State Socialism & The Village of Mendocino

by Mark Scaramella, December 23, 2010

Because the subject seems to have disturbed some of the listserve shut-ins, and because with them history starts all over again every afternoon when they resume their monkey island communications with each other, let’s look at the true history of MCN.

One of the lead shut-ins had written, according to a very wrong-headed listserve posting, “…Mendocino Community Network (MCN) is largely responsible for getting technology into our local schools and providing Internet access here long before any corporate entity was willing to serve our low-profit market. It is not ‘heavily underwritten’ by the school district. In fact, it still contributes services and funds, though not as much as in its early years when it faced no competition. It is true that the community listserves are provided from user revenue that could otherwise go to the schools. MCN also provides free websites and Internet access to many local non-profits and educators beyond the boundaries of Mendocino Unified.  This is all consistent with the founding Mission.”

The “founding Mission”?

In late 2000 we looked into MCN because it seemed obvious to us that MCN founder and then-manager Rennie Innis was running a private business with himself and his assistant Mitch Sprague as the primary beneficiaries under the auspices of a public entity, the Mendocino School Board. We'd assumed that a detailed investigation might prompt the Mendocino School Board to re-think MCN’s connection to Mendo Unified and, perhaps, spin MCN off as a separate non-profit if it was to continue to exist at all.

Nope. The lotus eaters went right on eating.

(To view our entire original report, Mr. Innis’s “response,” and our reply to Innis’s response, see my “Jaundiced Eye” blog.)

Which doesn’t change the fact that Mendo Unified has no business running an internet service provider business on school grounds under the school’s financial umbrella.

None of this is likely to penetrate the drug-fogged receptors of the listserve patients, but even the more rational of them might be helped to the bright light of understanding if they will look at MCN this way: If for instance, Mendocino Unified were to buy Cafe Beaujolais, just think how much more its owners could rake in if it didn't have to pay rent and utilities, or taxes, and had students working free as cook’s assistants, waiters and dishwaters.

In his windy response back in 2001, which Innis sent privately to a third party for fear if he sent it to us we’d publish it and reply to it, Innis confirmed most of our conclusions, although in a few cases Innis claimed — unconvincingly — that what we had criticized, while true, was actually a great thing for “the kids.”

Innis left Mendocino County some time ago. His second in command, Mitch Sprague then became MCN business manager.

We won’t reprint everything we reported back in late 2000 here, but some excerpts having to do with the taxpayer-school- funded subsidies MCN received in its early years are worth summarizing. The following paragraphs preceded by “•” are from our original investigation.

* * *

• The merger of the school’s computer classes with a commercial internet business allows Innis and Associates to benefit greatly — and some say unfairly — from the school’s financial backing — especially since the school board (with one occasional exception) is a cheerleader for Innis’s private business operating as an educational enterprise. Free rent, free power, student labor, lots of free equipment, loans that don’t have to be paid back. It's hard to miss in free enterprise with public backing like this [which used to be called state socialism when they did it in Russia].

* * *

• MCN is not a separate business with a separate board and independent budget. MCN’s board of directors is the school board itself. When MCN needs working capital, the school board is obligated to provide it. If the school board doesn’t cough up, the school district risks not getting a return on their prior investment of public money, equipment and facilities.

* * *

• A number of expense categories are conspicuously missing from the MCN budget, indications of the kinds of invisible subsidies the school district provides over and above the student interns, free rent, operating capital, and other overhead costs. MCN’s utilities budget, for example, makes no reference to PG&E expenses. Nor is there any reference to insurance costs, accounting and auditing, or legal expenses. And no reference to equipment or facility maintenance, no copier costs, no water, sewer, heating, trash disposal, admin staff… Only expenses which can be directly attributed to MCN are shown in MCN’s selectively edited budget. The school district’s general fund picks up the rest of the load with edu-dollars, which taxpayers might assume are being used for education, not a heavily subsidized private business that pays Innis more than it does its highest-paid teachers.

• The school district’s own budget lists all this overhead but makes almost no reference to MCN. MUSD’s typically impenetrable 60-page 2000 budget allocates more than $3.2 million for certificated salaries and more than $1.2 million in classified salaries. One can only speculate on how much the MCN and MUSD staffers overlap since the “business” and the “school” are the same entity.

* * *

And what about the legality of a school district running a commercial business?

• Can a school be a business? Technically, yes, according to Michael Hersher, an attorney with the California Department of Education. Surprisingly, California State law does not expressly prohibit governmental agencies from competing in the private sector, even when the government agency appears to have various unfair advantages, such as captive staff, free use of school buildings, equipment and software, taxpayer-supplied working capital and overhead, and immunity from certain kinds of liability. CDOE attorney Hersher says the state has legally challenged school districts from engaging in commercial activity in the past — “Dawson v. Eastside High School District” — and lost.

• “In that case the court held that a school district could engage in commercial activity,” Hersher explained, “if they determined that the commercial activity was reasonably related to their overall educational mission and that the kinds of activity involved didn’t fundamentally interfere with education. … It’s not illegal for a school district to sell something.”

• Hersher said that he will continue to challenge the legality of school districts operating as for-profit operations if they are “inconsistent with the educational purposes of the school district.”

• Back in 1994 MUSD staffers Jim Tobin and Yolanda Tate told then-Superintendent Ken Matheson that the state Department of Education had “raised some concerns about a school district operating a commercial business,” and recommended that MCN be set up as a separate non-profit with a separate budget and board of directors. Tobin and Tate’s analysis asserted that “the courts have implied that the authority [for government agencies to compete in the private sector] does exist,” and that “other states have specifically held that ‘a governmental agency may, in the absence of some prohibitory statutory or constitutional provision, engage in lawful competition with private concerns’.” Tobin and Tate concluded, however, with a recommendation that the School District set up a separate non-profit, adding, “the District can circumvent or avoid [state Department of Education objections] entirely.” Which it did.

• When the AVA asked Hersher recently why a school board would even want to operate a commercial business, he replied, “Well, that way there wouldn’t be a separate board to deal with. It’s simpler. As long as you’re only dealing with one board, you don’t have to worry about disagreements which would inevitably arise as board members on the different boards come and go.”

• So as long as you call yourself “non-profit” and you can convince the school board that your commercial business is somehow good for the kids, you’re legal.

* * *

In 2000 MCN also got a large (free) donation of some land and a building when a neighboring property owner died and left the property to the school district. The school board gave it to Innis’s MCN. MCN immediately announced ambitious plans to use the school and the new building to set up a large-scale business incubator for net-head entrepreneurs.

For all we know, MCN is operating in the black these days, and from all accounts Sprague is far more reasonable and pleasant than Innis was, and perhaps MCN doesn’t cost Mendo Unified continuing direct subsidies, but school budgeting and financing is always a confounding mystery which was and is easy to manipulate. Nor have we heard any complaints about MCN’s basic technical services.

A few years ago, MCN nearly went bankrupt when AT&T raised their rates for their connection to the internet backbone. It got so bad that Mendo Unified put MCN on the market. But there were no takers, presumably because no commercial operator could stay in business without the school’s subsidies. Sprague and his staff regrouped and kept MCN alive in the wake of that unsuccessful attempt — we don’t know how much, if any, money MUSD had to provide to keep MCN going. It was all played very close to the School Board’s vest.

But no matter how you slice it, even if MCN doesn’t cost the District directly these days, and even if their books say they return some money to the District occasionally, MCN could not exist without the substantial financial and administrative benefits they received during their start-up years and those that continue to come from being part of the school district: free/rent-free facilities, access to technical and admin staff, overlapping equipment purchases, lots of free overhead, no bothersome independent board, free legal advice, etc. — and, as part of a government entity, MCN pays no taxes.

Only in their wildest dreams could a commercial internet service provider operate with so much of their costs underwritten or not-applicable. Yet MCN charges rates comparable to other commercial ISPs in the area. Does the District really get as much money back as it should given their market-level commercial rates but lower operating costs? Only Sprague’s MCN knows for sure.

So the question still is: Is MCN benefiting themselves or the school district?

If left to the usual listserve posters such questions can be dismissed as just another unpleasant comment from the meany faces at the AVA, never mind that public tax money has been and continues to be wasted on a commercial business operated inside a school district.

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