Big Buses, Bigger Problems: The $25 Million DCS Land Deal

DCS board president received $32,000 in campaign donations from family of man who profited from DCS land deal

NBC 5 produced a special in-depth investigative report revealing the latest developments in the ongoing investigation into Dallas County Schools, the taxpayer-funded agency responsible for the daily transportation of 75,000 North Texas students. NBC 5 anchors Brian Curtis and Meredith Land and Senior Investigative Reporter Scott Friedman explained the latest findings.

The special report can be seen above.

NBC 5 Investigates has learned as school bus provider Dallas County Schools began to sink into financial trouble, the agency sold taxpayer-owned land to get fast cash. But the agency still needed the land -- and entered into a lease deal that obligates taxpayers to cover millions of dollars in payments over the next two decades.

The Characters

DCS board president Larry Duncan did not want to discuss the real estate transaction with NBC 5. There are questions about who profited from the deal and whether campaign contributions made to Duncan played any role in who cashed in.

DCS is the taxpayer-supported school bus agency that serves a dozen school districts in three North Texas counties, including the Dallas, Cedar Hill and Irving ISDs, among others.

Over the last six months, NBC 5 Investigates has uncovered serious safety lapses and misuse of taxpayer money inside the agency. Our reporting has revealed a dramatic increase in school bus crashes, millions spent to settle school bus accident claims, and a scandal involving taxpayer money used to pay traffic tickets for hundreds of bus drivers who ran red lights. Earlier this year DCS ended up $42 million behind budget and is millions more in debt. Some state lawmakers are now pushing legislation that calls for the agency to be abolished.

Watch the Special Report: The $25M DCS Land Deal

The Connection

So, how are they all connected? To understand what led up to the land deal, flashback first to 2012.

That’s when DCS started spending millions on school bus camera systems; security cameras were mounted inside the buses but also along the exterior where they were designed to record drivers ignoring the bus’s extended stop-arm – a safety device intended to alert drivers to school children crossing the road.

In addition to purchasing camera systems for its entire fleet, DCS decided to launch a business venture with Force Multiplier Solutions, the camera company that provided the equipment for the agency’s school buses. Financial records show DCS has paid Force Multiplier Solutions about $75 million for equipment and services.

DCS’ business venture with Force Multiplier Solutions was supposed to work like this:

  • DCS would buy cameras from Force Multiplier Solutions and then give them to school districts for free.
  • DCS hoped to cover the cost of the cameras and eventually profit from the deal by collecting a portion of the fines from tickets issued to drivers caught on camera running past extended school bus stop signs.

But it didn't work out the way DCS leaders hoped. Signing up large school districts to participate in the program was tough and many drivers who got caught running the stop signs never paid the tickets. In some cases DCS failed to convince local officials to pass ordinances that would give DCS the authority to levy a fine.

By 2014 records show DCS was millions of dollars in debt and borrowing from its own general fund to cover losses on the camera business.

In April 2014, bond rating agency Moody's lowered DCS's credit rating citing concerns about, “significant risk related to the stop-arm enterprise.” Moody’s followed with two additional downgrades in December 2014 and January 2015, expressing concerns about cash flows at DCS and saying the camera program had “underperformed the district’s projection.”

With DCS struggling financially, the agency sold taxpayer-owned land in a deal that provided capital.

New records obtained by NBC 5 Investigates raise questions about who orchestrated and profited from the land deal and about campaign contributions made to the politician who heads board that approved the deal.

In February 2015, the DCS board approved the sale. It’s a deal DCS Board of Directors President Larry Duncan does not want to discuss publicly.

We wanted to know how a man whose family gave tens of thousands of dollars to Duncan’s campaign ended up profiting from the land deal. When asked about the deal in person, Duncan declined every opportunity to answer questions. In an email he later said details of the transaction were left up to the DCS administration.

A major development in our NBC 5 Investigates series Big Buses, Bigger Problems. For more than a year -- our investigative team has been looking into Dallas County Schools. From buses running red lights to millions in spending that put DCS on the verge of financial collapse, our team, led by Senior Investigative Reporter Scott Friedman, has uncovered big problems with how DCS has handled taxpayer money. Now they've uncovered questions about a $25 million land deal at DCS.

Former DCS Superintendent Rick Sorrells has also declined to answer questions from NBC 5.

First, let’s explain the land deal and how it will cost Dallas County taxpayers millions over the next 20 years.

The Sale-Leaseback Deal

If you pay taxes in Dallas County, the property in question once belonged to you. In fact, taxpayers owned all four massive lots where DCS services its school buses.

In February 2015, DCS decided to sell the four service center properties in a deal called a sale-leaseback – where they sold the land and received cash, but immediately leased it back from the new owner for a monthly fee.

The deal provided an instant source of cash and at least temporarily improved the agency’s balance sheet.

Joseph Cahoon, Director of the Folsom Institute for Real Estate at Southern Methodist University, said sale-leaseback deals are extremely common in commercial real estate and that DCS basically went from being an owner to a renter.

DCS received about $25 million in cash for the lots, $7 million more than the appraised value of the land. However, the deal came with a significant long-term cost. Taxpayers are now obligated to make more than $47 million in lease payments over the next 20 years.

That’s $47 million owed on land taxpayers owned free and clear just over two years ago.

“They got cash in exchange for a long-term rent liability,” Cahoon said.

Denise Hickman, former executive director of business at DCS when the deal was made, said her boss, then Superintendent Rick Sorrels, didn’t involve her in the deal. When Hickman learned of the land sale she said she had huge concerns about the long-term expense.

That wasn’t all.

“After we did the sale-leaseback, I got a request for $80,000 to repair the driveway and I was saying, ‘Why am I repairing a driveway on property I don't own?” Hickman said.

Hickman said she was also surprised to receive property tax bills, bills she was obligated to pay, on the land which DCS no longer owned.

As it turns out, the deal DCS cut is what's called a triple-net sale-leaseback, a common practice in sale-leasebacks where the renter is responsible for the property maintenance, taxes and insurance even though they don’t own the property.

Before the sale, DCS never had to pay property taxes because government agencies are tax exempt. But a copy of the land purchase agreement provided by DCS said the agency is now obligated to pay the taxes on the property which went back on the tax rolls after it was bought by a private leasing company.

Dallas County property records show the yearly taxes on the land were more than $380,000 in 2016. That’s a new $380,000 expense as a result of the sale-leaseback that the agency never had to cover before -- in addition to the new monthly rent payments.

NBC 5 News
Data from the Dallas County Tax Appraisal District shows the taxes due on the land sold in the sale-leaseback for 2015 and 2016. Prior to the sale-leaseback, Dallas County Schools was able to use the land tax-free.

Denise Hickman's concerns only grew when she saw the paperwork for the sale-leaseback.

“So, in the paperwork, I remembered seeing similar names, just remembered seeing similar names in the sale document that are part of the Force Multiplier Solutions staff. And that was surprising to me,” Hickman said.

Land Deal, Camera Vendor Connection

NBC 5 Investigates obtained a copy of the purchase agreement from DCS. It said a man named Slater Swartwood from Anroc Realty was the “seller's broker,” representing DCS on the land deal.

We've learned Swartwood's son, Slater Swartwood Jr., was a vice president at Force Multiplier Solutions -- the company DCS partnered with on the camera program that was straining the finances at the agency.

“That was the first thing that I was like, ‘This is not right,” Hickman said.

While the purchase agreement describes Swartwood Sr. as the broker for DCS -- it said the company that bought the land was supposed to pay Swartwood Sr. a “Seller’s Broker Fee” of $555,000.

But the final closing documents told a different story.

In the end, a copy of the final settlement statement provided by DCS shows Swartwood actually made $750,000, $555,000 of that from the buyer as agreed to, plus an additional $195,000 paid by DCS -- money that belonged to taxpayers.

So how did that happen? And who is Slater Swartwood? NBC 5 Investigates hit the road to find out.

The trail took us from Dallas all the way to Louisiana where we found Swartwood's company, Anroc Realty, registered to a building in a suburb of New Orleans.

We discovered that same building also houses the Louisiana office of Force Multiplier Solutions. In fact, the company was once headquartered there before opening another office in downtown Dallas.

Louisiana and Texas records obtained by NBC 5 Investigates also show Force Multiplier Solutions’ CEO Robert Leonard has relied on Swartwood for decades as a real estate consultant. In a statement to NBC 5, Leonard identified Swartwood as, “…my personal real estate consultant for over 40 years.”

When we caught up with Swartwood in New Orleans, he said it was Leonard who brought him in on the DCS land deal because of his background as a consultant for him.

Swartwood left before we could ask him about records that showed his family, and a business registered to his home in New Orleans, have donated more than $32,000 to DCS board President Larry Duncan's campaign since 2012 – the same year DCS launched the bus camera program.

That money was just part of $245,000 in donations Duncan has received from people with connections to Force Multiplier Solutions.

In an email, Slater Swartwood later told us his family's contributions were "legally made and reported … my contribution was based on my support of the candidate I believed could benefit the interests of public education and child safety."

Swartwood also said he never acted as a broker for DCS, that he only worked as a consultant for the buyer and that he had no idea DCS ended up paying almost $200,000 of his fees.

"At all times during this transaction I acted as a consultant for (the buyer) and upon the successful completion of this $25 million transaction, I was paid a consulting fee of $750,000. The entire fee was wired into my account without any indication as to the source of the payment," Swartwood said.

Swartwood said he only recently learned the buyer negotiated with DCS to pay a portion of his fees, which he said is not expected but happens on occasion.

‘I Already Made a Statement’

Months ago, DCS Board of Directors President Larry Duncan insisted donations made to his campaign by people tied to Force Multiplier Solutions were legal when first questioned about them by NBC 5 Investigates.

“Every penny is legal, honest, open and ethical. The state legislature set up this system so that people like me could hold office and run for office,” said Duncan.

But since that interview, new records obtained by NBC 5 Investigates raise more questions about the timing of those campaign contributions.

We now know some of the donations were made the same week the DCS board approved the land deal.

  • On Feb. 24, 2015 – Duncan’s campaign finance records show Slater Swartwood's daughter donates $5,000.
  • That same day, Robert Leonard and another Force Multiplier Solutions employee also make two $5,000 donations.
  • On Feb. 26, 2015 - the day the DCS board approved the land deal - records show a "Slater Swartwood" donated another $5,000.
  • It's unclear if that donation was from Swartwood senior or his son. Duncan’s campaign records do not indicate whether it was Swartwood junior or senior. The donation was sent from an address connected to Swartwood Jr., but neither Swartwood would answer questions about who made the donation when asked by NBC 5 Investigates.

We wanted to ask Larry Duncan how Slater Swartwood Sr., whose family donated so much to Duncan's campaign, ended up making nearly $200,000 from DCS.

For several weeks Duncan did not respond to messages, so we approached him at DCS headquarters and asked him how Swartwood became involved in the land deal.

“I've already made a statement,” Duncan told NBC 5 Investigates.

We asked to see the statement, which he had not provided at that time and asked why he wouldn’t respond to questions multiple times, and each time Duncan uttered the same phrase.

“I already sent a statement,” Duncan answered, repeatedly.

When asked if he took campaign contributions in exchange for actions on contracts, he replied, “I already sent a statement.” When told taxpayers deserved answers to the questions and NBC 5 again asked what was in the statement, Duncan was silent.

After that meeting, Duncan did send a statement that said, "The board approved the final sale-leaseback transaction, but the details were left up to the administration."

What Sale-Leaseback Deal?

At the time of the sale-leaseback deal the DCS administration was run by Superintendent Rick Sorrells. Sorrells did not respond to our phone calls, so we approached him in person and said we’d been trying to reach him.

“Scott, I’m not interested in talking with you,” Sorrells said.

We said we had questions about the sale-leaseback deal and he again said he wasn’t interested in speaking with us. We said we were trying to understand how someone with connections to Force Multiplier Solutions profited from the sale-leaseback and Sorrells referred us to interim Superintendent Leatha Mullins who took over when he stepped down amidst questions about the agency’s finances.

Mullins told NBC 5 Investigates she was unaware of any details of the sale-leaseback until we asked her about it.

“This was brought to my attention by you, so I'm looking into it,” Mullins said.

On Tuesday, a day after NBC 5 Investigates first published this report, Mullins issued the following statement:

"This transaction happened in 2015. I have no knowledge of how it was done or why it was done. We met with the previous state auditor and are working on a plan to make sure that it never happens again. This agency is in turnaround mode and we deserve the chance to do what we do best — taking children to and from school every day. We hope the legislators will give us a chance to do that.”

Campaign Donations, Timing Questioned

NBC 5 consultant Don Southerland, a former FBI agent and forensic auditor who investigates Texas school districts, said after reviewing records related to the deal he was very concerned about the timing of the campaign donations and about why businesses and individuals from Louisiana are making contributions to a local Dallas politician.

Out-of-state donors are allowed to contribute, but Southerland said the question becomes whether any donations were made in exchange for business – a practice that’s not allowed.

“There can't be a tit for tat. There can't be, ‘I'll give you a campaign donation if you use my company to provide services,” Southerland said.

As Dallas County Schools began to sink into financial trouble, NBC 5 Investigates has learned the agency sold taxpayer-owned land to get fast cash. But in return, that land deal has obligated taxpayers to cover a huge long-term price tag.

While Duncan received $245,000 in campaign donations from people connected to Force Multiplier Solutions, he ran unopposed in the last election.

In a statement, Force Multiplier Solutions CEO Robert Leonard said his donations to Duncan had nothing to do with business his company received from DCS.

“We felt it was our responsibility to politically support the program in Dallas and throughout the state. Larry Duncan had a history of supporting child safety and public education. When he asked for contributions and we donated, never for any other reason nor expected anything in return," Leonard said.

In his statement to NBC 5 Investigates, Leonard also acknowledged he had a hand in bringing together the key players involved in the sale-leaseback deal. He said he connected Slater Swartwood with an Illinois leasing company that bought DCS’s bus lots.

Leonard said he knew that company’s CEO from prior business deals and that company even financed some of the bus camera purchases for DCS.

NBC 5 Investigates tried to reach the CEO of that leasing company, but he has not yet responded to our questions.

In his statement Leonard also said that Swartwood first met DCS officials when the camera program began years ago as Swartwood was involved in negotiating another lease deal with the agency. In the early days of the camera program Force Multiplier leased office space in Dallas from DCS.

After that, Leonard said Swartwood saw potential for other business with DCS.

“It is my understanding that he observed some opportunities for DCS to capitalize on assets that he felt might benefit the agency, if reorganized. Independently he worked for over a year looking through different models and created a sale leaseback package that he shopped with multiple financial markets hypothetically without disclosure of any specific client,” Leonard said.

According to Leonard, Swartwood took the proposal to then Superintendent Sorrels who started an RFP (Request for Proposal) process, “without any contractual commitment” to Swartwood.

DCS records show the agency ultimately obtained two bids for the land. NBC 5 Investigates requested copies of both bid proposals from DCS. The Office of the Texas Attorney General recently ruled that DCS must release those records. But DCS has not yet provided the documents to NBC 5.

Consulting Pays

NBC 5 Investigates has learned the land deal wasn't the only time a member of the Swartwood family ended up making money from DCS. Just weeks after the land deal closed in June 2015, Swartwood's son, Slater Swartwood Jr., landed a consulting deal with DCS that paid him more than $160,000.

A contract said DCS paid Swartwood $10,000 a month to consult with DCS on the development and implementation of the school bus camera program.

Swartwood Jr., who used to be a vice president at Force Multiplier Solutions, declined to speak to NBC 5 Investigates on camera. But, in an email, he said: “My responsibility was to educate school districts about the benefits of the much-needed safety program. I am proud that this program has helped make our state safer for school children. From North and Central Texas to San Antonio, school children in Texas are safer because of our efforts."

In an email Duncan said he had no idea Swartwood Jr. was being paid by DCS and said, "The consulting contract was handled by staff and did not require board approval, so we did not know about that contract."

Beyond that statement, Duncan refuses to answer questions and fell back on his previous statement.

“I already sent a statement,” Duncan said.

“Larry, a statement doesn't suffice here. We've got questions, why won't you answer the questions?” NBC 5 asked.

“I already sent a statement,” Duncan said.

After the Deal: More Spending at DCS

While DCS business manager Denise Hickman questioned the wisdom of the sale-leaseback deal, she at least hoped the $25 million in cash DCS received in June 2015 would provide a temporary fix to the agency’s cash flow situation.

But Hickman said to her surprise her bosses kept on spending, purchasing $30 million of new school buses and more bus camera equipment from Force Multiplier Solutions.

Within days of the land deal closing, DCS records show the agency wired another $2.6 million to Force Multiplier Solutions; we have been unable to determine payment was for. NBC 5 Investigates has made an open records request for invoices connected to that wire transfer but DCS has not yet provided the records.

“It concerned me. It really concerned me given the fact that we did not stop our spending,” said Hickman, who added that camera orders kept coming across her desk even after she'd discovered DCS had a warehouse full of cameras on one of the bus lots.

Force Multiplier Solutions said DCS kept buying cameras because they believed they were on the verge of getting more school districts to join the stop-arm camera program.

At a recent hearing with the Texas House Committee on Public Education, a new financial consultant DCS hired acknowledged the agency did not use the sale-leaseback proceeds to pay down debt and instead spent the money on day-to-day operational expenses.

Hickman was pushed out of DCS in the fall of 2016 in the wake of a school bus driver ticket scandal first reported by NBC 5 Investigates. Hundreds of DCS school bus drivers ran red lights and the agency used more than $85,000 of taxpayer money to pay the tickets. The drivers were not punished until NBC 5 Investigates questioned why.

DCS accused Hickman of failing to perform her job duties, an allegation Hickman believes her superiors manufactured in order to make her a scapegoat for the agency’s problems.

DCS later reinstated Hickman and allowed her to retire after she filed what her attorney describes as a whistleblower claim.

Hickman said decisions about how money was spent were made by Sorrels and she only paid bills at his direction.

When Hickman arrived at DCS to work in the accounting department in 2007, she remembers the agency had little debt and millions in the bank.

Just last week, the bond rating agency Moody’s said DCS now has $130.7 million in debt. Moody’s downgraded DCS’ bond rating to a level that is considered “junk bond” status. Moody’s said DCS “will likely default” on some debt payments due on June 1 unless the agency can restructure some of its debts. Moody’s said the issues at DCS were due in part to, “…considerable financial challenges posed by the nonessential school bus stop-arm camera enterprise.”

In January, DCS also revealed it had a $42 million budget deficit because of a revenue shortfall. The agency laid-off about 100 employees and announced it would no longer operate the bus camera program outside of Dallas County.

Internal Investigation

In February, DCS hired former FBI agent Dennis Brady to conduct an internal investigation into whether financial crimes contributed to the money troubles at DCS.

NBC 5 Investigates obtained a copy of an initial report Brady issued earlier this spring.

In the report he writes, “It is likely that this matter, which has received extensive media attention, has already been referred to the Dallas County District Attorney’s Office for potential further investigation.”

The Dallas County DA’s office has declined to comment on the matter.

Brady said his own investigation was ongoing, “but to date has failed to develop evidence of criminal conduct substantial enough to cause DCS a financial problem of this scale.”

At the time, Brady said his investigation going forward would partly focus on, “transactions involving Force Multiplier Solutions.”

NBC 5 Investigates has learned Brady recently submitted an updated investigative report to DCS interim Superintendent Leatha Mullins. However Mullins has declined to release that report, even to her own board members. She maintains the report is in a draft format and that it would not be appropriate to make the findings public.

Force Multiplier Solutions CEO Robert Leonard insists his firm is not to blame for any of the financial problems at DCS. Instead he said the camera program suffered from negative publicity after some state lawmakers questioned DCS spending on the camera program in 2016.

Leonard also told NBC 5 that he believes DCS had a harder time making a run at the camera business because it is a government agency.

“The reason I believe DCS had such a difficult time was that they did not realize that what they thought was an advantage was an albatross at the end of the day. Entrepreneurial companies can give incentives and bonuses over time and have a broader rule book to play from” (than government agencies), Leonard said.

In the fall of 2015, the DCS board implemented a new ethics policy after NBC 5 Investigates first reported that board president Duncan had received more than $245,000 in campaign contributions from people tied to Force Multiplier Solutions.

Texas lawmakers are reacting after NBC 5 Investigates uncovered DCS sold taxpayer-owned land to get fast cash, obligating taxpayers to cover a huge long-term price tag, on the eve of a critical hearing at the state capitol that could determine the fate of DCS.

Duncan Steps Down, Replaced as President

On May 17, two days after this report was first published, longtime Dallas County Schools Board of Trustees President Larry Duncan announced during a scheduled board meeting that he was not seeking reelection as president.

"Obviously, our organization has had a rough six months, and it’s been difficult for many of us. We are so very fortunate to have Leatha Mullins fighting for DCS in Austin. She has been tireless in that effort and she has instituted changes that will make us stronger. It is clear to me now, that we have to make a full commitment to the future because there’s nothing we can do to repair the past. I love this organization with all my heart but I have made a decision not to run for re-election as its president. There is a lot of work to do. I am truly hopeful this will redirect the focus to the work that lies ahead," Duncan said in a statement.

Though he stepped down as president, Duncan remains on the board as a trustee. Following his announcement, the DCS board immediately elected at-large trustee Gloria Levario who then thanked Duncan for his years of service.

That same day, the DCS board also announced that they had secured bond refinancing that will allow them to continue operations.

Texas Lawmakers React

Some Texas lawmakers said Monday the deal raises significant concerns about how DCS has been managing taxpayers' money.

"You know, when I first heard about it I basically said, 'Now why in the world would you do something stupid like that?' Of course the reason it was done is that the agency was in dire straits," said State Sen. Royce West (D-Dallas).

"Now you hear about this land deal and it's just one more thing to be concerned about," said State Rep. Rafael Anchia (D-Dallas).

Anchia said May 15 he believed a majority of lawmakers from the Dallas area are now determined to do something about the problems at DCS in the next two weeks, either by passing that bill or by some other means.

Texas Rep. Lance Gooden (R-Dist. 4) pressed Mullins for answers the day after this report was first published and suggested she contact law enforcement about what NBC 5 Investigates uncovered.

"I would pick up the phone, maybe tomorrow, and call other law enforcement folks tomorrow and ask them to come and do a quick audit ... because this article is very serious and I just can't impress upon that enough," Gooden said.

Mullins responded to questions about the land deal saying, "It is very concerning to us as well. We were not a part of those decision-making processes and the people who were are no longer with our organization.

A day later, NBC 5 Investigates caught up with Mullins who said she did plan to ask for a criminal investigation but had not yet determined who she'd call for help. Mullins has since said she has made a call but has not divulged which agency.

A proposal that could shut down DCS is still working its way through the Texas legislature. If it passes, voters would decide whether to keep DCS open or close the agency, pay off their debts and give the buses to local school districts that could then either run their own transportation programs or contract with another provider.

Since NBC 5 Investigates first looked into DCS in the fall of 2016, nearly the entire management team has been replaced -- including Superintendent Rick Sorrells and Board of Trustees President Larry Duncan (though he remains a trustee). The board has also passed a new ethics policy where trustees must recuse themselves from votes if they received more than $500 from a vendor in that calendar year.

At one recent meeting, since the new policy took effect, Duncan left the meeting when Force Multiplier Solutions was discussed.

DCS: Legislation Will Create Chaos, Cost Increases for Districts

Interim Superintendent Leatha Mullins said in a prepared statement Wednesday that if proposed legislation to dissolve the agency passes it will cost the school districts money while creating chaos for the families who depend on them to get their children to and from school.

In a statement, Mullins said if the agency is shuttered it would cost school districts in Dallas County more than $262 million to provide their own or alternate transportation. Citing a RFP (Request for Proposal) obtained by the Cedar Hill ISD, one of DCS’ smaller clients, it would cost them an additional $900,000 per year for equivalent service from another provider.

Mullins reiterated her frustration with state legislators and the media who continue to investigate the agency's history and financial dealings while saying the agency has truly transformed from what it was just months ago.

“We have met every single demand from the legislature. We have completed an audit, refinanced the bonds, reorganized procedures and there’s a complete team of new leadership including the Board of Trustees. We’ve truly transformed DCS and are moving forward," said Mullins. “We accomplished the impossible with this new team and did everything we were asked to do but we can’t seem to be heard over this runaway freight train.”

Mullins added that she's contacted law enforcement to investigate all of DCS' operations, past and present, and has invited former state auditor John Keel to implement a corrective action plan that includes new policies and procedures to strengthen the operating control environment. Mullins said she's also ordered a forensic audit trail of stop-arm camera contracts and the sale-leaseback of select real estate, the subject of an NBC 5 Investigates special report.

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