CALPERS lawyer delivers report on Board bribery and corruption

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A lawyer hired to investigate bribes and kickbacks at one of the nation’s largest pension funds, the California Public Employees’ Retirement System, said on Monday its former board member Alfred Villalobos, corrupted top officials there and likely cost the fund tens of millions of dollars in extra investment fees.

Independent attorney Philip Khinda reported that Villalobos, a so-called “placement agent,” corrupted five senior CALPERS officials including former CEO Fred Buenrostro, former board members Charles Valdes, Kurato Shimada and Robert Carlson, and former investment officer Leon Shahinian.

Both Villalobos and Buenrostro have been sued by the state’s attorney general and federal prosecutors are conducting their own investigation.

Authorities claim that a handful of investment firms paid Villalobos and his cronies over $50 million in secret fees to help make introductions and convince CALPERS executives to do business with them. Buenrostro attempted to shield Villalobos from legal liability by signing papers saying that CALPERS was aware of the fees that Villalobos was collecting.

In his 56-page report, Khinda said that Villalobos created a perception that investment firms needed to pay for connections to secure business for their firms.  The firms likely inflated their fees they charged CALPERS in order to offset the secret fees paid to Villalobos.

Since the scandal was discovered, Khinda has renegotiated deals with the investment firms that were clients of Villalobos and obtained over $300 million in fee discounts.

In a matter unrelated to the investment firms, Khinda’s report provides details about a $4 million consulting paid to Villalobos by Medco Health Solutions, a New Jersey company that handles the CALPERS employees’ drug benefit plan.

In 2005, when the drug administration contract came up for bidding, a copy of an internal CALPERS report was leaked to Medco that showed that the company was the leading contender for the contract. The contract was worth $8 million annually.

After Medco was awarded the contract, the company began paying Villalobos an additional $20,000 per month in consulting fees until 2009, when the scandal was first reported.

CALPERS has since enacted new rules and reform procedures including a prohibition on the payment of “placement” fees by investment firms.

The Sacramento Bee

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N.J. toll road workers cash in on millions of dollars in bonuses

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Employees at the state’s two major toll roads were paid $9.7 in extra pay last year for unused sick time, vacation time and holiday bonuses, according to an investigative report in the Asbury Park Press.

Last October, state Comptroller A. Matthew Boxer outlined what he called “$43 million in waste” at the agency including extra pay and bonuses to toll collectors and managers. Boxer said during 2008 and 2009, bonuses alone totaled about $30 million.

Despite the state’s fiscal woes and the scathing report, another $700,000 has been paid out since the report was released.

Some of the payments and bonuses were labeled “snow removal” or “holiday” bonuses, although those employees had already been paid overtime for their work on those days.

In over 30 instances, payouts at retirement exceeded the employees’ actual salaries.

In one example, a district equipment manager making $113,414 retired in June with $134,621 in bonus payments, and a retiring crew supervisor making $88,450 took home an extra $122,082 when he left in April. Both men were at the agency for more than 30 years.

Thomas Feeney, a Turnpike Authority spokesman, said most of the payments were for unused sick time, although separation bonuses of $500 to $600 are given for each year of service when employees retire.

“The Christie administration has said it intends to remove payments like that when new contracts are negotiated this year,” Feeney said.

Now that Christie administration has discussed privatizing toll collection in New Jersey, workers are indicating that they might be agreeable to wage concessions in their next contract.

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Indiana Democratic lawmakers flee state to halt action on union rights

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In what seems to be the new strategy by Democrats faced with bills limiting union members’ rights, all but three of the 40 Democratic members of the Indiana House of Representatives have fled the state to avoid having to vote on legislation they consider to be anti-union.

Although the exact whereabouts of the politicians is unknown, sources say they have gone to either Kentucky or Illinois, both states that have a Democratic governor.


Without the lawmakers in attendance in the House, the Democrats have effectively shut down the government process as long as there is not a quorum to conduct legislative sessions.

Sources say that Democrats have presented House Republicans with a list of 11 bills they want dropped before they return to work in the capital.  The most high profile on the list is a measure that would make Indiana a right-to-work state, meaning employees could not be forced by their employer to join a union or pay dues if they so desired.

Other measures included labor and education related bills, and the state budget.

Indiana Gov. Mitch Daniels told the press that he would not send out the state police to round up the AWOL Democrat lawmakers, although he was highly critical of their behavior.

“The House Democrats have shown a complete contempt for the democratic process,” he said in a briefing on Tuesday afternoon. “The way that works-as we all learned in grade school-is that if you seek public office, you come, do your duty, you argue, you debate, you amend if you can, you vote ‘no’ if you feel you should.”

He added, “You don’t walk off the job, take your public paycheck with you, and attempt to bring the whole process to a screeching halt. You know, if they persist, the Democratic Party of Indiana will need a rebranding effort because this is as anti-democratic as behavior can be.”

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Washington lawmakers propose legislation for state workers getting paid twice by taxpayers

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Politicians want to put an end to the loophole that allows state employees to collect both a pension and a paycheck, a highly-charged topic nationwide on pension reform agendas.

A bill introduced Tuesday aims to end the state’s “retire-rehire” policy, by which state employees can “double-dip” and earn both a salary and a pension by going back to work shortly after retirement. The bill is sponsored by Democratic Senate Majority Leader Lisa Brown of Spokane and Republican Senate Minority Leader Mike Hewitt of Walla Walla.

Hewitt says that given the budget crisis and the underfunding of state pension plans, Washington cannot afford to pay these employees twice.

Gov. Chris Gregoire and other lawmakers have proposed closing the loophole.

An investigation by The Seattle Times last year found that 2,000 state employees were collecting both a pension and salary, costing taxpayers about $85 million yearly.

Hewitt’s bill will be heard in the Senate Ways and Means committee.

The Associated Press

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Oakland officials bracing for pension plan funding disaster

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In 1997, then-city officials in Oakland, California had a great idea that would take them off the hook for 15 years of pension contributions for some of its public-employee pension plans. City leaders issued a 15-year bond at a low interest rate, and invested the proceeds to potentially earn a higher rate, using the earnings to pay annual fund contributions.

Now sources say, the investments were poorly managed, and only earned an average of 4 percent annually, instead of the 8 percent that officials expected. Instead of helping its finances, the city owes $46 million that comes due on July 1.

An actuarial study commissioned by City Auditor Courtney Ruby determined that the city lost more than $250 million by issuing the bonds rather than paying the contributions as they became due.

To make matters worse, in addition to the pension bond disaster, the city is also facing a $40 million deficit on its $400 million general fund budget.

While some officials, including Councilman and finance chair Ignacio De La Fuente and City Attorney John Russo, want to rein in spending to make ends meet, others in City Hall prefer to simply issue another bond, and push the problem off for another five years.

According to the San Francisco Chronicle:

Issuing a new pension bond with another five-year holiday could have severe consequences for the future, according to Ruby.

Even if the city gets a 7 percent return on pension fund investments during a five-year holiday, the city would have to pay out $42 million to $28 million a year from the General Fund between 2017 and 2023, according to Ruby’s report. In the last years of paying back the pension bond’s obligations from 2024 to 2026 – half a century after the last eligible employee would have been hired – the city would have to pay more than $150 million per year from the General Fund.

The bonds are tied to a specific city pension plan for police and firefighters with unusually generous provisions – even by today’s standards. It provides that a retiree’s benefits are not tied to their salary when they retired, but to a salary as if they were retiring today.

For example, a police captain who retired in 1975 would receive 68 percent of the pay of a currently employed police captain in 2011- holiday pay and shift adjustments included. Currently, 1125 retirees and beneficiaries are participants in the plan.

Mayor Jean Quan is said to be favoring a plan that would have the city pay only $5 million per year into the plan for the next five years, and then increase payments when its finances are in better shape. However, Russo thinks the figure should be $20 million per year.

“People say, we should be paying this when times are better, but the problem is that when times are better, nobody pays this down,” he said. “If they roll this over again, there is no scenario I can see where they’ll be able to pay this back in 2024.”

San Francisco Chronicle

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Wisconsin Democrats still hiding to evade vote on union reform legislation

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The Wisconsin State Patrol was dispatched Friday to find a Democratic state senator who fled the Capitol to delay the near-certain passage of a bill to end a half-century of collective bargaining rights for public workers, a measure that’s attracted thousands of protesters for four days.

With Democrats saying they won’t return before Saturday, it was unclear when the Senate would be able to begin debating Gov. Scott Walker’s measure meant to ease the state’s budget woes. Democrats who disappeared Thursday at first kept their whereabouts secret, then started to emerge to give interviews and fan the protests.

Senate Republicans convened briefly Friday morning to renew a call to find the Democrats, then recessed. Senate Majority Leader Scott Fitzgerald, R-Juneau, told reporters he has asked the governor to send two state troopers to Senate Democratic Minority Leader Mark Miller’s suburban Madison home. He said he believes Miller may be there – he did not elaborate on why he thought that – and Walker agreed to dispatch the officers.

Early Friday, an Associated Press reporter went to Miller’s home in Monona, but no one answered the door. In an interview on ABC’s “Good Morning America,” Miller said the Democrats “had left the state so we were out of reach of the Wisconsin State Patrol.”

The Wisconsin Constitution prohibits police from arresting state lawmakers while the Legislature is in session, except in cases of felonies, breaches of the peace or treason. Fitzgerald said he’s not looking to have Miller arrested, but he wants to send a signal about how serious things are becoming in the Capitol.

Fitzgerald said he spoke with Miller by phone late Thursday night and asked him to bring his caucus back to Madison for a vote on Friday morning, but Miller refused. Meanwhile, the protests are growing so large that Capitol workers and lawmakers’ staff cannot safely move through the halls, he said.

The situation has become “a powder keg,” he said.

“I’m starting to hold Sen. Miller responsible for this,” Fitzgerald said. “He shut down democracy.”

The protests have attracted teachers, grade school children, college students and other workers over four days. Police report they have been largely peaceful, with only nine people cited for minor acts of civil disobedience as of Thursday night.

While the Senate was paralyzed, the Assembly met briefly on Friday. Speaker Jeff Fitzgerald, R-Horicon, said the Assembly would vote on the bill later in the day after Democrats have had a chance to meet privately.

Assembly Minority Leader Peter Barca vowed to fight to the “bitter end,” in a speech delivered on the Assembly floor after Republicans had turned off the microphones and left.

“This is wrong!” Barca shouted to wild applause from the packed gallery. “Desperately wrong and we will not stand for it!”

Under Walker’s plan, state and local public employees could no longer collectively bargain over any issue except wage increases that are no higher than the Consumer Price Index. It would also make workers pay half the costs of their pensions and at least 12.6 percent of their health care premiums. State employees’ costs would go up by an average of 8 percent. The changes would save the state $30 million by June 30 and $300 million over the next two years to address a $3.6 billion budget shortfall.

Unions could still represent workers, but they could not force employees to pay dues and would have to hold annual votes to stay organized. Local police, firefighters and state troopers would retain their collective bargaining rights.

Several hundred protesters were in the building early Friday and their ranks were growing. Many had spent the night in the Capitol and another large rally was planned around noon.

As many as 25,000 students, teachers and prison guards have turned out at the Capitol this week to protest, standing shoulder-to-shoulder in the building’s hallways, sitting cross-legged across the floor and making it difficult to move from room to room. Some brought along sleeping bags and stayed through the night. Union organizers expected yet more to gather Friday.

The protesters chants of “Kill the Bill!” and “Recall Walker Now!” could be heard throughout the day and long past dark. They beat on drums and carried signs deriding Walker and his plan to end collective bargaining for state, county and local workers, except for police, firefighters and the state patrol.

Hundreds of teachers have joined the protests by calling in sick, forcing school districts – including the state’s largest, Milwaukee Public Schools – to cancel classes.

Some signs seen at the Capitol compared the governor to former Egyptian leader Hosni Mubarak, who stepped down last week after weeks of mass protests against his three-decade rule. On read, “Impeach Scott Mubarak!” and another said, “Walker like an Egyptian.” Others compared to Walker and his supporters to boy wizard Harry Potter’s nemesis and his evil minions, calling them “Governor Voldemort and his DeathEater Legislators.”

Despite the groundswell of support, it seems Democrats are merely delaying the inevitable – Republicans say they have the votes to pass the bill – yet the protesters are undeterred.

“I always expect the worst, but at the least I figure this would lead to such larger strikes that it would be a bad move for Republicans and Scott Walker,” Graupner said.

In an interview with Milwaukee television station WTMJ, President Barack Obama compared Walker’s bill to “an assault on unions.”

Senate Republicans planned to try for a vote again Friday. With 19 seats, they hold a majority in the 33-member chamber, but they are one vote short of the number necessary to conduct business. The GOP needs at least one Democrat to be present before any voting can take place. The measure needs 17 votes to pass.

Speaking on CBS’ “The Early Show” on Friday morning, Walker urged the Democrats to return to Madison and face the vote.

“The state senators who are hiding out down in Illinois should show up for work, have their say, have their vote, add their amendments, but in the end, we’ve got a $3.6 billion budget deficit we’ve got to balance.”

Senate rules and the state constitution say absent members can be compelled to appear, but it does not say how.

“We left the state so we were out of the reach of the Wisconsin state patrol, which has the authority to round us up and bring us back to the legislature,” state Sen. Mark Miller told ABC’s “Good Morning America” from an undisclosed location Friday.

Sen. Tim Cullen said he and other Democrats planned to stage their boycott until Saturday to give the public more time to speak out against the bill.

“The plan is to try and slow this down because it’s an extreme piece of legislation that’s tearing this state apart,” said Sen. Jon Erpenbach, who was with Democratic senators in northern Illinois on Thursday before they dispersed.

Walker, who took office last month, called the boycott a “stunt.” He vowed not to concede.

“It’s more about theatrics than anything else,” Walker said.

Some Democrats elsewhere applauded the developments as a long-awaited sign that their party was fighting back against the Republican wave created by November’s midterm election.

“I am glad to see some Democrats, for a change, with a backbone. I’m really proud to hear that they did that,” said Democratic state Sen. Judy Eason-McIntyre of Oklahoma, another state where Republicans won the governorship in November and also control both legislative chambers.

Thursday’s events were reminiscent of a 2003 dispute in Texas, where Democrats twice fled the state to prevent adoption of a redistricting bill designed to give Republicans more seats in Congress. The bill passed a few months later.

The proposal marks a dramatic shift for Wisconsin, which passed a comprehensive collective bargaining law in 1959 and was the birthplace of the national union representing all non-federal public employees.

In addition to eliminating collective-bargaining rights, the legislation also would make public workers pay half the costs of their pensions and at least 12.6 percent of their health care coverage – increases Walker calls “modest” compared with those in the private sector.

Republican leaders said they expected Wisconsin residents would be pleased with the savings the bill would achieve – $30 million by July 1 and $300 million over the next two years to address a $3.6 billion budget shortfall.

The Associated Press

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Pension perk granted by California legislature, now under fire

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A little-know pension benefit used by tens of thousands of state workers annually, has bubbled up to the top of a list of pension abuses under fire for contributing to a skyrocketing unfunded pension liability.

The benefit, called “air time” allows workers to purchase up to five additional years of fictitious work time, in order to retire early, or receive a larger retirement benefits as if they had worked for a longer period.

The employees pay a fee to purchase the additional years of service, although critics say the amount isn’t enough, especially when a pension fund’s investment earnings are lower than projected – an increasingly common occurrence.

Last September, officials discovered that state actuaries priced the benefit so low, they increased buy-in payments by 17 percent to 38 percent, depending on the job classification.

The Los Angeles Times reports that benefit was bestowed on all state employees in 2003 by the legislature, which was intending to help its own staffers who took time off to run their bosses election campaigns. After then-Gov. Gray Davis vetoed the bill in 2002, lawmakers pushed through legislation the following year, this time making all state workers eligible for the perk.

The unusual benefit does not exist in private businesses with their employees’ retirement plans. Instead, those wishing to do something similar must purchase an annuity, which pays a return of 3 percent, less than half as much as the 7 to 8 percent guaranteed air time benefit provides.

Pension benefits are determined by multiplying a small percentage – usually 1.2 to 3 percent – times the number of years that an employee has worked and applying that percentage against the final year’s income. If an employee’s deal provided for a 2 percent factor, and worked 30 years in government, then a $100,000 final salary would yield a $60,000 annual pension benefit for life.

In an example given by the Times, a 55-year old employee who purchased 5 years of air time for $124,000 would get another $9,840 for life, and break even on the investment at age 67. According to actuarial tables, that employee could expect to live to 83 years if a male, and 86 if a female.

One investment advisor, Scott Hanson of Sacramento-based Hanson McClain, said he almost always advises government workers to purchase the extra years. Even after the recent price increase, “It’s still a tremendous benefit,” he said.

Los Angeles Times

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