Editorial: Trust but verify
School board regroups after CASA mess
The Sacramento Bee, October 2, 2004

LINK

On any elected school board, citizen members must rely on professional staff to advise them.
On rare occasions, that confidence is abused and an elected board finds itself having to repair damage to public trust and finances. That happened in the Sacramento City Unified School District.

The chief financial officer, superintendent and legal counsel - no longer with the school district - promoted a retirement scheme they called the California Administrative Services Authority (CASA) as an alternative to the California Public Employees' Retirement System (CalPERS).

After independent auditors told board members the scheme was of questionable legality and would not be cost-neutral, board members took the right steps to remedy the situation. They severed the district's tie to CASA and went to court to extricate the district financially.

Following Sacramento County grand jury recommendations, board members also approved a new system of checks and balances so future school boards will be less likely to be misled by staff.

The changes will separate duties and require independent advice. There will be a new division of financial duties so the CFO doesn't control a disproportionate number of departments (budget, accounting, payroll and personnel departments will be handled by other departments); new supervision so the district's internal auditor reports to the superintendent and school board, not to the CFO; new audit and budget subcommittees; and a new citizens' advisory council to make recommendations on executive compensation.

These measures are appropriately going forward.

But board members cannot wish the past away. They have to live with the fact that certain staff used their official positions to influence decisions to their own financial benefit, abusing the trust of the school board.

That said, an anonymous piece of campaign literature is circulating; it accuses five board members of corruption, fraud and payoffs, and it is way out of line. The board members may may be accused of being overly trusting, but they ought not be blamed for the misleading, inaccurate information that staff professionals provided them.

For example, we take board members at their word when they tell the grand jury they were "never informed" of the magnitude of certain compensation increases granted to the former superintendent, CFO and legal counsel. These individuals received 10 additional years of service credit toward retirement - now described by the school district as "illegal, unconstitutional and unintended gifts of public funds." In another example, staff memos told the board that all costs associated with a $6.5 million pension obligation bond (which turns out to have been unnecessary) would be covered by funds the district already was paying to the existing retirement plan.

The school board is doing the right things to fix this mess. What has been missing, however, is any accountability on the part of the individuals who misled the board. Sacramento County District Attorney Jan Scully and Yolo County District Attorney David C. Henderson are shirking their duty if they fail to investigate the four who promoted the scheme and determine whether there is probable cause to indict for specific crimes.

Background:

Sac City orders audit of its pension system
By Dorothy Korber, Bee Staff Writer, September 17, 2003

Citing an urgent need for straight answers, the Sacramento City Unified School District board voted unanimously Monday night to contract for a rigorous audit of CASA, its controversial pension system.
The $40,000 audit will be completed by mid-November, said Fred Forrer, a senior partner in the consulting firm that will conduct the investigation.

"I want to be sure you get the most cooperation from the district as possible," Board President Rob Fong told Forrer. "I want to be sure that this is as transparent as possible."
The decision drew applause from the audience at Monday's special school board meeting.

"Thank you for being willing to examine CASA, to be sure that the people's money isn't given away," said David DeLuz, president of the Sacramento NAACP.

CASA is the acronym of the California Administrative Service Authority, a joint powers authority between the Sacramento district and the Yolo County Office of Education. It was created by the district three years ago to provide an alternative retirement system for 100 nonunion employees, including former Superintendent Jim Sweeney.

Critics contend CASA was created primarily to enrich the pensions of top administrators such as Sweeney, who retired June 30, and the district's chief financial officer, Laura Bruno, who retired Dec. 31. Both left with pensions far exceeding benefits paid by the two state-run pension systems.

Bruno, who is now CASA's unpaid executive director, contends that CASA costs the school district no more than participation in the California Public Employees' Retirement System. But Cal-PERS itself has disputed CASA's legitimacy, suggesting the cash-strapped school district could be liable if CASA proves invalid.

That possibility, coupled with concerns raised by community members, propelled the school board into its decision Monday to hire MGT of America to examine CASA's financial and programmatic validity.

MGT, with offices in Sacramento and several other state capitals, is a national management consulting firm with a long string of California clients. For this audit, its lead investigator will be Forrer, formerly special assistant to the California State Auditor.

"We've put together a team that can hit the ground running in this very tight time frame," Forrer told the board.

In another action Monday, the school board voted to rescind a previous vote, taken during a closed session in June, that would have permitted Sweeney to add $43,000 of unpaid vacation to his annual salary.

Sweeney requested the action but eventually decided to cash out his vacation pay and not add it to his salary.

Despite that, Fong said the board needed to nullify the earlier vote, since it was improperly taken during a closed session.

Members of the public chided the board for voting in secret.

"What has riled the folks most is that you didn't do it in public," said Arnulfo Hernandez Jr. "That is a big issue."

The CASA items were late additions to Monday's agenda, although the elite pension system has drawn the ire of district labor unions since it started in 2000.

Except for Sweeney, all 110 CASA members were formerly part of CalPERS, where they were required to participate in Social Security.

As CASA participants, however, they are exempt from Social Security. CASA plows the money that would have gone to Social Security back into its own plan, enriching the retirement benefits for its members. As a result, CASA rewards its members with higher pensions based on age than CalPERS can offer. CASA also promises a higher cost-of-living adjustment each year than the big state retirement system.

Three of the district's top administrators crafted even richer benefits for themselves through CASA, documents show.

Days before CASA was launched in 2000, Sweeney, Bruno and general counsel Martin Fine were granted additional "enhancements" by the school board. They were permitted to roll their mileage and expenses into their salaries.

But, most significantly, they were each given 10 additional years of service credit at no cost to them. Pension experts say such an action is extraordinary.

The Bee's Dorothy Korber can be reached at (916) 321-1061 or dkorber@sacbee.com.