Saturday, September 02, 2006

Two retired superintendents speak out re: Damon's letter

From Nancy Hamant, Sat., Sept. 2, 2006
Dennis Leone responds to Ralph Roshong regarding Mr. Roshong's thoughts on Damon Asbury's recent STRS email publication. Mr. Roshong hit the nail on the head!
Nancy Hamant
From Dennis Leone, Saturday, Sept. 2, 2006
Nancy -- I saw your reaction to Damon's statement. I also received a call from a retired supt named Ralph Roshong about the same statement. Ralph wanted me to read his reaction letter, which I did as well. I wrote Ralph a few minutes ago, and provided some of my reactions to the concerns you have raised. See below:
Dennis Leone
From: Dennis Leone
To: Ralph Roshong
Date: Saturday, September 02, 2006
Subject: Re: Response to Damon

Ralph -- just got home and heard your message. I read your letter below, and the first time, I read Damon's memo. A few reactions: On the last point, Damon will say that he DID receive board approval to pay the fees. The truth is, however, that he says (and I completely disagree) that a board consensus gave him permission in executive session. As you know, no board vote can be taken in executive session, so Damon determined on his own that since Leone and Lazares were the only board members expressing opposition, he must have had board support. The whole process stinks.
He speaks of some rumor that retirees apparently believe STRS is paying the legal fees of staff members who have been charged. No such rumor exists, because no staff member HAS been charged (not yet). The incredible irony of this whole thing is the fact that the 3 staff members secured their own lawyers for advice because they were worried they MIGHT be charged. In other words, HAD they been charged, STRS could NOT have paid for their legal fees. So how in the world should STRS pay for legal advice they could have received for free when they WEREN'T charged?
Regarding the head hunter hired.........Remember: In May, the board rejected 8-2 a motion by me that would have prohibited any board action on such a contract unless that board first had the contract in hand to know what the heck we were voting on. True to form, the board approved the expenditure in August without having any real idea what we are getting for the $315,000 sticker shock. This is the REAL issue in my mind..........Damon making recommendations and my fellow board members swifly agreeing -- feeling like "the more they know, the more they may be become personally liable. This produces rubber stamp votes with little investigation.
Have a great trip to Alaska. I may go nuts before my 4-year board term in over. You and I, as supts, would have been run out of town long ago for doing what the STRS executive director and the STRS Board have done.
Dennis Leone
Ralph and Lynda Roshong
Sandusky, OH
September 2, 2006
Dr. Damon Asbury
Executive Director STRS
Columbus, OH
Dear Dr. Asbury,
I am writing in response to your email of September 1, 2006 concerning:
1. expenditure of operating funds
2. cap on discretionary spending
3. hiring of a head hunting firm and associated cost
4. reimbursement of personal legal fees
Regarding topic #1, yes, all we retirees “expect the Retirement Board and staff to be prudent managers of system funds”, I don’t think this is any surprise. The surprise has been the lack of that ethic on the part of the Board and Administration over the previous years. This is duly noted in the “reductions in expenditures” over the last two budgets when official’s feet were put to the fire of accountability. If I am not mistaken, you were also part of the culture under Herb Dyer who allowed us to get in the fat condition from which we have now been getting back to a degree of fiscal sanity. Thanks for overseeing this progress.
Regarding topic #2, thank goodness the Board was able to put a $100,000 cap on your discretionary spending. I fail to understand why it was so high. It is amazing what a little sunshine does for producing questions on the relative need for most big ticket items. It also adds some worthwhile incite into whether the expenditure is being made wisely from many facets.
Regarding topic #3, most definitely, $315,000 was “sticker shock”. These top four candidates will evidently be miracle producers at the rate of $75,000 per person. I certainly hope your wisdom is correct. We certainly will expect fantastic results at this cost.
Regarding topic #4, no personal legal costs should have been paid or recommended to be paid unless you had sought and received prior approval to do so. Those persons should have used STRS attorneys from the start and if they did not like that, they were on their own. It is highly confusing that after approving those fees, the Board shut off the spigot. These personal legals fees should not have been paid by STRS.
I and other retirees do thank you for your newsletter with your perspectives. It was not too long. Please remember as you work in a world of billions, that $1,000 is a very large sum to your constituents and deserves every consideration of fiscal responsibility.
Ralph Roshong

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Shirlee Zerkel: A few words for Damon

From Shirlee Zerkel, Sept. 2, 2006
Mr. Asbury:
I do have a continued interest in the pension system because I am a retired member who found out in 2003 that all was not well with the system. Many abuses were uncovered, and some positive changes did occur. The positive changes that you mention in the first page of your message have only happened because Dennis Leone, John Lazares and many CORE members forced those changes.
The feeling of entitlement still reigns at STRS. This is evident at almost every STRS meeting especially when members address the board and they are ignored, some never receiving any answer at all, and when two members of the board are treated by the rest of the board as if they are not equal members of that board. That is just because these two members take their position seriously and honestly and do not rubber stamp all STRS suggestions. I also believe the entitlement culture still exists because of recent decisions that you discuss in the message to members that I found on my computer Friday afternoon.
Your message sickened me. I find it alarming that you are trying to confuse other STRS members as to what really happened in the past month concerning two decisions; yes, I did say two of your decisions as Executive Director. You had already signed the contract with the hiring firm and already paid some of those legal fees before consulting the board. Probably most of the board then felt that they had to agree with what was already partly done. No, they did not have to agree and should not have agreed but that was the easiest way to go.
You used one half of your message to set the scene to convince members that STRS is always correct and prudent, then you talked around the two issues that have been recently questioned.
Let's look at your fourth paragraph. Yes, I know that the board authorized the hiring of additional real estate employees in May, but at that time there was no mention of the $315,000 fee to another firm to find these employees for STRS. In June when the Board approved the new procedure that any expenditure over $100,000 had to go for board approval first, you knew then that you had to move fast on hiring this firm. I understand that you signed a contract with this company for this amount. Contracts are binding and you knew that so you spent $315,000 without prior Board approval. Shame on you when you knew that in a few short weeks you would not be able to sign on that big of a contract without the board first voting. That was just one of the expenditures that you decided to cement into reality by starting the process before the Board was informed.
The second expenditure was much smaller in nature but even more sickening! You had already paid two staff members' private legal fees for attorneys hired by staff who had been asked by the OEC and prosecutor's office to testify. If the lawyers were just to help them prepare to testify, why did they not avail themselves of the STRS legal staff. I see no monitoring of expenditures by staff to reduce costs here as you state in paragraph three of your message. This was not brought to the board until after payment for two of the staff members. and then you asked to board to ok those along with a possible additional $6,000 to another staff member. These legal fees were then listed in your 2 month expenditure list and the entire list was voted on in the public meeting. How sneaky! Please tell me how this meets the fiduciary responsibilities of ORC 3307.15? The ORC is the law not just a suggestion or guideline that you only have to follow if it meets your desires.
Your actions speak louder than words. In one session of the August meeting, the rates of health care premiums for members were raised and less than an hour later, you asked the board to approve hiring the firm to find real estate employees. No cost seems too high when it concerns vendors or staff, but when it concerns us, the retirees, everything and anything is too high. Then in executive session you were asking the board to ok what you had already paid in private staff legal fees plus a possible third one. Your loyalties lie with your staff and not the educators who made your position as Executive Director possible. Educators are the reasons STRS exists. Please remember ORC 3307.15 in your decisions. STRS is there on behalf of the teachers not the staff. Those staff member have a paycheck because of us!
I apologize for the bluntness of this message, but you have invited us to share with you our opinions and this is my very straightforward view.
Shirlee Zerkel
STRS retiree
OEA AND NEA life member
Proud CORE member

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Nancy Hamant: Comments on Damon's message

From Nancy Hamant, Sept. 2, 2006
Please read the following "official" email from Dr. Asbury, Executive Director of STRS. In it, Dr. Asbury defends STRS's payment of $315,000 to real estate "headhunters" and the payment of "private legal fees" for STRS staff members. To me, it appears Dr. Asbury is using the STRS "bully-pulpit" to explain STRS expenditures that are now being brought to the attention of all STRS members due to recent STRS Board action that requires all expenditures over $100,000 to receive STRS Board approval.
I also find it interesting that nowhere in the email does Dr. Asbury mention the TOTAL STRS annual budget for administration of the STRS fund. At one time, I thought it was stated that the annual amount for administration was approximately 2% of the total STRS funds--which means about $1.2 Billion per year. That amount of money certainly needs oversight and scrutiny and provides perspective to the amount that Dr. Asbury stated regarding budget reductions in the past two years.

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Friday, September 01, 2006

Columbus Dispatch: OEA Avoids Strike by Its Own Workers

Teachers union avoids strike from own workers
The Columbus Dispatch
Friday, September 1, 2006

A labor organization that represents Ohio's teachers averted a strike from its own staff workers' union last night.

The Ohio Professional Staff Union, which represents office workers for the Ohio Education Association, reached a tentative agreement with the OEA, the state's largest teachers' union, officials said.

"As a result of that, there will be no strike tomorrow," Norm Young, president of the Professional Staff Union, said last night.

Young refused to release details of the three-year agreement, which still must be ratified by the union's 106 members in a vote on Sept. 11.

An outline of the accord's provisions received overwhelming support from more than 90 members at a union meeting last night, Young said.

Earlier in the day, union members had picketed and were planning to strike at 12:01 a.m. today, when their six-year contract expired. But a federal mediator who had been called in was "very helpful" in resolving differences, Young said.

"It is very encouraging that we had a lot of constructive discussion and a lot of hard work by both parties," Ohio Education Association spokesman Michael Mahoney said.

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A few words from Damon

From Damon Asbury, Sept. 1, 2006
Message From the Executive Director
In talking with STRS Ohio members during my time as executive director, I have learned that you expect the Retirement Board and staff to be prudent managers of system funds -- whether in the allocation of our investments, the administration of our benefits or the day-to-day operation of the organization.
It is this latter topic, the expenditure of operating funds, which I would like to address in this message. The Retirement Board and staff have worked together to significantly reduce system expenditures. In our newsletters, we have shared with you that the current operating budget for this fiscal year is 7.1% lower than the peak budget for the
2002-2003 fiscal year. Over the past three years, we have reduced staff and board travel, as well as expenditures in such areas as staff benefits, communications, utilities, and professional and technical services. Staffing levels have also been reduced by more than 100 associates to a current level of 628 staff members.
When we develop each year's operating budget, STRS Ohio staff members look carefully at every line item and prepare a thorough and detailed analysis of their planned expenditures for the coming year. Before this budget is adopted, it is reviewed not only by the Retirement Board, but also by the Ohio Retirement Study Council. But the "budgeting" process doesn't stop there. Throughout the year, STRS Ohio staff constantly monitor expenditures and continue to implement steps to reduce costs. As a result, last year's operating expenditures were actually $4.9 million less than what was originally budgeted. The previous year, actual operating costs came in $6.8 million lower than budgeted. In short, the prudent management of system funds is not confined to just a few short months each year -- it is part and parcel of the daily decision-making our associates undertake to make system operations as lean as possible without jeopardizing delivery of pension benefits and services and health care coverage to members; adversely impacting investment operations; or failing to meet fiduciary responsibilities or legal requirements.
At the June 2006 meeting, the Retirement Board approved a new procedure that requires all administrative and/or project-based operating expenditures of $100,000 or more be approved by a formal vote of the board prior to payment. This action put an additional procedure in place for board oversight, but as noted above, it is by no means the only procedure to control system expenditures. For example, in addition to the budget approval process that occurs each spring, STRS Ohio's own internal auditors, who report directly to the board, regularly test administrative expenditures for compliance with Board and administrative policies. Their findings are reported to the Retirement Board Audit Committee, whose membership is currently Conni Ramser, Geoffrey Meyers and Dennis Leone. In addition, during their annual audit of financial statements, auditors appointed by the Ohio Auditor of State randomly select administrative expenditures to test whether the payments are in accordance with legal requirements and Board Policies. Their findings are also reported to the Retirement Board Audit Committee.
At the August Retirement Board meeting, we put this new procedure in place for the first time. In the list of expenditures of $100,000 or more I presented to the board for its approval was the projected payment of $135,000, as a portion of a total fee of $315,000, to a firm to direct the recruitment and hiring of four real estate professionals for our Investment Department.
In talking to some of our members, I can certainly appreciate the "sticker shock" that accompanies a fee such as this. We did attempt to fill these positions using our own Human Resources staff. Unfortunately, the caliber of the applications received did not meet the job specifications.
STRS Ohio's real estate assets, which currently total about $5 billion, are largely managed internally by STRS Ohio staff. Over the past 10 years, the returns from this asset class have exceeded the performance benchmark with a return of approximately 14%. To put this in perspective, for the 2005-2006 fiscal year alone real estate associates added value of $300 million over the benchmark.
During the past four years, the real estate department has experienced a net loss of 16 staff members, who were not replaced. Now, as our investment plan calls for additional allocations to real estate, we face a critical need to add four additional senior-level people at a time when the market for such individuals is very competitive. Four separate recruiting firms were interviewed; the one chosen had the lowest fee. This firm is well known in the real estate industry and has the recruiting expertise with this select group of applicants that we do not possess in-house, and can secure candidates that may not be actively in the job market. This year alone, the firm has recruited and placed more than 200 real estate professionals. The $315,000 is a capped cost and enables us to hire four qualified real estate professionals in a timely fashion. In addition, the firm has agreed to let us fill any other vacancies that might occur within the next 18-month period at no additional cost by drawing from the pool of candidates identified by this firm. Yes, the fee is large, but the return from real estate investments is far greater. Hiring lesser-qualified staff or delaying the hiring process has even greater potential costs to the fund.
During its August meeting, the board also discussed reimbursements of legal expenses specific to individual board and staff members. Because the discussion occurred during an executive session, it would be inappropriate for me to discuss the details. At the same time, I also believe I have an obligation to address some misperceptions that have been brought to my attention. The Retirement Board has not, nor does it plan on, reimbursing any board or staff member for legal fees they might incur for their own personal defense of any of their own actions that are deemed to be potential ethics violations. Reimbursement has been made to two associates for the legal expenses they incurred in assisting the Ohio Ethics Commission and the Columbus City Attorney's office in the prosecution of a former board member. The assistance they provided was in the context of their professional duties at STRS Ohio. The total amount reimbursed to date is $1,400. The board has also indicated that legal fees totaling $6,000 from another associate can be paid if the request is made.
I apologize for the length of this message. However, I feel it is important for me to address members' questions in a timely manner, which our Web site and e-mail news service allows us to do. Thank you for your continued interest in your pension system.
Damon F. Asbury
Executive Director

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John Curry to Lara Baker re: STRS Board members prosecution

From John Curry, Sept. 1, 2006
Ms. Lara Baker,
Ms, Baker, I wish to commend you and your staff for the dedication you have provided toward the furtherance of justice in your past successful prosecutions against Herb Dyer, Jack Chapman, and Hazel Sidaway. I also wish to commend you re. your current mission of prosecuting Eugene Norris, Michael Billirakis, Joe Endry, and Deb Scott.
I do wish to add that the Franklin County Muni Court has inadvertently misspelled the name of Billirakis in their entry in the system - and because of this, those who wish public access to his public folder on this website aren't able to obtain it.
All of my fellow STRS retirees are suffering and those with spouses are seeing healthcare insurance rates eight times higher than those of the public system that you will retire in. Current health care premiums in excess of $700 monthly are driving some STRS retirees to the poor house at a record breaking speed. Maybe if the misdeeds of some at STRS were reported to you several years earlier we would not be in these dire straights. I would like to think so. In any event, once again, you are owed a debt of gratitude and praise from this retiree.
John Curry - an STRS retiree.

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Shirlee Zerkel: Thank you Mr. Freel and Ms. Baker

From Shirlee Zerkel, Sept. 1, 2006
Dear Mr. Freel:
As one retired Ohio teacher, I want to thank you for investigating the ethics abuses at STRS and for following through so that indictments could be brought against those board members who had not acted in a prudent manner.
It is refreshing to note that some officials in the state are conscientious about their duties. Thank you for helping protect our pension funds.
Shirlee Zerkel
Dear Ms. Baker:
As one Ohio retired teacher, I want to express my thanks for your follow through on the prosecutions that have already taken place. Thank you also for the four new indictments of STRS board members for ethics violations.
It is refreshing to note some officials in the state are conscientious concerning their official duties. I just wish that those board member had had the same attitude toward their very important position on the board.
Keep up the good work! Thanks again for your help both now and in the future.
Shirlee Zerkel
STRS retiree and CORE member

The Plain Dealer on current ethics charges and some hard questions re: Mike Billirakis and OEA involvement in STRS scandals

From John Curry, Sept. 1, 2006:
Tlcohio - Maybe you haven't been following CORE's emails over the last 3 years. I have not been a supporter of Mr. Billirakis.
I and others at CORE have criticized the leaders of the OEA for their lack of leadership by being asleep at the switch when the misspending, mismanagement, and entitlement philosophy blossomed at STRS under the leadership of Billirakis, Norris, Scott and other former OEA Executive Council members - also for the lack of forward thinking by not pressing for the increase in the employer contribution rate toward healthcare years ago as other state retirement systems have done.
We, at CORE, have cut Billirakis no slack - nor have I.
Billirakis was on the board when much of the items you mention below were approved by the STRS Board. We need active educators to help pass on the message of misdoings by the public officials at STRS. I hope you have helped by spreading the word. By the way, would you please share with me your name? When I write my articles or notes I do not do so anonymously. Since you didn't indicate that this letter should be confidential I will pass this on to the troops.
I notice that you used a reference below to the Education Intelligence Agency. I have read their website periodically. They are very much anti-organized labor, which I am not. I have also researched the salaries paid by the OEA to their employees through the U.S. Department of Labor website and have published this public information for three years running. The results below you have provided seem somewhat high for the year 1998 as compared to what I have seen from the U.S. Dept. of Labor, but I do agree that current active educators aren't getting the best bang for their bucks (annual dues) and OEA salaries are way above those of the classroom teachers. Once again, I am not against organized labor, but not all labor organizations have been corruption free either. I think the OFT has done an excellent job representing their members throughout the past and present. There are good ones and there are bad ones - just like STRS Board members and anyone else you come across when you walk down the street.
John Curry
Sent: Friday, September 01, 2006
Subject: Why no attacks on Billirakis, OEA-Connected STRS Scandals
John: Why no coverage and outrage about Mike Billirakis and his being criminally charged in Court this week for doing much of what Bob Taft did? Billirakis apparently did wrong and has been in control at STRS. Is that OK? According to one 1998 report shown below while Billirakis was at OEA he made much, much more money than the Governor in salary. Couldn't he afford to buy his own tickets when OEA people get paid so much? Is that OK? Let's hear more about Billirakis, OEA and their involvements in the scandals at STRS. Why doesn't Billirakis explain his wrongdoing and resign from STRS? If convicted, will Billirakis resign from his high NEA position? Did Billirakis approve the two fancy, wasteful waterfalls in the STRS Taj Mahal building? Thanks!
Cleveland Plain Dealer/AP Newswire, Thursday, August 31, 2006

Ethics panel accuses 4 of violations
By Andrew Welsh-Huggins Associated Press
Columbus- The Ohio Ethics Commission charged three former members of the state teachers' retirement board and one current member Tuesday with failing to report gifts from companies doing business with the agency.
The filings in Franklin County Municipal Court bring to seven the number of officials with the State Teachers Retirement System who have been charged with ethics violations in recent years.
Michael Billirakis, a current board member, was charged with two counts of conflict of interest for accepting tickets to "Hairspray," a Broadway musical in New York, from the Frank Russell Corp./Russell Real Estate Advisors, now the Russell Investment Group, according to the Ethics Commission.
Billirakis, who is also a former president of the Ohio Education Association, the state's largest teachers union, was also charged with accepting tickets to a Cleveland Indians game from Salomon Smith Barney, now Citigroup, the commission said.
The retirement fund was doing business with both companies at the time.
Billirakis also was charged with two counts of filing false financial disclosure statements with the Ethics Commission for failing to report the companies' gifts. Such disclosure is required for all gifts over $75.
Billirakis is represented by Columbus attorney Terry Sherman, according to the Ethics Commission's Chief Investigative Attorney, Paul M. Nick. A message was left seeking comment.
Former board members Eugene Norris, Joseph Endry and Deborah Scott were each charged with one count of conflict of interest and a count of filing a false financial disclosure statement for accepting the "Hairspray" tickets.
Endry and Scott are represented by Columbus attorney Ritchey Hollenbaugh, Nick said. A message was left seeking comment. Nick said Norris did not yet have an attorney.
Norris has an address in Ann Arbor, Mich., but there was no phone listing for the address that was included in the charge filed against him. Each charge carries a punishment of up to six months in jail and a $1,000 fine.
Mike Billirakis: Executive Committee, National Education Association
Michael Billirakis, a social studies teacher at Perry High School in Perry (Lake County), Ohio, was elected to the National Education Association’s (NEA) Executive Committee in July 2002 and reelected in July 2005 for a second full three year tear, after fulfilling a one-year vacancy in 2001-02. He is now on the second year of his second full term. Billirakis has been active in the NEA since he began teaching 33 years ago at Field High School in Portage County, Ohio. During his tenure as president of the Ohio Education Association (OEA) – from 1994-2001 – Billirakis was at the helm when the OEA challenged the Cleveland voucher program, which was eventually upheld by the U.S. Supreme Court. OEA joined more than 500 schools challenging Ohio’s public school funding formula, resulting in billions of additional dollars for education funding. Under his leadership, OEA also stopped the state from eliminating due process rights for teachers. In addition to serving as OEA’s vice president and president, Billirakis was president and an executive committee member of the Northeastern Ohio Education Association. He served on the Ohio Governor’s School Accountability Committee and currently sits on the board of directors for the State Teacher’s Retirement System, which has assets in excess of $67 billion, and is a Commissioner on the Education Commission of the States. After graduating from Youngstown State University with a bachelor’s degree in history and a Master’s in European history, Billirakis completed 30 hours of graduate study in education at Akron University. A native of the Island of Kalymnos in Greece, Billirakis immigrated to the Buckeye State when he was 12 years old. He and his wife, Valerie, now live in Pickerington, Ohio. Both of their daughters, Christine and Cynthia, are students at Ohio State University and are pursuing secondary education and elementary education, respectively. The NEA Executive Committee is composed of the three NEA officers plus six members elected at-large by the nearly 9,000-member-Representative Assembly.
FROM 1998 web reports Education Intelligence Agency (June 1998), p. 17. During 1997, the highest paid (in gross salaries and expenses) OEA staff members, lobbyists, and labor negotiators/political organizers ("UniServ consultants") were:

1. Michael Billirakis president $166,733
2. William P. Sundermeyer executive director $164,347
3. William Dorsey secretary-treasurer $148,208
4. Gary Allen vice president $145,988
5. Benjamin Gerber UniServ consultant $145,112
6. Edward Spiezio UniServ consultant $144,309
7. Dennis Coughlan UniServ consultant $140,990
8. William Canacci UniServ consultant $140,537
9. James Romick UniServ consultant $140,241
10. Alan Adair, Jr. UniServ consultant $137,906
11. Dorothy Fay UniServ consultant $137,590
12. Thomas Scarpelli UniServ consultant $137,256
13. Charles Williams UniServ consultant $134,095
14. Mary Jo Shannon Slick UniServ consultant $132,971
15. Michael Shanesy UniServ consultant $131,912
16. Donald Looker UniServ consultant $125,058
17. Richard Bourgault executive director $120,608
18. Barry Bartelt computer services consultant $119,907
19. Richard Baker magazine editor $119,082
20. Jerome T. Rampelt director $116,272

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Thursday, August 31, 2006


If you want to show your support for Dennis Leone and John Lazares (who are knocking themselves out on your behalf on the STRS Board), writing letters will help a LOT. Please do it -- today.
Please write to Board member Dr. Susan Zelman, and urge her to replace Dr. Stephen Puckett, her representative on the Board. He is not your friend. He consistently votes against Dennis and John. I suspect Zelman is not paying much attention, and she needs to. If enough people write to her, she will; it's up to you. KBB (My letter to Dr. Zelman was posted July 14; you can find it in the Archives, on the right-hand side of this page.),

Dr. Susan Tave Zelman,

Superintendent of Public Instruction

Ohio Department of Education

25 South Front St.

Columbus, Ohio, 43215.

A word of thanks to David Freel and Lara Baker from a retiree

August 31, 2006
To David Freel and Lara Baker:
I want to add my voice to those thanking you for your tireless efforts in bringing justice to those who would use their positions at STRS for their own personal gain instead of keeping their motives pure in doing their job to assure the best retirement possible for all. Thousands of retirees owe you a debt of gratitude for doing your job with utmost dedication and integrity. We are watching and solidly backing you. (And when you see a retiree in a black "Hairspray" T-shirt observing the court proceedings, you'll know it's me.)
Kathie Bracy
STRS retiree

Mary Ellen Angeletti, Molly Janczyk and Al Rhonemus: Letters to Gov. Taft

From: Mary Ellen Angeletti
Date: August 31, 2006
Subject: Fwd: Al to the Governor
I also agree with Mr. Rhonemus and Ms. Janczyk. Ohio retired teachers were promised by STRS throughout our careers that even though we might have low salaries, we would have a Cadillac of a retirement with inexpensive health care for ourselves, our spouses, and our dependent children. That promise was NOT delivered to Ohio teachers who retired in 1998 and later.
Then we discovered that the STRS Board members were not minding the store by protecting our pension funds. Instead, they were spending OUR money on themselves as if it were their money exclusively. This is what Herb Dyer, the former STRS Exec. Director said, "It is our money to spend."
Thank goodness for people in Ohio working in high offices who are conscientious and dedicated to their jobs such as David Freel of the Ohio Ethics Commission and Prosecutor Lara Baker. You have two outstanding public servants in these two people. They are to be congratulated for pursuing wrongdoing and misspending of the STRS pension fund and following through to the end with ethics violation charges against the guilty STRS Board members.
While these charges don't fill the holes in our pension pockets, they reaffirm our faith in the goodness of people to do the right thing which is an important lesson we teachers tried to instill in our students. Thank you, Governor Taft, for taking the time to read our emails and for also considering the appointment of Dr. Thomas Hall of Miami University to the STRS Board. He has earned the confidence of retired teachers in Ohio.
Mary Ellen Angeletti,
STRS retiree
From: Molly Janczyk
Sent: Thursday, August 31, 2006
Subject: To Taft: A step forward: from Al Rhonemus, Retiree, Brown Co. RTA
I completely agree with Al Rhonemus' letter below. He is a fine gentleman having to endure what former STRS Board Members heaped upon retirees bearing the burden of saving the HC System instead of using foresight and prudence for rainy days. ALL legislators should have to be under such a pension system when considering the proposed legislation to increase contributions to save STRS HC. We did what we were told and lived lives based on empty promises for HC touted by STRS as second to none. STRS discouraged us in HC literature which I possess from seeking other HC as it would only erode our pensions. SO here we are- devastated.
Molly Janczyk
From: Al Rhonemus
Date: Thu, 31 Aug 2006
The honorable Governor Taft:
Although many State Officials have been against David Freel and Lara Baker for their efforts to seek out and prosecute those who have used the Ohio State Teachers Retirement funds for their own benefit plus accepting perks from businesses of which the STRS board was doing business. I find it very difficult to understand why these who were prosecuted a few months ago, and those charged yesterday get nothing more than a "slap on the wrists" for their conduct as members of our pension system.
My hat is off to and a special thanks to David Freel and Lara Baker for their work to help correct some of the irregularities that have been taking place for years. I hope you will likewise share your thanks for uncovering these illegal acts to them.
Sincerely yours.
Al Rhonemus,
Aberdeen, Ohio
[My hat's off to you, Al, a dedicated WWII veteran who is still fighting for us! Thank you! KBB]

An observation: OEA strangely silent

While the air (and my blog) is filled with talk about the latest round of ethics charges being brought against three former and one current STRS Board member, OEA and its bloggers seem very quiet on the subject. Perhaps they have their hands full, fending off a strike by OEA employees; or could it be because a former OEA president and two former OEA executive board members are among those being charged, making the list even longer that was started with Hazel Sidaway and Jack Chapman?

On another note, and to their credit, ORTA has published on their website Damon's recent letter announcing the latest round of charges - which includes one of their own, Joe Endry, former president of ORTA.

Stay tuned for further developments; this is far from over.


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Al Rhonemus to Lara Baker: Thank you

From Al Rhonemus, August 31, 2006
Subject: Thanks
Dear Lara:
Thanks for your help, present and future, to correct the many irregularities that have happened over the years with members of the Ohio State Teachers Retirement System board members.
Teachers, who spent their entire life in educating our youth and college students, taught "honesty". It is a shame that those elected to or appointed to serve on such a responsible board, could not see the value of honesty.
I thank you for your help in correcting these matters.
God Bless.
Al Rhonemus

Mary Ellen Angeletti: Letters of thanks to Lara Baker and David Freel

From: Mary Ellen Angeletti
Date: August 31, 2006
To: Lara Baker []
Dear Ms. Baker,
The retired teachers of Ohio owe you so very much for following through on the prosecution of abuses discovered by David Freel and the Ohio Ethics Commission concerning ethics violations committed by the STRS Board members. You obviously take your job seriously and conscientiously as we witnessed by your handling of the trial against Hazel Sidaway. You and Mr. Nick are to be congratulated for your good works. It is reassuring to know that there are people like you in Ohio who do your job conscientiously and take pride in your work. Keep up your super record! As one Ohio retired teacher, I thank you for helping us to protect our pension fund.
Mary Ellen Angeletti, retiree
From: Mary Ellen Angeletti
Date: August 31, 2006
To: David Freel []
Dear Mr. Freel,
The retired teachers of Ohio owe you so very much for investigating the abuses at the STRS Ohio and for following through on those investigations so that violations could be brought against those guilty of ethics charges. As one of those retired teachers, please accept my gratitude for your efforts. It is certainly reassuring to know that there are SOME people holding high offices in Ohio who are conscientious about their job and hold themselves to high standards of morals & ethics. You weed out the bad guys so we sure consider you to be our GOOD GUY. THANK YOU!
Mary Ellen Angeletti,
STRS retiree & CORE

RH Jones: A recommended slate of candidates for the November election

From RH Jones, August 31, 2006
To all:
On the afternoon of 08/30/06 I attended a press conference to re-elect OH State Representatives Brian G. Williams and William J. Healy II -- There was another who was running for the first time but I am sorry that her name escapes me. However, OH State Senator Kimberly Zurz attended and I am happy to say that she is also running for re-election. As a retired person, I was extremely impressed with all of their speeches. All four of these individuals have a plan that will put education K-16 back on track in Ohio.They share a conviction that the experiment of Charter Schools has failed. They are of the realization that K-16 public education will be the key to business, jobs and Ohio prosperity, once again. All were articulate, bright, knowledgeable, and enthusiastically energetic. Just the type of folks we need in elected state offices.
In getting Ohio moving, they will be needed to assist the new Governor (Ted Strickland, I hope). If Strickland gets elected and does not have the election of Ohio house and senate members -- who are of the same mindset in solving Ohio's problems -- we all will suffer as we have these last 10-yrs, or so. To elect Ken Blackwell as governor will only increase the decline Ohio has experienced over the last several years.
Across our state, positive change will only come as Strickland, Williams, Healy, Zurz and individuals like them in other districts are elected. They are definitely committed to a plan for bringing Ohio back again by creating jobs in science, energy, transportation, automotive, construction and improving our highway/ bridges and traffic flow. Protecting Ohio's farms, factories, the home and building construction industry. All aspects of job creation for a working Ohio were thoroughly covered in their plan.
At the same time they plan to increase a commitment to the protecting and improving health care for all, the environment, safety, and improving conditions for Ohio's children, the handicapped and those who may be disadvantaged for one reason or other. Folks, it is time for a new beginning in Ohio.
RHJones, a retired Ohio citizen

Wednesday, August 30, 2006

Columbus Dispatch: New ethics charges tied to vendors’ gifts

New ethics charges tied to vendors’ gifts
Wednesday, August 30, 2006

Four more current or former officials of Ohio’s second-largest pension fund were charged yesterday with breaking ethics laws by accepting Broadway and baseball tickets from vendors.

The misdemeanor counts against three former and one current State Teachers Retirement System board members are the latest in a lengthy investigation into vendors plying the unpaid board members with gifts.

Current board member Michael Billirakis was charged with two conflict-of-interest counts for accepting $275 tickets to the 2003 Broadway musical Hairspray from Frank Russell Corporation/Russell Real Estate Advisors and tickets to a 2001 Cleveland Indians game from Salomon Smith Barney. Both companies did business with the retirement fund.

Former board members Joseph Endry, Eugene Norris and Deborah Scott each were charged with one conflict-of-interest count for accepting the tickets to Hairspray in New York City.

All four board members were charged with failing to report to the Ohio Ethics Commission that they had received gifts worth $75 or more.

The violations are first degree misdemeanors punishable by fines as high as $1,000 or a six-month jail term.

Ethics Commission attorney Paul Nick, who is prosecuting the case with the Columbus city attorney’s office, said there was no evidence that any of the board members directed pension business to the vendors that offered them gifts. If that were the case, the board members would face more serious bribery charges, Nick said.

"It essentially is a classic conflict of interest," he said.

Three other former State Teachers Retirement System officials have been convicted of conflicts of interest for accepting gifts from vendors. Former board member Jack Chapman pleaded no contest to three counts, while former board member Hazel Sidaway unsuccessfully fought two charges. Former Executive Director Herb Dyer was charged with four counts and pleaded no contest to one under a plea bargain.

Nick said yesterday’s charges conclude the investigation of board members’ conduct, but prosecutors are continuing to investigate top-level staff members of the pension system.

Billirakis, Norris and Scott could not be reached or did not return calls yesterday. Endry said the criminal charges resulted from a "misunderstanding" because the pension system’s top staff did not advise him of the rules governing perquisites for board members.

As for the required disclosure form, "Well, I didn’t file it," Endry said. "That’s all I can say."

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OEC and Columbus City Attorney's office joint press release: Ethics violations filed against 1 current, 3 former STRS Board members

Press Release
August 29, 2006
For more information, contact:
Ohio Ethics Commission
(614) 466-7090
Columbus City Attorney's Office
(614) 645-7483

On Tuesday, August 29, 2006, Columbus City Attorney Richard C. Pfeiffer Jr.'s Office filed further charges upon complaints signed by the Ethics Commission's Chief Investigative Attorney, Paul M. Nick, alleging violations of the state's ethics laws against three former and one current Board Member of the State Teacher's Retirement System (STRS): Michael Billirakis; Joseph Endry; Eugene Norris; and Deborah Scott. The charges were filed in the Franklin County Municipal Court under case numbers 06 CRB 22161 (Billirakis), 06 CRB 22160 (Endry), 06 CRB 22162 (Norris), and 06 CRB 22159 (Scott).

The charges result from an Ohio Ethics Commission investigation initially referred to the Columbus City Attorney's Office on April 28, 2005. Although the Commission's extensive investigation found that each of these Board Members received multiple meals, gifts, and entertainment from investment firms managing STRS funds over the course of several years, the charges represent specific examples of wrongdoing.

Billirakis was charged with two counts of Conflict of Interest for accepting tickets to Hairspray, a New York City Broadway Musical Show, from the Frank Russell Corporation/Russell Real Estate Advisors and for accepting tickets to a Cleveland Indians game from Salomon Smith Barney, at a time when STRS was doing business with both firms. He was also charged with two counts of Filing False Financial Disclosure Statements with the Ethics Commission for failing to disclose Frank Russell and Salomon Smith Barney as sources of gifts in excess of $75. Norris, Endry, and Scott were each charged with one count of Conflict of Interest and a related count of Filing a False Financial Disclosure Statement for accepting and also failing to disclose the New York City Hairspray tickets from Frank Russell. These violations are all misdemeanors of the first degree, punishable by a maximum penalty of up to a $1,000.00 fine and/or six months in jail.

All four are scheduled for arraignment on Tuesday, September 19, 2006, at the Franklin County Courthouse, 375 South High Street, Columbus, Ohio, in Courtroom 4C at 9:00 a.m. The telephone number for information at the Municipal Court Criminal Division is 645-8186.

To date, three other STRS officials have been convicted as a result of this investigation by the Commission and the Columbus City Attorney's Office. Former Board Member Jack Chapman pleaded no contest and was convicted and sentenced on three Conflict of Interest counts on June 20, 2006. Former Board Member Hazel Sidaway was convicted after a jury trial of two Conflict of Interest counts, and was sentenced on May 11, 2006. Former Executive Director Herb Dyer was charged with four Conflict of Interest counts on August 2, 2005, and on September 1, 2005, in a plea bargain, Dyer pleaded no contest and was convicted of one of those charges, Filing a False Disclosure Statement.

Although these charges bring to an end the prosecution of former STRS Board Members, the Prosecutor has indicated that the investigation into the conduct of senior STRS employees continues.

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A response from the State Auditor's office

In a message dated 08/30/2006 2:09:58 P.M. Eastern Standard Time, writes:
Dear Ms. Bracy:
Thank you for your recent email regarding the STRS Board meeting on Friday, August 18, 2006, and their decision to reimburse STRS staff members for legal expenses. We understand your concerns in this matter.
I have shared your email with the Chief Deputy Auditor and Chief Legal Counsel and they are reviewing your concerns. Upon completion of their review, our office will contact you.
Again, thank you for contacting our office. If we can be of further assistance, please don’t hesitate to contact us.

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Kathie Bracy to Betty Montgomery: Will you do the right thing or not?

August 30, 2006
Dear Ms. Montgomery,
My condolences on the death of your father. I know you've had a rough way to go between this and your health problems. I wish peace and better health for you.
We need your help. STRS is spending OUR money to pay legals fees for employees who went out on their own and hired private attorneys when they were subpoenaed to court (and granted immunity) in Hazel Sidaway's trial. Now the executive director and the Board (not Dennis Leone or John Lazares) think it's OK to pay for those lawyers, even though prior approval was neither sought nor granted.
Now four more people are being hauled into court (1 current and 3 former Board members) on ethics charges. I am afraid STRS will try to pay THEIR legal fees, too, and then those of senior staff members yet to be charged. Where will it all end? It is OUR money!! This is WRONG, WRONG, WRONG!!!!! What about the thousands of retirees living on a mere pittance of a pension check and forced to pay increasingly out-of-control, exorbitant health care costs? THEY didn't do anything wrong -- ALL THESE OTHER PEOPLE DID -- AT OUR EXPENSE!!!
Please, please, please -- our system is hemorrhaging badly, morally, ethically and economically. You can help (hey, weren't you part of it?). You MUST help. What will your choice be -- to Do the Right Thing -- or not?
Kathie Bracy
37.7 year STRS retiree

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Paul Kostyu: Ex-STRS board members face ethics charges

By Paul E. Kostyu, Copley Columbus Bureau chief
Canton Repository, August 30, 2006
COLUMBUS -- Ten charges of violating state ethics laws were filed Tuesday against four former board members of the State Teachers Retirement System. One of those under investigation said he would not contest the charges.

The news comes in the midst of another controversy brewing at the retirement system over the payment of legal bills to three staff members who testified at the trial of former board member and Canton City Schools teacher Hazel Sidaway. She was convicted in April of two counts of violating state ethics laws.

Joseph I. Endry, a retired teacher and former retirement system board chairman from Westerville, said he would either plead guilty or no contest to one count of filing a false financial disclosure statement and one count of conflict of interest.

“It’s unfortunate,” Endry said. “We were following the rules that STRS told us that were in effect. Apparently, a judge says those are wrong rules. When we did it, we thought it was all right. We find out now that it isn’t.”

Similar charges were filed against Eugene E. Norris of Columbus and Deborah Scott of Cincinnati. Both are former leaders of the board.

“I’ve got nothing to say,” Norris said.

A message left for Scott was not returned.

Messages for Michael N. Billirakis of Pickerington also were not returned. Billirakis, an executive committee member of the National Education Association and a current board member, was charged with four counts of ethics violations — two for conflict of interest and two for filing a false disclosure statement.

All four are accused of accepting and failing to disclose tickets to the Broadway show “Hairspray” from the Frank Russell Corporation/Russell Real Estate Advisors. Billirakis also is accused of accepting and failing to disclose tickets to a Cleveland Indians game that he got from Salomon Smith Barny. The retirement system was doing business with both firms at the time.

The charges, all first-degree misdemeanors, are similar to the two Sidaway was found guilty of and the three Jack H. Chapman of Reynoldsburg pleaded guilty to in June. Each charge can bring a maximum penalty of up to a $1,000 fine and six months in jail. Both Sidaway or Chapman received suspended jail sentences, were placed on probation, ordered to pay fines and perform community service.

The board members received “multiple meals, gifts and entertainment from investment firms managing STRS funds,” according to Paul M. Nick, the chief investigative attorney for the Ohio Ethics Commission. The charges represent specific examples of wrongdoing, Nick said.

All four are scheduled to appear in Franklin County Municipal Court at 9 a.m. Sept. 19 in courtroom 4C.

The ethics commission investigation began in October 2003 after media reports, including many by Copley Ohio Newspapers, raised questions about travel, bonuses, artwork and other items.

Nick said the latest charges represent the end of the investigation against board members, but an investigation of senior staff continues. He would not provide names saying it was less than a dozen. “You have reported one before,” he said.

That would be Stephen A. Mitchell, deputy executive director of investments. In September 2005, the pension fund’s top executive, former Executive Director Herbert L. Dyer, was charged with four counts of conflict of interest, pleaded no contest to and was guilty of one count of failure to disclose a golf outing. He was fined and ordered to reimburse the retirement system.

The Sidaway trial sparked another controversy at the retirement system. This month the board, in a closed meeting, approved reimbursing Mary Ellen Grant, Stephen W. Ehlers and Eileen Boles for their legal costs when they were called to testify. They hired private attorneys instead of using in-house counsel, who attended but did not participate in the trial.

Responding to a public records request, Executive Director Daymon Asbury told a STRS retiree the current board, including Billirakis, gave him permission to pay $900 for Grant, $500 for Ehlers and up to $6,000 for Boles. All three had gone on the trip to New York when the board saw “Hairspray.” All three were granted limited immunity from prosecution.

“STRS has no business whatsoever paying the private personal legal fees of these employees,” said board member Dennis Leone.

He also said “it is my understanding” the board turned down a Sidaway request that her legal fees, estimated to be several thousand dollars, be paid by the retirement system.

Reach Copley Columbus Bureau Chief Paul E. Kostyu at (614) 222-8901 or e-mail:

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Dennis Leone: Cancerous attitude returns Board to previous out-of-touch position of 8 years ago

From: Dennis Leone
To: Molly Janczyk
Sent: Tuesday, August 29, 2006
Subject: Cancerous Attitude

The current STRS Board's cancerous attitude of feeling like the more they know the more they will become personally liable is exactly where the old board was 8 years ago. It became the mechanism for looking the other way when staff and fellow board members were doing whatever they wanted to do. It fueled the ultimate entitlement culture, and it caused the whole board and 735 employees to lose touch with the membership. Remember what the judge said to Sidaway: "You should have known better."
Dennis Leone
[Maybe it's time we PUT them back in touch. TO ARMS!! KBB]

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From Damon: STRS Board member, three former members now facing charges: Mike Billirakis, Joe Endry, Eugene Norris and Deb Scott

"Past actions cannot be undone, but they can serve as a valuable lesson for the future. In this case, STRS Ohio has responded appropriately so that these past actions will not be repeated and members' trust and confidence in the pension system is maintained."
-- Damon Asbury
[All well and good -- it's a step in the right direction; but what about that Cancerous Attitude that's replacing all this? Who's standing up for the retiree these days besides Dennis and John? And what about that word "maintained"? Shouldn't it be "reestablished"? -- KBB]
Message from Damon Asbury, STRS Executive Director, August 30, 2006:
In April 2006, we used this e-mail news service and our STRS Ohio Web site to report on the conviction of a former board member for two misdemeanor ethics violations. At that time, we noted that there could be charges filed against other board or staff members.
On Aug. 29, 2006, three former board members and one current board member were charged by the Columbus City Attorney's Office. The charges filed against each board member -- Michael Billirakis, Joseph Endry, Eugene Norris and Deborah Scott -- are misdemeanors and cite violations of state ethics laws regarding conflicts of interest.
Mr. Endry served on the board from September 2001 through August 2005; Mr. Norris served on the board from March 1996 through August 2004; and Mrs. Scott served on the board from August 1994 through August 2005. Mr. Billirakis joined the board in September 2000.
It is both unfortunate and regrettable that these past events occurred. As we have noted previously, due process regarding these charges needs to take its course. It is also important for us to reiterate that STRS Ohio has comprehensive policies, safeguards and training in place to ensure that both current and potential vendors and all board and staff members know that any gifts, regardless of their value, are strictly prohibited. Finally, it is also important to note that there is no evidence that gifts were ever accepted in the context of "pay to play" or that gifts were ever offered in the context of "pay to play." David Freel, executive director of the Ohio Ethics Commission, has been quoted as saying there is no sign that the gifts swayed investment decisions.
Past actions cannot be undone, but they can serve as a valuable lesson for the future. In this case, STRS Ohio has responded appropriately so that these past actions will not be repeated and members' trust and confidence in the pension system is maintained.
Damon F. Asbury
Executive Director

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Nancy Hamant: STRS not practicing what it preaches

August 30, 2006
STRS's official comment about the ethics charges filed yesterday against four STRS Board members. The STRS statement reflects the concern of ALL STRS members about what has happened in the past at STRS. Unfortunately, I feel that all STRS members must monitor exactly what continues to occur at STRS either as result of the Executive Director's leadership or STRS Board actions. As it is quite different to say the "appropriate words" and to practice those words. Recent events at STRS, such as paying $315,000 to a "headhunter" to find 3 new STRS employees and the approval of paying the private legal fees of 3 STRS employees who were called to testify at Hazel Sidaway's trial, indicate that STRS is not practicing what it is preaching!
Nancy Hamant

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Tuesday, August 29, 2006

Leone, Janczyk & Bos: Huge thanks to Lara Baker and David Freel

From John Bos, August 29, 2006
Subject: Re: THANK YOU BAKER AND FREEL! STRS: Charges Have Been Filed Against 4

Thank you Dennis Leone!!!!!
Dr. Leone,
Just a note to thank you for your courage and efforts to do what is right to correct the issues that faced (and unfortunately) still face STRS. Without your ability to be the point soldier in the face of an ENEMY that would not retreat without a battle, we would not be winning this war. Many of us we not even know that we had been ambushed by an enemy that was fighting a war to capture the $$$$$ that belonged to the retirees. Unfortunately, a forensic audit several years ago would have been an easier, faster, and more complete exposure. We all salute David Freel and his staff for their efforts.
We all must be encouraged by this recent news to continue to stand tall with you and support you in this battle to resolve the issues at STRS that should have never happened.
John Bos
From Molly Janczyk, August 29, 2006
Subject: THANK YOU BAKER AND FREEL! STRS: Charges Have Been Filed Against 4

Thank you Laura Baker and David Freel for pursuing this case against spending abuses with STRS monies belonging to membership. We are so grateful for your diligence and commitment in this matter. Thank you for doing the right thing. We know this would not have happened without you! I hope the many who are grateful let you know through phone calls and emails how thankful we are for having you on the side of doing the right thing regardless of amount.
Molly Janczyk
From Dennis Leone, August 29, 2006
Subject: Charges Have Been Filed Against 4
Prosecutor Lara Baker -- thanks to the work of David Freel and his staff at the Ohio Ethics Commission -- filed charges this afternoon against Joe Endry, Eugene Norris, Michael Billirakis, and Debbie Scott. I don't have the details, but my understanding is that Billirakis (who is currently on the STRS Board) had multiple charges. I understand that the web site for the Ohio Ethics Commission has complete information.
One thing is for sure, the convictions, fines, restitution, suspended jail sentences, and community service orders for the likes of Herb Dyer, Hazel Sidaway, and Jack Chapman would not have happened without the perseverance of Mr. Freel and his staff, and neither would the charges filed against Endry, Norris, Billirakis, and Scott. Mr. Freel and his staff deserve our thanks.
Dennis Leone
STRS Board Member

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Who's making money off the health care crisis?

The Denver Business Journal - August 24, 2006
By Amy Fletcher
Almost everyone, really.
From doctors to hospitals, drug companies to insurers, nearly everyone involved in the health care system is making money.
The question is, really: Who's making the most?
And like everything in health care -- a $2 trillion industry in the United States -- the answer isn't simple. The really complicated issues, and the ones that generate the most controversy, are:
  • What's driving the high cost of medicine?
  • Who's to blame?
  • What can we do about it?
The questions typically set off finger pointing among insurers, hospitals, doctors and others.
And when we asked experts in Denver, there was plenty of blame to go around, depending on their field.
Some say consumers are mostly to blame: We demand the best care money can buy, even if we can't afford it.
But looking at health care profit margins of the commercial entities involved in health care in the last 10 years, there are clear winners and "runners-up" -- because calling any subsector of health care a "loser" probably would be a stretch.
Profiting from health care spending isn't bad, benefits consultants and insurance brokers are quick to say. Employers, who also must turn a profit, expect hospitals, insurers and others to make money, too.
"But it's hard for an employer when they see their rates going up 20 percent a year," said Denver insurance broker Bill Lindsay. "It's a matter of looking at it sustained over time to say what are the issues and where is the money going."
Pharmaceuticals, hospitals lead way
The top finisher when it comes to margins isn't a surprise. Numerous reports and news articles have expounded on the swollen bottom lines of the pharmaceutical industry. The median industry profit margin has hovered around 17 percent in the last 10 years, and in 2005, Fortune 1000 pharmaceutical companies brought in more than $244 billion in revenue, according to Fortune magazine.
Some experts fear direct-to-consumer advertising, on which drug companies spend $4 billion a year, is needlessly adding to their bottom line. It's hard to watch an hour of commercial TV without seeing an ad imploring you to "ask your doctor if (insert drug) is right for you."
Daryl Edmonds, president of Cigna HealthCare of Colorado, said the ads, for example, have led to a marked increase in prescriptions for antidepressants, noting they are now among the 10 most prescribed drugs.
Some doctors "have just acquiesced to the patient," he said. "Do we just have that much more depression? ... It does beg the question."
But drug company profits probably have a smaller influence on premiums than one might think.
Though rising faster than other health care costs, spending on prescription drugs comprised only 10 percent of the health care dollar in 2004, according to national expenditure data from the Centers for Medicare and Medicaid Services. Some insurers say it's closer to 15 percent. Either way, it's not a huge chunk of the health care dollar. And drug makers are quick to say their products save money by helping patients avoid hospital stays.
Employers, doctors and insurers have more loudly criticized hospitals, which, at about 30 percent, comprise the largest share of health care dollars. Americans spent $571 billion on hospital care in 2004, according to a study published earlier this year in the journal Health Affairs. That year, hospitals posted $26.3 billion in profits, according to the American Hospital Association, totaling a 4.6 percent margin.
But metro Denver hospitals are faring better than facilities nationwide. According to information compiled from Medicare cost reports, metro Denver hospitals averaged a 7.8 percent margin over 10 years, bringing in more than $4.4 billion in net patient revenue in 2004.
Some Denver-area hospitals exceed the metro average, which is brought down by such facilities as Denver Health, which treats a higher number of uninsured and indigent patients and posts margins under 5 percent.
According to data from Medicare, the federal health care program for the elderly, four hospitals in the HealthOne system posted margins higher than 20 percent in 2004-05. Exempla Healthcare's Lutheran Medical Center's margin was 16 percent in 2004, and the state's largest hospital system, Centura Health, had two hospitals posting a 12 percent or higher margin.
Metro Denver's largest hospital system, HealthOne, is a joint venture with for-profit HCA Inc. (NYSE: HCA), HealthOne, which includes seven hospitals and 10 outpatient surgery centers, refused to answer questions for this article.
The wealth of metro-Denver hospital systems is evidenced by the opening of four new hospitals in the last few years, with two more in the works. Their healthy margins haven't gone unnoticed by employers and insurers.
"It's a little scary," said Donna Lynne, regional president of Kaiser Permanente, one of the state's largest insurers and the only health plan in Colorado that works so closely with one physician group. "The numbers are in the double digits."
Hospitals, even those with stockholders, say healthy margins are necessary to make investments in new technology and hospitals as metro Denver grows.
And despite their margins, hospitals say insurers are raising premiums faster than hospitals are raising their rates.
"It's a mystery to us as to how the premium increases we see out in the marketplace are connected to the increase that we negotiate with our plans," said Jeff Selberg, CEO of Exempla Healthcare, a three-hospital system based in Denver. "There doesn't seem to be a relationship."
Insurers strike back
Anthem Blue Cross and Blue Shield said it's become harder to negotiate with hospitals since they consolidated into three large systems, increasing their leverage. Hospitals can demand higher rates from insurers when they negotiate as a group.
"There needs to be more competition to get a better price level," said Joe Hoffman, vice president and general manager of Anthem in Colorado.
But there's also been a lot of consolidation among insurers nationwide. Anthem merged with Wellpoint in 2004, and UnitedHealthcare acquired PacifiCare in 2005.
Hoffman said in Anthem's case, growth has meant efficiency. Years ago when the plan operated as a nonprofit, administrative costs comprised 30 percent of expenses; now that's down to 15 percent.
Insurers such as Kaiser keep an eye on hospital margins, and they factor into negotiations over rates for care provided in facilities they don't own, Lynne said.
Doctors, hospitals and others seemed particularly skeptical of the large, for-profit players that are dominating metro Denver health care -- namely HealthOne and most of the five largest insurers in Colorado.
"We are different," said Lynne, referring to Kaiser's nonprofit status. "We don't return money to either our shareholders or some kind of private investors. ... When they are a for-profit, they have a different type of motivation."
Insurer profits cyclical
But Kaiser Permanente is among the nonprofits in Denver that have posted healthy margins in recent years, raising some eyebrows. In 2003, the insurer was the top finisher among Colorado health plans, making about $100 million.
Kaiser defended its performance in the same way any nonprofit would: "The money that Kaiser earns in excess of what we charge has to go back into the organization," Lynne said.
And, if you look at Kaiser's recent projects, it seems to have happened. In 2005, the insurer opened three new facilities. In the past couple years, Kaiser has invested millions in information technology, a move that should save money down the road by allowing doctors to access records in multiple locations, cutting down on the number of tests that will be duplicated.
The last two years, Kaiser has posted much lower margins: 2.6 percent in 2004 and basically breaking even last year.
Insurers as a whole have much lower margins than hospitals. In the last several years, margins have ranged from 3 percent to 5 percent, but the median margin among Fortune 500 insurers was 6 percent in 2005.
Hospitals are quick to point out insurers' capital needs aren't as great. While hospitals need capital to build new facilities and buy expensive new equipment, insurers' largest investments are often in their people and information technology systems, said Ned Borgstrom, chief financial officer of Exempla Healthcare.
Of course, doctors don't escape the blame for rising costs, particularly those who have an ownership share in outpatient imaging, heart and surgery centers, which have had a sharp increase in recent years.
About 21 percent of the national health care dollar goes to doctors, and certain specialties -- namely diagnostic radiologists, cardiologists and gastroenterologists -- have had a sharp increase in compensation through the years.
But primary care doctors' compensation has remained flat, which troubles some hospital and insurance executives.
"There is an awful lot the PCPs can do that specialists don't need to," Lynne said. "We also are very mindful of the relationship between primary care and specialty care."
Uninsured patients drive costs
Regardless of their margins, hospitals, doctors and insurers agree health care would be more affordable if everyone had insurance and government programs such as Medicare and Medicaid paid higher rates that covered the cost of providing care for those patients.
When these programs underpay doctors and hospitals, the costs are shifted to paying patients, most often people with employer-paid health insurance. An even greater amount is shifted when patients don't have any insurance.
According to a study by Families USA, an extra $934 in health care premiums per Colorado family was paid last year to cover the cost of the uninsured.
In 2005, Exempla Healthcare says its three hospitals lost $57.4 million caring for uninsured patients and people covered by Medicare and Medicaid.
The hospital system made up for that loss by charging other patients, primarily those with insurance through their employers, more. But the extent to which large insurers will accept price increases is limited, and Exempla made $74.4 million, or a 15 percent margin, on business from the state's five largest insurers: Aetna, Cigna, UnitedHealthcare, Anthem and Kaiser. The largest margin, 50 percent, came from small insurers, which added $34.7 million to Exempla's bottom line.
"It ought to drive employers crazy," Selberg said. "You talk about taxation without representation."
That's why almost everyone interviewed for this story said Colorado, or the federal government, must figure out a way to provide insurance -- or at least access to basic health care -- to every Coloradan. It seems like a federal issue, but some states, including Massachusetts, aren't waiting for Congress to address the problem.
In April, Massachusetts Gov. Mitt Romney signed legislation creating nearly universal health coverage for state residents. It requires everyone in Massachusetts to purchase health insurance by July 1, 2007. Employers with more than 10 employees must provide health insurance or pay a "fair share" contribution of up to $295 annually per employee. Subsidies for low-income residents are also included.
Colorado is working on its own plan. In June, Gov. Bill Owens signed Senate Bill 208, which creates a blue-ribbon commission to study and create reforms to expand health care coverage and decrease costs for Coloradans.
The commission includes 24 members: eight representing consumers; eight representing people who purchase health insurance, including employer health coalitions and chambers of commerce; and eight representing experts and business leaders. It will consider several proposals and submit recommended plans to the Legislature in November 2007.
"The biggest problem that we're facing right now is how are we going to restructure the system so that we can provide adequate insurance coverage for all of our citizens," said Jim Hertel, publisher of industry newsletter Colorado Managed Care. "We have to establish the public will to make the sacrifices that will allow that to occur."
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