvan school district has decided it does not need.
Rawe said the SIFA budget still shows an "obligation" to spend an additional $17.6 million at Enochs High. That campus was completed in 2006, but it doesn't have auxiliary facilities like a swimming pool, football stadium or auditorium.
"If the spirit of the law was to pay back (SIFA when state building funds arrived), then giving that $17 million to Enochs would be a problem," said Rawe, who actually lives in the Mello-Roos district and pays its extra taxes.
By not spending any more money, Rawe said the SIFA could shift all future revenues to more quickly pay off the outstanding bond debt. That could significantly shorten how many more years of taxes Village I residents pay.
Cindy Marks, a Modesto City Schools trustee who has been on the SIFA board more than five years, said she also will look into how Mello-Roos money was spent.
"We have to determine how to fulfil our obligation to the homeowners according to the document we have recently become aware of," Marks said. "We need to find out why the board wasn't made aware of this."
Marks and Rawe said they are committed to finding a solution. They said the issue will be discussed when the SIFA board meets Aug. 11.
Steve Madison, the building association's executive vice president, said school officials have demonstrated "an insatiable appetite" for consuming taxes for construction projects.
Since forming the Village I tax district, Madison said Modesto school districts have set up several other Mello-Roos districts. They also have passed local school bonds for construction, consistently raised builder fees and annual property taxes to maximum allowable levels, and acquired school construction money from the state.
"It occurs to me that no amount of money would ever be enough for them," Madison said of school officials. "They have collected every bit of revenue they could."
Bee staff writer J.N. Sbranti can be reached at firstname.lastname@example.org or 578-2196.