KOCE - The Good, the Bad and the Ugly

By David L. Boyd

The actions of the Trustees have given us no choice but to sell KOCE.

While I want to emphasize solutions and not dwell on the past mistakes of the Board, some history is necessary to understand how the actions of some Trustees have put us in this position. With apologies to the memory of Sergio Leone, set forth below are the undisputed facts that make this alternative necessary.

In 2002 the Board of Trustees decided that due to financial reasons it was in the best interests of the District to sell television station KOCE. Trustees George Brown and Jerry Patterson were appointed to a committee to begin negotiations with the KOCE Foundation. (The Board of Directors of the KOCE Foundation is comprised of many of the elite business and political leaders of Orange County. These are good folks who happen to be on the wrong side of this crisis.)

By 2003, the Board had established a deadline of October 8, 2003 for interested parties to submit bids. Under California law, bids for this type of District property must be in cash.

Most public comments on the possible sale were heard by the Board on August 20, 2003. Trustees Brown and Patterson could not agree on a single report so they each issued a separate report which was included in the official minutes of the meeting. Trustee Patterson wrote the District should not sell "to the highest monetary bidder which would be a televangelist broadcaster."

By October 8, 2003, it was clear that there were only two qualified bidders, the KOCE Foundation and an organization known as Word of God Fellowship, also known as Daystar Television Network. By this date, the KOCE Foundation had bid $32 million with payment terms consisting of $8 million cash and a ten year or longer note calling for an interest rate that approached market rates. Daystar bid $25.1 million cash.

On October 9, 2003, Daystar increased its bid to $40 million cash.

On October 15, 2003, the Board of Trustees ignored the $40 million Daystar claiming it was not timely. (While technically true, the Board could have re-opened the bidding and accepted the bid at a later date.)

On December 10, 2003 the Board of Trustees formally accepted the offer from the KOCE Foundation.

In response to the improper actions of the Trustees, Daystar subsequently filed lawsuits in both California and Federal courts.

The California Court of Appeal found in its written decision that the reason a $40 million bid was rejected was because "it came from a group of televangelists. Indeed, there is a smoking gun in the record in the form of a statement by one of the district's sales brokers to the effect that the district's trustees were bound and determined from the beginning to `filter out any televangelists, whom the trustees foresaw would be making the highest bid." (This is a direct quote from the court's written opinion.)

However, in the period of October through December 2003 more problems arose when the KOCE Foundation could not perform its obligations. The terms were changed so that instead of an interest bearing note of $24 million, the Trustees only required a noninterest bearing note of $17.5 million. Moreover, no payments were due for the first five years of the loan. Further after the first five years payments did not need to exceed $500,000 per year. And on top of all that, the KOCE Foundation was to be credited (i.e. the purchase price would be reduced) for $2.5 million in so called "programming and services to be received over 7 years and credited another $4 million for something called "Estimated Avoided Costs."

Daystar believes that the process was fixed from the beginning. And the California Court of Appeals agreed, writing that "To assert that a bid from televangelists made the very next day after bidding closed for an extra $15 million in cash in cash while letting a favor bidder off the hook for $4 million two months after the bidding was closed can only be described as the rankest sort of favoritism." (Again I'm quoting directly from the official court opinion.)

The Court of Appeal voided the sale. Now the Trustees must decide the next course of action.

Daystar has filed a separate religious discrimination suit in the Federal Courts which is pending. Given the fact that the Court of Appeals view that Daystar found a "smoking gun" supporting religious discrimination, the ramifications to the District could be disastrous.

This unanimous opinion and ruling did not come from some type of rogue court. It was written by Presiding Justice David Sills with Justices Richard Aronson and Raymond Ikola concurring. All are long-time Orange County residents and community leaders.

It's disappointing that elected officials would be associated with such illegal actions. But these are the facts and the District, faculty and students must live with the consequences.

OK. I've laid out the facts that find us in this debacle. What's the situation now and what should we do next?

THE GOOD

Daystar has made recent settlement offers which indicate their desire to resolve all issues and become a good Orange County citizen.

For the record, I have always been a supporter of public television going back to the early days of Masterpiece Theater, American Experience, and Frontline. My family has even been among the small percentage of viewers who have actually written a check in support of public broadcasting.

But regardless of what happens to KOCE, Orange County is in NO DANGER OF LOSING PUBLIC BROADCASTING.

"Save Public Broadcasting in Orange County." This will likely be the public plea of the KOCE Foundation as the November election draws near. On my cable system today I have four PBS stations, KOCE, KLCS, KCET, and KCET-HD. All offer virtually identical PBS programming. The loss of KOCE as a PBS affiliate would have virtually no impact on the ability of Orange County residents to enjoy PBS programming.

People also tell me that we need local programming - and I agree. Both KCET and KLCS and have stated a desire to provide local programming to the Orange County market in the event KOCE surrenders its PBS affiliation. This makes perfect business sense to them since they would benefit from the affluent Orange County contributor base.

In addition to continued PBS local programming, Daystar has offered in writing to continue local programming on KOCE if they assumed ownership. Therefore a settlement with Daystar could actually result in increased local programming.

THE BAD

Now for the bad news.

The Trustees have spent over a million dollars in attorney fees and have lost every significant court decision. (These are costs that will never be recovered regardless of the ultimate outcome.) Yes, the Trustees have lost and, in the opinion of every legal expert I know who has read the court decisions, will continue to lose. The Court of Appeals even listed multiple reasons why the Trustees lost. Excessive appeals will only result in more costs and could cause Daystar to take a more hard nosed position. Every time the Trustees lose a court decision, the District loses negotiating leverage.

THE UGLY

And it could get very, very ugly.

If Daystar prevails in it's religious discrimination case -a very likely outcome given the comments of the Court of Appeal - how would their damages be measured? A reasonable measurement of compensatory damages could be the difference between the $25.1 million dollar offer Daystar made in 2003 and the fair market value of the station today. This could exceed $15 million. And since punitive damages are often a multiple of compensatory damages the total judgment could very likely be in the $45 to $60 million dollar range.

A worst case scenario would find the Colleges financially insolvent and losing accreditation. (For anyone who believes this could not occur, I suggest researching the demise of Compton Community College this year.)

In 1994 a fellow CPA and political outsider by the name of John Moorlach ran against the well-respected incumbent, Robert Citron, for Orange County Treasurer. Moorlach warned of the risks associated with the investment strategy employed by Citron. But he was largely ignored by the voters and Citron was easily re-elected. A few months later Orange County made worldwide headlines when it filed for bankruptcy. Moorlach received his recognition when he was appointed to the position after Citron's resignation. But by then Orange County and numerous Orange County cities had lost billions.

Don't wait for another economic disaster. I'm asking for your vote now.