From John Curry, June 1, 2008
The Plain Dealer - Cleveland, Ohio
June 8, 2003
Columbus - The State Teachers Retirement System lost 21 percent of its investment assets in the past three years, a total of $12.3 billion
by Stephen Ohlemacher
[Click on photos to enlarge]
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.
The art of renovation
The State Teachers Retirement System spent a total of $869,000 on eight pieces of artwork by Ohio artists for its renovated downtown Columbus office building. The pieces include metal sculptures and wood bas-reliefs.
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, an 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 child-care 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 child-care 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 the 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.
Bonuses defended
The STRS board pays its investment staff and administrators performance-based bonuses each year for meeting certain goals, such as outperforming a stock index. In a down market, the goal for some investors is to not lose as much as a certain index, Dyer said.
The investment staff also is eligible for additional discretionary bonuses distributed from a pool of money generated from investment profits. Dyer said the pool will run out of money after bonuses are paid next month, unless the investment portfolio is profitable this year.
"We did lose some money, obviously, in market value," Dyer said. "But in general, if the staff is able to save you money in a declining period, that's good staff work."
A financial consultant's study of STRS bonuses found that the bonus system is similar to those at other companies. But the 2002 study warned that the system could result in "inappropriate risks" because "there is no downside for under-performing the market."
The study, by Buck Consultants of New York, recommended tying bonuses to the overall performance of the pension fund, rather than investors' individual goals. Dyer said the STRS board plans to adopt some of the consultant's recommendations.
Ohio's four other public employee pension funds offer bonuses to employees, but none are nearly as large as the ones paid by STRS. For example, the Ohio Public Employees Retirement System spent $765,252 on employee bonuses last year, compared with $5.7 million at STRS, according to figures provided by both funds.
The public employees pension fund has more members (797,234), and more assets ($51 billion), than STRS. But it has 168 fewer workers because it contracts with outside managers for more of its investment work. The operating budget for the public employees pension fund was $74.8 million last year, compared with $87.3 million at STRS.
The STRS staff grew in recent years because the pension fund expanded some of its services after it moved into the renovated headquarters, Dyer said. There has been a hiring freeze, except for essential personnel, for 18 months, he said.
Dyer said the building expansion cost more than expected in part because labor and material costs were high in the late 1990s, when the economy was still booming. The building sits on top of a parking garage, which added to the cost, he said.
The Ohio Arts Council has a program called Per Cent for Art, in which the state sets aside 1 percent of the construction budgets of major state projects for artwork. The STRS building did not participate in the program because it was built with money generated by the fund. But the STRS art budget was within the guidelines, Dyer said.
Petro said he had no problem with the art.
"What would ancient Rome have been like without public investment in the arts?" Petro asked.
Scrutiny promised
Deborah Scott, chairwoman of the STRS board, said the board plans to re-examine policies on employee bonuses, but she defended the practice. She also defended board members traveling to out-of-state conferences, noting that all the elected members are either active teachers or retirees who don't have much formal training in investments. Scott spent a total of $40,500 on travel expenses the past three years, according to STRS documents.
"First of all, you learn what's going on at other systems, you learn what type of issues they're dealing with," said Scott, a first- grade teacher in Finneytown local schools near Cincinnati. "We're schoolteachers. We don't have degrees from business schools."
Dyer defended Sidaway's travel expenses, noting that she had served as chairwoman and vice chairwoman of the STRS board in the past three years, and was expected to attend many events.
Nearly 40 percent of her $61,400 in expenses were for travel and lodging for board meetings in Columbus, he said.
Steven Puckett, who is Zelman's designee on the board, said board members need training, but more of it should be done in Ohio.
State Sen. Lynn Wachtmann, chairman of the Ohio Retirement Study Council, said he plans to question STRS officials about their spending practices at an upcoming meeting of the council.
"Maybe they should run things a little leaner and meaner over there and be a little more reflective of their membership," said Wachtmann, a northwest Ohio Republican.
"I'm not saying that what they are doing is wrong, but I'm going to raise the question," he said. "I think we can put political pressure on them if we feel that's appropriate."
PHOTOGRAPHS BY WILL SHILLING SPECIAL TO THE PLAIN DEALER [Since the original photos accompanying the article are no longer available, I'm using some I took in May, 2008. KBB] $94 million: The pension fund completed the expansion of the seven- story office building in 1999. Photo $100,000: "Integrity," a metal sculpture by Stephen Canneto, adorns the area outside the sixth- floor board room. Photo $378,500: "A Whole Morning World" [should be "A Whole World Mourning" KBB] by Larry Kirkland, a series of colorful painted aluminum tubes shaped like birds, hangs from the seventh-floor atrium. [When a breeze comes through the atrium, sometimes some of the pipes strike each other and sound like wind chimes. KBB]
Labels: bonuses, Deb Scott, Dennis Leone, Dennis Leone's 5/16/03 investigative report, Flashback, Hazel Sidaway, Herb Dyer, Jack Chapman, Jim Petro, Stephen Ohlemacher, STRS
$80! Or...if you are just too old to play you can just sit on the sidelines and watch. Heck, ...you can even volunteer yourself to be the can, can't you? If you stand silent on this issue....you deserve to be the can! Isn't it about time to become vocal and open up a can for your friendly local legislator who just doesn't want to talk about HB 315? 
$80! Or...if you are just too old to play you can just sit on the sidelines and watch. Heck, ...you can even volunteer yourself to be the can, can't you? If you stand silent on this issue....you deserve to be the can! Isn't it about time to become vocal and open up a can for your friendly local legislator who just doesn't want to talk about HB 315? 
