History lesson for newbies: Steve Ohlemacher's exposé of piled-high-and-deep corruption at 'our' STRS; Cleveland Plain Dealer, June 8, 2003

The Plain Dealer

Sunday, June 8, 2003

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Teacher pension losses don’t stop spending

Educators and officials question big bonuses for fund employees

Stephen Ohlemacher

Plain Dealer Bureau

Columbus – The State Teachers Retirement System lost 21 percent of its investment assets in the past three years, a total of $12.3 billion.

Despite the losses, employees of the public pension fund got a total of $14 million in bonuses during the decline.

In 2001, STRS handed out a total of $6.1 million in bonuses to 345 employees, according to STRS documents. One employee’s base salary of $164,000 was bumped to $342,880.

It was the same year the fund lost 5.66 percent of its assets, more than any of the four other public employee pension funds in Ohio, according to the Ohio Retirement Study Council, which oversees the funds.

A lot of pension funds lost big money while the stock market plummeted.

But STRS spending practices – and the fallout from lost investments – have sparked outrage among some of the 424,171 teachers and retirees in the system.

The fund now stands at $46.5 billion, after peaking at $58.8 billion in August 2000.

“They are spending in a manner that is completely foreign to their members, and the employers that send them dollars,” said Dennis Leone, superintendent of Chillicothe schools in southern Ohio.

Leone has documented many of the STRS board’s spending practices and shared them with teachers, retirees and public officials across the state.

The revelations came as retirees learned their health insurance premiums will soon double, and their benefits will be cut.

The spending includes a $94.2 million office building adorned with $869,000 in artwork, generous fringe benefits for STRS employees, and frequent out-of-state travel for pension board members.

STRS also is getting criticism from unlikely sources: two public officials who sit on the nine-member board that controls the pension fund.

Ohio Attorney General Jim Petro and Susan Tave Zelman, state superintendent of public instruction, said STRS spending has been excessive.

Both have been on the board for years. Both promised to be more diligent in monitoring the fund in the future.

“At a time when there are shrinking resources, you don’t give bonuses,” said Zelman, a board member since 1999.

“When times are good people tend not to look at these things,” she said. “You can rest assured, now I’m going to be more aggressive in looking for ways to have a more efficient system.”

Petro said he is a big supporter of performance bonuses. But, he said, the STRS bonuses appear to be out of line, considering the fund was losing billions of dollars a year.

“If school districts, especially in financially tough times, would have been as extravagant as STRS has been, we’d have spanked them even harder,” said Petro, who often criticized the spending policies of school districts when he was state auditor.

“I think there have been occasions when we’ve been brilliant in our advocacy for accountability, and there’s been other occasions where we’ve probably not been as aggressive as we should be,” said Petro, and eight-year member of the STRS board.

A third board member, state Auditor Betty Montgomery, defended STRS spending policies, though she said they should be reviewed.

“If you kept them on public employee salaries alone, you would not be able to attract or keep the quality investment managers that keep our fund growing,” said Montgomery, also an eight-year member of the board.

STRS Executive Director Herb Dyer said the pension board is simply trying to recruit and keep good investment staff in a competitive profession that pays well and offers good benefits.

“I appreciate that people who don’t do that kind of work for a living might not understand it, but that’s the reality of the professionalism involved,” Dyer said.

Teachers take a hit

The investment losses, combined with increasing health-care costs, are proving expensive for teachers and retirees. In July, teachers will have to start contributing a larger percentage of their pay to the retirement system, an increase from 9.3 percent to 10 percent. In January, health insurance premiums for retirees are scheduled to double. Insurance co-pays will increase, and benefits will be cut.

Teachers contributed $827 million to the retirement system last year. Their employers – mostly school districts spending taxpayer money – contribute 14 percent of teacher payroll, a total of $1.2 billion last year.

Some teachers complained that STRS spending hasn’t reflected the financial problems of the pension fund.

The STRS board completed a $94.2 million expansion of its office building in downtown Columbus in 1999. The seven-story building is decorated with eight pieces of artwork, all by Ohio artists, Dyer said.

The $869,000 art budget follows guidelines for state buildings, but some of the price tags have angered school officials, nonetheless.

One piece, called “A Whole Morning World,” is a series of painted metal tubes shaped like birds hanging from the seventh-floor atrium. The cost: $378,500.

Another sculpture, called “Integrity,” cost $100,000.

The building also has a childcare center that cost $818,000 and a $426,000 fitness center, according to STRS documents. In 2002, the pension board paid $487,748 to subsidize the childcare center so employees could get discounted rates for their children. Workers with family incomes of up to $66,000 are eligible for subsidies.

“I’m all for working mothers, and I certainly support day care,” Zelman said. “But I don’t think that STRS finances should be subsidizing STRS child care.”

The number of people working at STRS has increased nearly 42 percent since 1998, from 499 to 707. The pension board added 137 new positions in fiscal 2001, including 69 administrators, according to STRS documents.

The lost investments haven’t slowed the travel of board members, who have flown to conferences in Hawaii and Alaska, among other places. The STRS board spent an average of nearly $174,000 a year the past three years on travel, according to STRS documents. The biggest spender was board member Hazel Sidaway, a teacher from Canton who spent a total of $61,400 for travel the past three years. Board member Jack Chapman, a teacher from Reynoldsburg, came in second at $52,600.

“When your assets are declining, you don’t spend money like that,” said Marianna Lijoi, a teacher in Eastlake. “That is not their money to spend frivolously. That money is for teachers’ retirement.”

Susan Jacoby, a retired teacher from Canton, said, “They have spent our money like it belongs to them.”

The STRS board is made up of six members (five teachers and a retiree) elected by the active and retired teachers, and three state officials who serve as part of their jobs.

The elected members are paid expenses, but not a salary. The public officials designate members of their staffs to attend board meetings.

The board approves STRS policies and votes on an annual budget. The executive director is responsible for the day-to-day operations.