The Iowa Office of Auditor of State has released a report critical of the Davenport Community School District’s sale of Lincoln School.
In 2019, the district sold the school, 318 7th St., to a nonprofit affiliated with Third Missionary Baptist Church.
The building was sold for $30,000 while a bid for nearly $300,000 was rejected. The school district had invested about $2.5 million in upgrades to the school in the dozen-or-so years preceding the $30,000 sale.
The district issued this statement following the release of the report: "On Wednesday, April 7, 2021, the Iowa State Auditor’s office released a report related to the Davenport Community School District’s sale of the former Lincoln Elementary School. After reviewing the report, district officials had a productive, and informative, meeting with the Iowa auditors. As a result of that meeting, the district is proactively adopting, and implementing, the recommendations made by the State Auditors Office."
The auditor’s review of the sale began shortly after it was made. The resulting report is 30 pages long and includes critiques and a number of recommendations.
“Had the board accepted that (larger) offer and the purchaser was successful in securing the building, an assessed value of the building would have been added to the county’s tax rolls thus providing a future revenue stream to the district and other applicable governmental subdivisions,” according to the report. “By selling to a nonprofit organization which is exempt from property tax, the board essentially created an annual ongoing revenue loss in addition to forgoing the difference in the proposed sales prices.”
The auditor’s report states that selling to the nonprofit at a lesser price rather than to the developer who offered more could be construed as a donation to the nonprofit for the difference between the two offers — about $260,000.
The state constitution prohibits such transactions for public bodies like school districts, the report states.
The report stated that, based on meeting minutes, the board was interested in selling the property to an entity that would better the community, but that board members had also acknowledged the responsibility the board had to get the most it could from the sale.
“We acknowledge the district plays a vital role in the community and working cooperatively with the city and community organizations serves a positive purpose,” the auditor’s report states. “However, it is important to recognize the board members’ first responsibility is to making decisions which benefit the district specifically, and the taxpayers it represents, both in district mission and fiscally.”
In this instance, the auditor’s office recommended that the board ensure its actions comply with the state constitution, laws and other mandates.
“Fiduciary responsibility is essential and should require continuous effort and assessment of all transactions brought to the board for approval,” it states. “Board members should follow the Iowa Constitution’s ban on the donation of public dollars to non-public entities.”
At the time of the sale, then-school board vice president Linda Hayes worked for Third Missionary Baptist.
Hayes and then-President Ralph Johanson both noted they might have conflicts of interest in a closed meeting on March 12, 2018.
“Although Johanson did not submit an offer to purchase the building, once he became interested in purchasing the property himself, he had a conflict of interest,” the auditor’s report states.
While Hayes did not vote, she participated in every closed meeting, spoke favorably of the plan in both closed and open meetings and made the motion for the board to vote.
“In addition, once Director Hayes’ employer expressed an interest in purchasing the property, she had a conflict of interest,” the report states. “From the point in time a conflict of interest existed for the two board members, they should have recused themselves from any further involvement in discussions or decisions regarding the sale of the property to prevent an actual or appearance of being compromised or attempting to influence the board’s decision.”
The auditor’s recommendation here included a review of DCSD's conflict of interest policies to see if they are sufficient to serve their intended purpose.
“In addition, board members should recuse themselves from all discussions and/or actions related to transactions in which they have an actual or perceived conflict of interest until the transaction is completed or no longer viable,” the report states.
Hayes was re-elected to the board in 2019 and is again serving as the board’s vice president.
Hayes and Daniel Gosa, board president, were asked for comment on Wednesday. They deferred to the statement released by the district. The full report, including all of its recommendations, has also been posted on the newspaper’s website.