Saturday, May 12, 2007

A blockbuster from Jim Kimmel: An Open Letter to State Representative Shannon Jones

From Jim Kimmel, May 12, 2007
Subject: Fw: Terrorism STRS Investment.doc

Kathie: I received a questionnaire from Shannon Jones, Ohio Representative District 67. She asked me 5 questions, 4 of which were not so significant as number 1. Number 1 asked: what I thought about the "shocking" news that Ohio's public retirement systems were investing in Iran. (Like Halliburton and so many others aren't?) My letter which I sent last week via USPS is below.
Jim Kimmel to State Rep. Shannon Jones, May 8, 2007


State Representative Shannon Jones
77 S. High Street District 67
Columbus, Ohio 43215-6111
Dear Representative Jones:
I am responding to your questionnaire which I received today. First the answers to questions 2-5 :
1.See comments below regarding retirement systems investing in terrorism.
2. Regarding income taxes : NO
3. Reducing Estate Taxes NO
4. Sales tax ½% increase to help support schools: YES – Because if you have a bad year and earn a small amount you will buy less and pay less tax- If the next year you earn lots of money you will buy more and pay more in sales taxes. Property tax becomes a burden which people cannot easily reduce when they have a bad year , layoffs, or become disabled or retire. Also the way schools are now funded in Ohio (mostly property tax ) is ILLEGAL!!
5. Abstinence education. Yes. Parents should teach this but many do not!!
Answer to Question One:
You asked about tax dollars and the retirement benefits of government employees such as teachers, firemen, police, and others being invested in companies connected to terrorist groups. First of all, the BENEFITS are paid to the retirees. I doubt that with the high cost of prescriptions and medical insurance many public service retirees are dabbling very much in the stock market .Surely you really mean the money in the retirement FUNDS used for investment. But even here, once the money is received from teachers, police, and others in the public sector it is no longer “public” money but is part of the remuneration for these employees. No longer public. Part of a public employee’s remuneration set aside for his/her retirement. Herb Dyer, failed STRS executive director made a similar mistake when he said the money was the STRS Board’s –not the teachers’. My main concern is that you seem to be targeting retired police, teachers, firefighters, state patrolmen, and other hard working public servants as if their retirement systems are somehow supporting terrorism. Also, you seem to be making the point that our pension systems are a special case. Would you say the same to a large US corporation? Are you just as “shocked” to learn that many big US corporations invest in companies with ties to terror?
This idea of yours about terrorist supporting investments only makes sense if such legislation includes ALL investment in terror connected stocks, bonds, companies, and financial the US as well as foreign countries. It should apply to Halliburton, Pand G , General Motors, and all bankers and brokers and mutual funds. They should not invest in terror either. Why the narrow focus on STRS, PERS, SERS, and all the other public retirement systems? Large corporations, brokers and mutual funds invest much more in all areas than all the retirement systems combined. You know that as well as I do. ANY investor, public or private, should be prevented on penalty of law from investing ANY money, their own or that of others, in a company suspected of supporting terror. It matters not whether the money starts out as tax money or private salaries, retirement funds, or corporate profits invested overseas. It should all be stopped. All companies and organizations doing investment in Ohio should be included in such legislation. Are you sure you are not trying to make public pensions the “whipping boy” as part of some unrelated political agenda? Why DO you make the false distinction between public retirement systems and private business entities regarding terrorism concerns?
How do you plan to determine which company or investment is “terror related”? How thoroughly has this been researched? If STRS shouldn’t invest in a suspicious Middle Eastern entity, neither should any private company operating in our state. This issue is so large it probably should be done by the US Congress, not on a piecemeal state by state basis and applied to all business activity in the nation.
It seems to me that this issue, making the retirement systems seem “terror friendly,” comes at just the same moment in our state’s history that a bill is being proposed to increase contributions to STRS by 5% to improve health care for retirees who are very much in need of help. It is also at this time that a bill is being proposed which would REQUIRE boards of education to offer private investment plans using money that normally would go to STRS. Most young teachers do not realize that they would never receive in that kind of defined contribution plan, completely outside of STRS, nearly as much in retirement as they would in the STRS Defined Benefit Program. Are you trying to deconstruct Ohio’s public pension systems? I hope not!
I would also hope that this terrorism issue, targeting STRS, PERS, and the rest would not be used by you and other Republican party members to put public pension systems on some sort of McCarthyesque Black List in the public eye in order to defeat the 5% increase by saying-“See – they are investing in companies that help the terrorists!” while at the same time Halliburton is running amok in Iraq, and who knows what other American companies are investing where there is profit -- if no questions are asked!.
Your original question mentioned Iran. Why just Iran? I would guess that there are US corporate investments throughout the Middle East in countries from Saudi Arabia, Iran, and Iraq to Syria, and many others. Even Indonesia for that matter. With the issue of terror related investment becoming this large it makes no sense to single out public retirement systems and especially the “benefits” as if those “ungrateful” public servants who somehow are more suspect of engaging in such investments than multinational corporations.
James O. Kimmel, M.Ed
STRS Retiree

Drug Firms Flout FDA ....So, they got a fine..... they are still laughing all the way to the bank!

"Critics of off-label marketing say drug makers continue to do it for one simple reason: profits. Even when drug makers are forced to pay huge fines, the amounts are small, compared with the money that can be made by promoting drugs for off-label uses."
Fines For Promoting `Off-Label' Drug Uses Seen As A Cost Of Business, Critics Say
By DENISE LAVOIE Associated Press, May 10 2007
BOSTON -- U.S. District Judge Patti Saris had seen cases such as this before, and she was fed up.
Another pharmaceutical company was in her court, waiting to be slapped with a multimillion-dollar fine for marketing its drugs for uses that the federal Food & Drug Administration had not approved.
"You can't thumb your nose at the FDA," Saris said. She sentenced Schering Sales Corp. and its parent company, Schering-Plough Corp., earlier this year to pay $435 million to settle allegations that it lied to the government about drug prices and illegally promoted the drugs Temodar and Intron A for the treatment of cancers for which they were not approved.
Doctors are free to prescribe drugs for uses that have not been approved by the FDA, but pharmaceutical companies are prohibited by law from marketing drugs for so-called "off-label" uses.
Some industry representatives say the law that prohibits illegal marketing and the affiliated FDA regulations are open to different interpretations and are selectively enforced.
During the past decade, federal prosecutors across the country have aggressively targeted drug companies, including Pfizer Inc., AstraZeneca Pharmaceuticals, and Eli Lilly & Co., for illegal marketing activities.
Just this week, Purdue Pharma, of Stamford, Conn., the maker of the painkiller OxyContin, agreed to pay $19.5 million to 26 states to settle off-label marketing allegations.
Since 1997, when the Justice Department began receiving funding earmarked for fighting health care fraud, the federal government has collected $11.87 billion in fines for various violations and returned the money to Medicare, Medicaid and other health care programs.
Critics of off-label marketing say drug makers continue to do it for one simple reason: profits. Even when drug makers are forced to pay huge fines, the amounts are small, compared with the money that can be made by promoting drugs for off-label uses.
In 2004, New York-based Pfizer, which has its research and development headquarters in Groton and New London, Conn., paid $430 million in fines to settle allegations that it marketed the epilepsy drug Neurontin for pain and psychiatric illnesses.
David Franklin, a medical liaison who became a whistleblower against the company, said that even after the settlement - one of the largest ever in a health care fraud case - doctors told him that other pharmaceutical companies were still actively promoting their drugs for off-label uses.
"The $430 million penalty was widely referred to as a slap on the wrist," Franklin said.
Sales of Neurontin reached nearly $2.7 billion in 2003, a year before the fines, which settled allegations that Warner-Lambert - a company Pfizer bought in 2000 - flew doctors to lavish resorts and paid them big speaking fees to hype Neurontin.
Many of the cases begin with a lawsuit filed by a whistleblower such as Franklin. Under the federal False Claims Act, private citizens can sue on behalf of the government and receive a portion of fines in cases in which companies defraud the government, including cases in which Medicare and Medicaid are charged for these off-label prescriptions. Franklin received a total of $26.6 million in the Neurontin case.
Thomas Abrams, director of the FDA's Division of Drug Marketing, Advertising and Communications, said it is dangerous for pharmaceutical companies to promote non-approved uses for their drugs.
Doctors will use their judgment to decide what's best for their patients, including sometimes off-label prescriptions, but when drug companies promote those uses, it circumvents the FDA approval process and could lead to doctors prescribing drugs for uses that aren't safe or effective.
View article here

Flashback, 3 years ago: STRS workers to get nearly $4 million in bonuses

“Oh my God,” said state Rep. Michelle Schneider, R-Cincinnati, and sponsor of legislation to reform the state’s five pension systems. “They just don’t get it. The nightmare continues.”
STRS workers to get $3.85M in bonuses
Canton Repository, May 12, 2004
Copley Columbus Bureau chief
COLUMBUS — Employees of the State Teachers Retirement System will get bonuses worth $3.85 million from a program that was suspended in the aftermath of revelations about excessive spending last year.
Retirement System Executive Director Damon Asbury said late Tuesday night that he will recommend to the Retirement System board next week that payments be made to 371 investment and noninvestment employees for work done in the 2002-03 fiscal year.
Asbury said he felt the system had a legal responsibility to make the payments because employees participated in the program expecting to earn bonuses for meeting “stretch goals.”
Employees met their stretch goals, for example, by attending workshops, talking to parents and keeping spreadsheets of expenses, according to information first reported in July 2003 by Copley Ohio Newspapers.
Asbury made the decision based on an Ohio attorney general opinion issued late last year, but not made public. He said the report indicated that a valid bonus contract existed between the system and employees.
“Oh my God,” said state Rep. Michelle Schneider, R-Cincinnati, and sponsor of legislation to reform the state’s five pension systems. “They just don’t get it. The nightmare continues.”
Asbury said he intended to brief key lawmakers Tuesday, including Schneider, but couldn’t because of the Legislature’s busy calendar. But he said state Sen. Lynn R. Wachtmann, R-Napoleon, and another sponsor of reform legislation, knew about Asbury’s decision earlier this year. Wachtmann, who is also chairman of the Ohio Retirement Study Council, could not be reached Tuesday night. The council meets today.
“This is not a step in the right direction,” said Schneider, a member of the council. “It absolutely hurts the effort to restore faith and trust in the system.”
Thomas Curtis, a retired teacher from North Canton, called for Asbury’s resignation immediately. He said Asbury told retirees “there was no contract” with noninvestment employees and they would never get bonuses. “This is totally against what he told us. I am disgusted.”
Asbury said he had heard informally that employees planned to sue the system over the bonuses. He said he had hoped to have the issue settled in January, but “we didn’t want it to get in the way of the pension reform bill in the Legislature.”
John Lazares, a Warren County superintendent who was just elected to the board but will not take office until September, wondered if there was another motive. He beat incumbent board member and chairman Eugene Norris by less than 300 votes Saturday. He said the margin would have been even greater had this news come out sooner.
“I ran on the issue that we have to rebuild confidence and respect for the system,” he said. “I know this will devastate members. I don’t support it.”
Asbury said there is money in the system’s budget this year to pay the bonuses, but not in next year’s budget.
“We need to move forward,” he said. “This is a carry-over from our past. It’s unfortunate. This is one thing we have to deal with head-on. I understand the sentiment on both sides. It’s not a decision I took lightly. I agonized over it, but I feel it is the right decision in the best overall interest of the system.”
You can reach Copley Columbus Bureau Chief Paul E. Kostyu at (614) 222-8901 or e-mail:

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Friday, May 11, 2007

If the state legislature passes HB 152, all school boards in Ohio will be required to offer alternative retirement plans (meaning other than STRS and SERS) to all employees with up to five years of service. Because a substantial number of those affected are educators contributing to STRS, this could pose an extremely serious threat to our pension system.
Of the five state pension systems (Public Employees Retirement System, State Teachers Retirement System, School Employees Retirement System, Police and Fire Pension Fund, State Highway Patrol Retirement System), ONLY STRS AND SERS ARE BEING TARGETED. We must join forces to STOP this bill, and to demand to know why WE and SERS are the ONLY TWO being targeted. WHY NOT ALL FIVE PENSION SYSTEMS?

E-mail Addresses and telephone numbers for HB 152 (for mailing addresses, click here):
Rep. Chris Widener, SPONSOR: (614) 466-1470
Rep. Bill Seitz, CO-SPONSOR: (614) 466-8258
Rep. Larry Flowers, CO-SPONSOR: (614) 466-4847
Rep. Courtney Eric Combs, CO-SPONSOR: (614) 644-6721

Molly Janczyk on HB 152: Contact your legislators NOW if you want to save your retirement

This is a threat to STRS who would lose contributors and confusing to new educators who may choose an alternative plan not understanding they can never save enough for their health care in retirement. PLEASE TAKE A MOMENT TO WRITE AND CALL YOUR LEGISLATORS ASKING THEM TO CONTACT THE AUTHOR OF THE BILL AND VOTE NO TO HB 152!

List of contacts for HB 151 and HB 152

From Molly Janczyk, May 11, 2007
Subject: ORTA List of HB 151 and HB 152 Contacts
E-mail Addresses for HB 152 (Alternative Retirement Plan) and HB 151 (Iran Investments)
E-mail Addresses for HB 152: (Widener) Sponsor Co-Sponsors: (Seitz) (Flowers) (Combs)
E-mail Addresses for HB 151 (Mandel) Sponsor (Jones) Sponsor Co-Sponsors: (Patton) (Adams) (Aslanides) (Barrett) (Brinkman) (Bubp) (Budish)
(Collier) (Combs)
(DeGeeter) (Dodd)
(Dolan) (Flowers)
(Gibbs) (Goyal)
(Hite) (Latta)
(Mallory) (McGregor)
(Peterson) (Schindel) (Setzer) (Uecker) (Wagner) (Wagoner) (Webster) (Wolpert) (Zehringer)
1) HB 151 - This bill requires divestiture of investments in any foreign corporation doing business with Iran. While appearing to be an anti-terrorism bil, its broad definitions could prove to be harmful to STRS investment performance. The bill's definitions are so broad that it may require avoiding investments in business with a substantial "footprint" in Ohio. Investments in BP (750 Ohio citizens employed, not counting gas stations), Daimler-Chrysler (over 9,000 Ohio employees), and Honda (more than 17,000 Ohioans work there) are just a few examples. The bill requires divestiture only by the public pension funds of public employees, not private funds. Suspiciously, the bill provides "Protection" from "breach of fiduciary duty" charges for Board members who take these actions, basically admitting that implementation of this legislation may result in a loss for our pension funds that would otherwise be considered criminal.
2) HB 152 - This bill is a reintroduction of one from the last legislative session that requires school boards to offer retirement plans other than STRS (Alternative Retirement Plans) to employees with five or fewer years of service. These STRS members represent 25% of our membership and 14% of statewide payroll contributions for the system. It is an obvious threat to our pension fund's long-term viability.

Thursday, May 10, 2007

Could AG Dann be eyeballing the pillmakers? Cross your fingers!

Dann talks drugs
Posted by Mark Naymik
May 10, 2007
Cleveland Plain Dealer
Ohio Attorney General Marc Dann wants to learn more about battling the pharmaceutical industry, which is coming under the increasing scrutiny of attorneys general for its unfair marketing, labeling and pricing practices, among other things.
Dann, who's trying to build an image around consumer advocacy, is scheduled to attend an invitation-only seminar on the subject this week in New York sponsored by the National State Attorney General Program at Columbia Law school. He'll moderate one session.
Asked if Dann is looking to make the drug industry the next tobacco industry -- which has had to fork out billions to states because of the harmful effects of its products -- a spokeswoman for Dann said the conference is just part of his mission.
"It doesn't matter if it's securities fraud, companies endangering our environment, or pharmaceutical companies abusing consumer rights," Michelle Gatchell said. "If we believe that legal action is warranted, we are going to take it."

RH Jones to Amanda Litvinov re: White Hat Management's damage to STRS

From RH Jones, May 10, 2007
Amanda Litvinov, Editor, This Active Life
1201 16th St., N.W., Suite 10
Washington, DC 20036
Dear Editor Litvinov:
Re: More False Idols.
In the May 2007 NEA Retired Magazine: This Active Life “Talk to Us,” Richard Birch wrote in part: “TAL is holding her up as some sort of example or hero. Something is wrong here.” I would like to add that: Something is wrong once again! A full page 19 was given to two retired Akron, Ohio administrators, Dan Hayes and Carl Dimengo who must be laughing at This Active Life magazine. In TAL, reporter Rina Rapuano’s article: A Home Run, They may have hit A Home Run physically but the two struck out mentally. They both play for the White Hat Management (WHM) Company. David Brennan, CEO. WHM is the foremost charter school company in the whole of Ohio. In the article, the logo is clearly shown in the photo on Dan Hayes’ baseball uniform shirt. By their playing baseball for WHM, I wonder if Hayes and Dimengo realize that they have unwittingly advertised WHM. And that by doing so, they have helped “short change” their Ohio STRS of which they are both retired members. Most certainly, they can find another team to play for.
WHM has caused untold damage to Ohio’s State Teacher’s Retirement System (STRS) by siphoning off millions of tax dollars to run several for-profit private schools. We presently have fewer public school teachers paying into our retirement system so there now are fewer employee/employer contributions to our STRS. This is at a time when there has been Enron, WorldCom, etc. and huge cuts in funding for retiree health care and other retiree benefits.
As a consequence of WHM, active teachers have been hurt as well. Since charter schools, public school districts have been “short changed” as funds are diverted into entrepreneurs' pockets.
The NEA and NEA-R has been consistent in its fight against charter schools, vouchers, etc. It seems that the TAL editor and reporter should be more careful as to whom they report as idols. You have my permission to quote me in full or in part. Please print the heavy black typed sentences in the “Talk to Us” of the next Active Life issue.
Robert Hudson Jones,
NEA-R Life Member & retired Akron, Ohio teacher

STRS-to divest or not to divest?

Akron Beacon Journal, May 10, 2007
Bill aims at firms with ties to Iran
Ohio pension funds face selling shares of Honda
By Dennis J. Willard
Beacon Journal Columbus Bureau
COLUMBUS - Ohio's pension funds would have to sell stocks
The Iran divestment bill being heard in the Ohio House would require the state's five pension funds to sell all their stock in companies that have invested millions of dollars in Ohio and employ thousands here, because those foreign companies have financial ties to Iran.
A list of companies with ties to Iran developed by a private research company for the State Teachers Retirement System includes some of Ohio's largest employers, such as Honda Manufacturing of America, DaimlerChrysler, Nestle and Siemens.
The companies on the STRS list of investments, compiled by Institutional Shareholders Services headquartered in Rockville, Md., include 140 that employ 51,740 in Ohio.
STRS and the four other state pension funds oppose House Bill 151, sponsored by Reps. Josh Mandel, R-Lyndhurst, and Shannon Jones, R-Springboro.
The bill prohibits any public investor from investing in a foreign company that has active business ties with or operations in Iran, and it mandates that existing investments in such companies be sold to protect the public investments of the state from losses related to global security risks.
Mandel said the Ohio Bureau of Workers' Compensation and the Ohio treasurer's office are included in the bill, but unlike the pension funds, they do not have investments in companies with ties to Iran.
Mandel said the pension funds have known they are investing in a country that sponsors terrorism. ``I think it's morally outrageous that they are taking retirement dollars and investing them in a country that wants to destroy America,'' Mandel said. ``They have chosen on their own to invest in Iran, and because of that, it is important that the legislature mandate that they stop doing this dangerous practice.''
Leaders of the pension funds outlined their reasons for opposing the bill at an Ohio Retirement Council Study meeting Wednesday after hearing a detailed analysis of the bill from the council's staff. The analysis included a recommendation to ask the Ohio General Assembly not to approve the legislation as introduced.
State Sen. J. Kirk Schuring, R-Jackson Township, who chairs the council, postponed a formal vote to oppose the measure because he said the sponsors are working with pension fund officials on a compromise bill.
Hearing set for today
The House continues to hold hearings; another is scheduled before the Financial Institutions, Real Estate & Securities Committee this morning.
Mandel said he was aware that major corporations doing business in Ohio are on the list of companies with ties to Iran, but he does not believe that poses an obstacle for his legislation. ``We have not heard any testimony from any company opposing the bill. We have not heard from any company whatsoever that's opposed to the bill,'' Mandel said.
He said he has heard from workers outraged about their employers investing in Iran. ``What does a blue-collar worker on the assembly line at Honda or DaimlerChrysler think about this? These are the moms and dads with kids serving over in Iraq. What do they think about their company investing in Iran, a country that wants to destroy their sons and daughters serving over there?'' Mandel said.
Jones said the bill is very much a work in progress, and she and Mandel are working to accomplish their divestment goals in a responsible way.
``We've also made huge investments in those companies as well. We're simply saying we want people to do business here, and we want to encourage job growth. We also just don't want people building up the terrorist regime of Iran that is trying to develop nuclear weapons that are targeted at us,'' Jones said.
Jeffrey Smith, assistant vice president for corporate affairs at American Honda, said his company has not taken a position on the bill.
Smith said the parent company, Honda Motor Co. Ltd. of Japan, has a minority ownership share in a motorcycle manufacturer, Tizro Mfg. Co., in Iran. Tizro assembles a small number of motorcycles in Iran; Tizro has about 2 percent of the market.
Smith said the operation is unrelated to Honda's operations in the United States.
State Rep. Chris Widener, R-Springfield, who chairs the committee holding hearings on the bill, said he has seen no company names.
``Honda is a foreign company, but they have a major presence in Ohio,'' Widener said. ``On the surface, it looks like a straightforward bill, but this is definitely a major question we need to address.''
The ISS list indicates Honda employs 17,350 in Ohio.
Damon Asbury, STRS executive director, told the retirement council that ISS used screens to develop the list that determined whether a company has direct investments, operations or other business in Iran. The resulting list shows ``companies that could fall under the definition of doing business with Iran,'' Asbury said.
A number of Mandel's legislative colleagues are concerned about the message Ohio's pension funds would be sending to international firms with large investments in the state, such as Toyota and BP.
State Rep. Michelle Schneider, R-Madeira, a member of the retirement council, suggested the state's laws would be in conflict with federal policies.
``The (U.S.) State Department allows these companies to do business in Iran, but by passing this bill, we are saying our pension funds cannot invest in these companies,'' Schneider said.
STRS paid ISS to come up with the list after a private, for-profit research firm in Washington, D.C. -- on behalf of Mandel and Jones -- matched companies that have investments in Iran with the companies in which the state's five pension funds have invested.
List deemed proprietary
Asbury said the Conflict Security Advisory Group refused to provide the pension funds with the names because it deems the information proprietary.
CSAG, established one month after the Sept. 11, 2001, terrorist attacks, specializes in assessing global security risks, which it defines as ``the risk associated with corporate ties to countries of security concern, terrorism or weapons proliferation,'' according to its Web site.
CSAG has a database that identifies and profiles more than 400 U.S. and foreign publicly traded companies with business ties to countries identified by the State Department as state sponsors of terrorism. The firm's Screening and Certification Service allows investors to develop a ``Terror-Free'' investment portfolio.
Adam M. Pener, chief operating officer, said his company does not take a position on how the data it provides to clients should be used, and he could not disclose whether Honda, DaimlerChrysler, Nestle or Siemens was on the CSAG list.
Pener said CSAG lets companies on the list challenge or clarify the research firm's findings.
In an April 10 letter to Jones and Mandel, CSAG outlined estimated investments by the five pension funds in companies with active, nonhumanitarian ties to Iran. The five pension plans would have to sell investments in 568 companies totaling $8.9 billion of the funds' combined portfolios of $132 billion.
Dennis J. Willard can be reached at 614-224-1613 or

Wednesday, May 09, 2007

ORTA takes a stand!

From John Curry, May 9, 2007
Subject: ORTA takes a stand
Now, when will they take a stand with and for Dr. Leone and John Lazares in the reformation of STRS? Well, at least this is a move in the right direction. John
ORTA Strongly Opposes HB 151 as Introduced

HB 151 Iran Divestitures sponsored by Rep. Jones (R-Springboro) and Rep. Mandel (R-Lyndhurst) is opposed by the Ohio Retired Teachers Association. ORTA joins STRS and all of the other four retirement systems, PERI and SERO in opposition to this bill. You can link to the bill and e-mail sponsors and co-sponsors from information available at

The Executive Directors from all five systems and others have been meeting with the bill sponsors, the committee chairman and others over the past two weeks to provide input and data on the negative impact this bill would have on retirement system investments. Millions of dollars in costs and loss of earnings from our pension funds would result. Both pensions and health care would be affected it the investment income were to drop. The actuarial impact of adopting this provision would prohibit STRS assets from being invested in foreign companies that have business ties with Iran. As of July 1, 2006, STRS's pension funding period was 47.2 years. STRS has estimated that the proposed legislation would result in investment returns decreasing between 10 and 25 basic points. Therefore, the valuation interest rate assumption would be reduced from the present 8.00% to between 7.90% and 7.75%. The actuarial impact of reducing the valuation interest rate to 7.90% or 7.75%, using the July 1, 2006 valuation as the baseline would raise the funding period to 79.1 years...a serious impact to our retirement system.

As of today, May 9, 2007, Sen. Schuring, Chairman of the Ohio Retirement Study Council did not have the Council vote this morning. Rather, he stated that he would be contacting sponsors to address the concerns of the affected retirement systems. To link to the ORSC Staff analyses of this issue, go to

Ann Hanning attended an ORSC meeting today, Wednesday, May 9, 2007 in which the ORSC staff strongly recommended that the Council NOT support HB 151 as it is written.

The following is a letter that Executive Director Ann Hanning has sent to the chairman of the House Financial Institution Real Estate & Securities concerning HB 151:

House Financial Institution Real Estate & Securities
Committee, Chairman Chris Widener

Dear Chairman Widener & Members of the Committee,

I recently learned that you are reviewing a bill (HB 151) that would have a great impact on the State Teachers Retirement System (STRS) and its ability to direct its own investments and provide for its retiree members. STRS investment policies and practices are sound and have provided exceptional returns over the years.

As retired teachers we are concerned about terrorism in this country and indeed throughout the world. However, we do not think a restriction on STRS investment practices is the panacea for solving this terrible social disorder.

We believe that our pension funds are primarily for the benefit of those retirees, who paid into STRS during their active careers. It is the primary and fiduciary responsibility of the STRS Board to fund appropriate pension benefits for its members. To jeopardize our pensions by passing this bill would be a great disservice to all public service retirees.

We think a secondary STRS responsibility is to provide access to affordable health care for retirees. Many retirees are currently struggling to manage the costs of health care premiums, doctor visits and prescriptions. Restrictions in HB 151 could affect STRS’ ability to continue any health care benefits.

It is unwise to suspend a Board’s fiduciary duty in any way and to direct the investments of its members’ funds. This sets a dangerous precedent. We ask for your thoughtfulness in your deliberations on HB 151.

Ann Hanning,
Executive Director
Ohio Retired Teachers Association

More information is available at

Americans Betrayed By Democratic Senators With Surprise Amendment That Protects Big Pharma Monopoly

Click to get contact information for your senators:
Mike Adams Source: May 8, 2007
By Mike Adams

Consumers expecting a miracle in the Senate that would end Big Pharma's monopoly and the FDA-enforced drug racket now operating in the United States will be sorely disappointed by yesterday's events. Fifteen Democratic senators (led by Sen. Edward Kennedy) abandoned consumer interests and joined a Republican-organized amendment that would protect Big Pharma's stranglehold over U.S. consumers by blocking the importation of prescription drugs from other countries.

The amendment in question is Senate Amendment 1010: "To protect the health and safety of the public," sponsored by Sen. Thad Cochran (R-MS) as an amendment to S.1082, the FDA reauthorization bill. The short text of the amendment requires that the Secretary of Health and Human Services block all importations of medications unless HHS can certify to Congress that such imports, "pose no additional risk to the public's health and safety." HHS Secretary Mike Leavitt, of course, has no interest in allowing free market conditions to threaten Big Pharma profits, thus the outcome of this amendment is obvious: It effectively overturns the Dorgan amendment that would have allowed Americans to save billions of dollars on prescription drugs by purchasing them from outside the United States under "free market" conditions.

Fifteen Democratic senators voted in favor of this amendment to defend Big Pharma's monopoly. Those senators are are: Max Baucus, Evan Bayh, Maria Cantwell, Thomas Carper, Edward Kennedy, John Kerry, Mary Landrieu, Frank Lautenberg, Blanche Lincoln, Robert Menéndez, Barbara Mikulski, Patty Murray, Ben Nelson, Jay Rockefeller, and Kenneth Salazar.

Thirty-three Republicans also supported the bill, which passed 49-40 (11 not voting). The Republican senators who voted for this amendment are: Lamar Alexander, Robert Bennett, Kit Bond, Jim Bunning, Richard Burr, Saxby Chambliss, Tom Coburn, Thad Cochran, Norm Coleman, Bob Corker, John Cornyn, Michael Crapo, Elizabeth Dole, Pete Domenici, Michael Enzi, Lindsey Graham, Judd Gregg, Chuck Hagel, Orrin Hatch, Kay Bailey Hutchison, Johnny Isakson, Jon Kyl, Richard Lugar, Mel Martinez, Mitch McConnell, Lisa Murkowski, Pat Roberts, Arlen Specter, Ted Stevens, John Sununu, Craig Thomas, George Voinovich, and John Warner.

Big Pharma owns the U.S. Senate

What's clear from this vote is that the majority of U.S. Senators do not represent the interests of the people. Backed by Big Pharma reelection campaign money, our lawmakers are acting to directly enforce a Big Pharma monopoly at the expense of the public. While the exact same medications are available from Canada, Europe and other countries for nearly half the price paid in the United States, U.S. consumers will continue to be forced to pay monopoly prices on their medications thanks to the great U.S. Senate sellout to Big Pharma.

It's not just consumers who are financially harmed by this drug price fixing scheme, either. Many corporations, city governments and states are headed to near-certain financial bankruptcy in large part due to monopoly pricing on prescription drugs. The near-collapse of the U.S. auto industry, for example, is largely due to health care costs. General Motors spends more on health insurance than it does on steel. The cost of doing business in the United States is now unbearable for many companies, and they're fleeing to other countries where health care costs are a fraction of U.S. costs.

Fifteen Democratic and thirty-three Republican senators believe U.S. citizens and businesses should be forced to pay the highest prices in the world for medications. Monopoly market conditions must be upheld. Keeping Americans diseased, uninformed and financially exploited is simply too profitable to walk away from. And corporate control over the U.S. Congress has never been stronger. It is no exaggeration to say that, with few exceptions, lawmakers no longer vote according to the interests of the citizens they claim to represent. Rather than casting votes that actually protect the public interest, lawmakers now spend their time determining which votes will get them reelected. That, of course, requires money, and corporations have lots of that -- especially when they run FDA-enforced monopoly price fixing schemes that clearly qualify as crimes under existing anti-trust legislation.

Democracy is failing

When the government of any nation forgets its people and, instead, focuses on defending and promoting the interests of powerful corporations, you no longer have a Democracy. Instead, you have a Plutocracy (see Wikipedia entry on Plutocracy), where the wealthy elite control the political process and use laws to further enrich themselves at the expense of the public.

It's an accurate description of what's happening in America today: The public is no longer represented by the Senate, the FDA, the USDA or the EPA. Instead, each of these governmental bodies (legislative for the Senate, executive for the other departments) is now operating in the interests of corporations. Campaign finance reform, of course, is impossible under such circumstances, since no corporate-controlled Senate will ever vote to cut itself off from corporate money. Thus, the only outcome of the situation is a further erosion of the integrity of U.S. legislative processes to the point where the public is impoverished, the nation is bankrupt, and the corporations run the government.

We are approaching that scenario now, and this latest vote by Senators to protect and even expand the Big Pharma monopoly over U.S. consumers is a glaring example of what happens when politicians sell out their constituents and kowtow to the influence of powerful corporations. Big Business and Big Government are now merging to become a unified system of financial exploitation of the people. The corporations financially rape the people, and the government keeps it legal.

Please note that senators of both major parties -- Democratic and Republican -- joined in this most recent mass betrayal of U.S. consumers. While Republicans certainly have stronger ties to drug companies, when push comes to shove Democrats will sell out their constituents just the same. The pocketbook of no citizen is safe when Congress is in session, and any voter who thinks one political party or another is going to come to the rescue and actually protect the interests of consumers is hopelessly naive.

Action items: Here's what you can do now The battle over S.1082 is not yet over. All these recent debates are over amendments to the bill. The bill itself has not yet come to a floor vote (but it will soon). You still have a chance to help stop this bill!

If you're a U.S. citizen, call your Senator now (click here for a list of Senators' phone numbers) and tell them you oppose S.1082, the FDA reauthorization bill. If you have a chance, tell them you support the "Grassley amendments" and a free market for medications.

We can still have a huge impact in stopping this bill from becoming law. But it will require more action on your part to help protect American consumers from financial exploitation by the white-collar criminals running medicine today. We must do the job the U.S. Senate refuses to do. We must take action to protect ourselves from the monopolists, pharma con men and corrupt regulators who are trying to keep Americans trapped in a system of medicine that will ultimately destroy our collective health and bankrupt our nation. There is nothing these criminals will not attempt in order to protect their profits and territory, and right now they've pulled out all the stops to buy off senators and keep their medical monopoly intact.

Only a massive grassroots campaign of opposition can save us from a corporate-controlled plutocracy (or kleptocracy, if you will). Please join me in taking action now to stop S.1082 from becoming law. Saving America from itself is now up to the people, and the people alone. Lawmakers have rendered themselves incapable of making decisions that support any real future for our nation. The U.S. economy is now a carcass of cash (debt, actually), and lawmakers are simply divvying up the spoils to their Big Pharma buddies.

Update on John Lazares 5/9/07

From Molly Janczyk, May 9, 2007
Subject: John Lazares
John is hoping as stated before to come to the May meeting at least on one day. He has to wait to see how he is that week. John is undergoing more intensive physical therapy right now and today is going back for another round following the am session. After therapy , he is having problems walking and the meds aren't really helping his discomfort. He has not driven any distance since his surgery so again has to see what he can do next week. But, he really wants to make it and will do his best. If he cannot, you will understand the reasons.
He wants to tell all hello and thanks for all the messages.

Tuesday, May 08, 2007

Kathie Bracy to Rep. Flowers: Perhaps you misunderstood the question

From Kathie Bracy, May 8, 2007
Subject: Re: On behalf of Rep. Flowers re: HB 152
Dear Rep. Flowers,
Thank you very much for your response to my inquiry regarding HB 152. I know you're a very busy man; perhaps in haste you misunderstood my question, which is understandable.
What I really need to know is why the Public Employees Retirement System, Police and Fire Pension Fund and State Highway Patrol Retirement System are not included in the bill, since they are also state retirement systems.
Thank you.
Katherine Bracy
STRS retiree

[Reference: click here]

John Curry to Guy Sturino: A word of thanks

John Curry to Guy Sturino, May 8, 2007
Your Article About ...
Thanks for your article that appeared in the American Chronicle re. the Bernie Sanders speech on the floor of the U.S. Senate. I am a retired educator from Ohio and have been working with reforming our state teachers retirement system - a system that was riddled with ethically challenged board members and a former executive director - all of whom were convicted of Ohio ethics violations and were fined and some given public service restitution. Our retirement system (State Teachers Retirement System of Ohio) has been reforming (slowly) thanks to a former Ohio school superintendent (Dr. Dennis Leone) who "blew the whistle" on a system that formerly was the pinnacle of mismanagement, misspending, and an entitlement mentality.
Your presentation, in the Chronicle, was sent to many members of my organization, Concerned Ohio Retired Educators, and I hope they will take heed at what both you and Sen. Sanders had to say. I also see that the Senate also passed (on the same day) a bill which will effectively block importation of Rx into this country. Big Pharma's $$ did it to us again. !! Thanks for your enlightenment on this critical issue to retirees .... and ALL U.S. citizens who have been ripped off thanks to the pillmakers. Oh, if you get a chance, please visit our blog at the link below my name. Once again... thanks from the bottom of my heart.
Sincerely, John Curry

A speech by Sen. Bernie Sanders on Rx reimportation

From John Curry, May 8, 2007
Subject: This brought a tear to my eye....please take the time to view it.....John
Below is a link to the speech Senator Bernie Sanders (I) of Vermont gave to the U.S. Senate on May 2, 2007, in reference to Rx reimportation. It is a moving speech and one that should be viewed by all retirees - if not every U.S. citizen. PLEASE GO TO THIS WEBSITE. John
[Note: This is a video, best viewed via high speed ISP, rather than dial-up]
See article below for more.

Senator Sanders Speaks His Mind

Senator Sanders Speaks His Mind
By Guy T. Sturino
May 2, 2007
Today a visibly emotional Senator Robert Byrd stood to say, “Thank God for Bernie Sanders, the Senator from Vermont. Thank God.” That was all he said - it was all he had to say.
The reason for his remark was the speech Senator Sanders had just delivered. In a scathing rebuke of the nine-year congressional deference to the pharmaceutical industry, Senator Sanders told the nation what has been going on during that time. What had happened was that the kind of remarks that are normally only heard in homes and gathering places across the country had been said by a Senator - on the floor of the Senate - in front of a camera.
Senator Sanders speech followed a presentation by Senator Dorgan (D-ND) about Senator Dorgan’s amendment which would allow the re-importation of prescription drugs. Both Senators pointed out the fact that drugs produced in the same manufacturing facility, whether the facility was here or in another country, wind up costing more here than anywhere else in the world. Senator Dorgan’s example was a drug produced in Ireland and sold in Canada for half of the cost charged in the U.S. Senator Sanders’ example was a cancer drug produced here and sold in Canada for 10% of the price in a U.S. pharmacy.
Senator Dorgan talked about the amendment itself and the fallacies of the arguments against it. Senator Sanders did some of the same, but more importantly he re-framed the debate to include the reason those arguments were being put forward.
First came the revelation that since 1998 the pharmaceutical industry has spent about nine hundred million dollars ($900,000,000.00) on lobbying efforts. Those efforts include maintaining a force of over1200 lobbyists, many of whom are former Republican and Democratic party leaders. That is more than two lobbyists for each member of congress.
In addition, we were told that since the year 2000 the pharmaceutical industry contributed almost two hundred fifty million dollars ($250,000,000.00) to congressional campaigns.
Putting these things in context Senator Sanders said,
“What this debate is about is not just whether or not we’re going to lower the cost of prescription medicine in this country and save billions and billions of dollars for the consumers of our country - for people with acute illness, for our seniors. It is also about whether the congress of the United States is in fact prepared to stand up to the most powerful, the greediest special interest in the United States of America. And in my view the time is long overdue for us to begin to make some fundamental changes in our prescription drug policies in this country.
“The time is long overdue for us to lower the price of medicine for our people. Which not only, of course, helps people pay for prescription drugs, it will lower the entire cost of health care in the United States. We spend far more money for health care in the United States than any other country on earth and lowering the cost of prescription drugs will have an impact on that.
“What this issue is about is not drug safety. What this issue is about is the profits of the pharmaceutical industry and the enormous power they have over congress. Now is the time for us to say to the drug companies ‘you have dominated what goes on year after year. You in the drug industry wrote the prescription drug medicare bill. You have resisted year after year every effort to reform how we price medicine in the United States.
“Maybe the year 2007 might be the moment in which members of congress have the courage to stand up and say enough is enough. Let us stand up and support the men and women and children, the seniors of our country. Let us lower the cost of prescription drugs. Let us pass prescription drug re-importation.”
After reading this maybe you feel like Senator Byrd - or not. But if not, it’s probably correct to say that you don’t have to worry about the price of prescription drugs.
[Click here to view article]

Rep. Larry Flowers' response to Kathie Bracy's inquiry re: HB 152 does not answer her question

From Rebecca Kuhns, May 8, 2007
Subject: On behalf of Rep. Flowers re: HB 152
Dear Katherine,
Thank you for your e-mail [click here to view e-mail] and input on HB 152. As I understand, the bill is voluntary, optional investments for members of STRS and SERS. If this is the case I would support expanding this option to members of all five state systems.
I’m a retired member of Police and Fire Pensions and some of these members are supportive. Again, thanks for your input.
Larry L. Flowers
State Representative
Ohio House District 19

Note from Kathie Bracy: This response does NOT answer my question: Why does this bill target STRS and SERS and NOT the other three pension systems?

Cathy Burner to Gov. Strickland: Please appoint Dave Speas to the Ohio Retirement Oversight Committee

From Cathy Burner, May 7, 2007
Subject: ***NOW is the time to write letters for Dave Speas***

May 6, 2007
The Honorable Governor Strickland
Riffe Center, 30th Floor
77 South High Street
Columbus OH 43215-6108

Dear Governor Strickland:

It has been said, “A leader is born not made”, Governor Strickland you are a person the people of Ohio believes lives up to that statement. This summer you will be appointing many people to important positions on Boards of Directors. One Committee the retired community from public positions holds dear is the Ohio Retirement Oversight Committee. I would like to recommend an Ohio leader for the open seat on the Ohio Retirement Oversight Committee, Mr. Dave Speas. Dave has been a long time resident of Springfield. He is well known in the education community of that area both as a teacher and a School Board member. Dave is tireless in his community advocacy as he works in his retirement with the at-risk youth directing an after school program. Dave has applied for the open position on the Retirement Oversight Committee and has submitted a complete resume. I would like to point out a few of the highlights on that resume that would make him highly qualified for the position. Dave has been a District Director and Western Area Vice President with the Ohio Retired Teachers Association this organization has chapters in all 88 Ohio Counties. Dave has also served on the Ohio State Teachers Pension Board, Ohio STRS.

As a 2004 Democratic Candidate for the Ohio House and the former Assistant Executive Director of The Ohio Retired Teachers Association it is with great zeal that I recommend Dave for this important committee.

Thank you for your untiring pursuit of seeking Ohio Leaders to fill these important appointments.

Catherine Burner
Delaware County Democratic Central Committee Member

Monday, May 07, 2007

From Dennis Leone: Point of Explanation and a Flashback

Dennis Leone to John Curry, May 7, 2007
Subject: Point of Explanation and a Flashback
John -- yes, the comments below represent a verbatim transcript of what was said at the April STRS Board meeting. [Click here to view comments] But here's point of explanation that may interest your readers and you.
Note that I state my concern about the proposed 12.45% increase in the budget category entitled "salaries and wages" for fiscal year 2008. Also note that Jeff Chapman expressed his concern over the proposed 8.5% overall budget increase. A few minutes after our remarks, the Board voted 7-2 (Leone and Chapman voting no) to give Damon Asbury the green light to present a budget to the Ohio Retirement Study Council that included another $1.5 million in order to restructure salaries and bonuses of investment staff even higher. I asked, before the vote, what this would translate into in terms of the increase in salaries and wages, as well as the total overall budget increase. The answer (BEFORE the vote) was that the additional $1.5 million would produce -- in fiscal year 2008 -- an increase for salaries and wages of 14.0% and an overall budget increase of 10.0%.
A few days after the vote, the staff initiated some cuts internally which meant that the proposed budget Damon actually submitted to the ORSC included a 13.7% increase for salaries and wages, and overall budget increase of 8.6%. While I am pleased that Damon and the staff took it upon themselves to make some cuts after the board meeting (which I would have liked to know about before they occurred), I still feel the overall 8.6% proposed budget increase and the line item increase of 13.7% for salaries and wages are just too high. Jeff and I also voted no because the board action gave Damon the okay to present a budget to the ORSC that included 9 new positions.........and while we were told what the new position titles will be, we were not told what the people will do, why they are needed, and what they will be paid. I felt all of this was a flashback to Dyer and the previous board from 2003.
The final board vote on the 2008 fiscal year STRS budget will occur at the June meeting. It will be difficult for the full board to pull back on the above budget items because Damon was told it was okay to present the above to the ORSC, which he has.
Dennis Leone

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Single-Payer System Would Give US the World's Best Care

By Dr. John Daley
May 7, 2007
Major newspaper editorials in the US rail regularly against health care reform. But more often than not, such railings represent yet another attempt by members of the health insurance industry, or someone with very good insurance, to torpedo the best choice for health care reform - a single-payer system, or Medicare for all - by using scare words like rationing or socialized medicine.
As a family physician on the front lines of medicine, I see daily the difficulties patients face due to lack of insurance or underinsurance. Generally, these patients ration their own care, disappearing for a year or two when they lose their job and insurance, only to return with sky-high blood pressures or out-of-control diabetes, effectively taking years off their lives.
In New Hampshire, approximately 135,000 citizens lack health insurance, and, for those who have it, many can't get all they need. The MRI wait may not be long, but many people can't see their doctor, much less get an MRI. Now, with health savings accounts and high-deductible plans, I have insured patients refusing their MRIs due to the cost.
It is estimated that 18,000 Americans die annually due to lack of insurance - a rather harsh effect of our present method of rationing. Shouldn't the elimination of these deaths be a national priority?
The editorial mentions Canadians coming to the United States for surgery because of better and more readily available care. These numbers are rather small, and the editorial fails to mention Americans going to Canada to get affordable drugs, or the ever-increasing phenomenon of medical tourism, where Americans travel abroad to get surgeries that are more affordable.
The bottom line is that Canadians enjoy longer, healthier lives than Americans, despite spending far less than we do, while covering every citizen. In a recent survey, only 3.5 percent of Canadians reported feeling that they waited too long for care - a much smaller number than our 15 percent uninsured, who wait quite a bit. Long waits are a misleading myth.
Furthermore, a recent Harris Interactive poll of patients in the leading industrial societies found that Canada ranked first and the United States last in patient satisfaction with health care. You can't just poll those with good insurance, after all!
Remember the term "single-payer" as the best solution to our health care system's problems. If one believes that health care is a human right and not a privilege, and if one wants to avoid having a health insurance company - which profits by denying care - choosing which tests you can have and which drugs you can take, it is the best answer.
The government pays for more than 50 percent of health care costs already through Medicare, Medicaid, federal employees, the military and the Veterans Administration, so it is not a radical stretch to extend Medicare to all Americans to cover the uninsured.
HR 676 has been introduced in the US House of Representatives by (along with others) Democratic presidential candidate Dennis Kucinich. In my home state of New Hampshire, the House has shown great wisdom in introducing a resolution to study single-payer care for the state.
When discussing health care reform, don't be scared by words like "rationed" or "socialized." Be informed, be wise and be empathic - choose what's best for America and all its citizens, not just those with good insurance.
If we took the money, structure and ingenuity in the current health care arena and applied it to the whole population via a single-payer system that eliminated the unfairness, complexities and waste, we truly would have the world's best health care for our citizens.

Dr. John Daley of Londonderry, New Hampshire, is a physician in Derry and a member of Physicians for a National Health Program.
View article at

Whistle-Blower on Student Aid Is Vindicated

New York Times
May 7, 2007
WASHINGTON — When Jon Oberg, a Department of Education researcher, warned in 2003 that student lending companies were improperly collecting hundreds of millions in federal subsidies and suggested how to correct the problem, his supervisor told him to work on something else. The department “does not have an intramural program of research on postsecondary education finance,” the supervisor, Grover Whitehurst, a political appointee, wrote in a November 2003 e-mail message to Mr. Oberg, a civil servant who was soon to retire. “In the 18 months you have remaining, I will expect your time and talents to be directed primarily to our business of conceptualizing, competing and monitoring research grants.” For three more years, the vast overpayments continued. Education Secretary Rod Paige and his successor, Margaret Spellings, argued repeatedly that under existing law they were powerless to stop the payments and that it was Congress that needed to act. Then this past January, the department largely shut off the subsidies by sending a simple letter to lenders — the very measure Mr. Oberg had urged in 2003. The story of Mr. Oberg’s effort to stop this hemorrhage of taxpayers’ money opens a window, lawmakers say, onto how the Bush administration repeatedly resisted calls to improve oversight of the $85 billion student loan industry. The department failed to halt the payments to lenders who had exploited loopholes to inflate their eligibility for subsidies on the student loans they issued. Recent investigations by state attorneys general and Congress have highlighted how the department failed to clamp down on gifts and incentives that lenders offered to universities and their financial aid officers to get more student loans. Under this pressure, the department is now seeking to set new rules. The subsidy payments that Mr. Oberg uncovered are another corner of the lending system on which the department long failed to act, critics say, letting millions of dollars flow from the public treasury to about a dozen lenders. The department now says it did not fully understand the extent of the maneuvers the loan companies were making to get the subsidies until last September, when its inspector general investigated and issued a report detailing manipulations carried out by a Nebraska lender, Nelnet. The audit recommended that the department recover $278 million from the lender, but education officials instead reached a settlement allowing Nelnet to keep the money but cutting it off from further subsidies that it claimed it was eligible to receive. Senator Edward M. Kennedy, Democrat of Massachusetts and chairman of the Senate education committee, has asked Ms. Spellings to turn over documents related to the settlement decision. She is likely to come under questioning about the Nelnet settlement on May 10, at a hearing of the House education committee. Mr. Oberg, now retired, has a master’s degree from the University of Nebraska and a doctorate in political science from the Free University of Berlin. He is a former Navy officer, university professor, and aide to Senator J. James Exon, a Nebraska Democrat, from 1979 to 1984. He was an Education Department liaison to Congress under the Clinton administration. The subsidy payment issue that came to preoccupy Mr. Oberg grew out of decisions Congress made in the 1980s to ensure that low-cost student loans were available at a time when the economy was souring. Lawmakers guaranteed nonprofit lenders a rate of return of 9.5 percent on student loans that were financed by tax-exempt bonds to protect the companies from spiraling costs. Congress eliminated much of the subsidy program in 1993 because interest rates had dropped, but at that time retained the 9.5 percent return for existing loans. By 2002, lenders had devised ways to inflate the volume of loans for which they received the 9.5 percent subsidies. Congress closed one loophole in 2004, but lenders found others. Congress further restricted the subsidies in 2006. In 1997, the Clinton administration proposed legislation to eliminate all references to the subsidies from the Higher Education Act in an effort to rein them in. Mr. Oberg took the legislation to Sally Stroup, who was then serving as senior aide to the Republican chairman of the House education committee. “Sally told me there was no way that language was coming out,” Mr. Oberg recalled. “She didn’t give a reason — just forget it.” Ms. Stroup, who went on to become an assistant secretary of education in the Bush administration, and who is now back as an aide on Capitol Hill, did not return several phone calls and messages left for comment. In 2000, Mr. Oberg transferred to the department’s research operation, and two years into the Bush administration, began to review the government filings of Nelnet and other lenders. He found that not only were payments to lenders rising rapidly, but also that the base amounts of the loans lenders were claiming as eligible for the 9.5 percent subsidies were exploding. “Several big lending agencies were gaming the system,” Mr. Oberg said in a recent interview at his home in Rockville, Md. He notified the Education Department’s inspector general’s office. He also told his superiors but felt they were brushing him off. So in November 2003, he wrote a memorandum for general distribution throughout the department warning that lender manipulations could cost the government billions unless stopped, and he recommended that the secretary could end the abuse with a letter to lenders clarifying government rules. That is when his supervisor, Mr. Whitehurst, director of the department’s Institute for Education Sciences, stepped in. Mr. Whitehurst said that he had forwarded Mr. Oberg’s memorandum to appropriate senior officials, whom he declined to identify, but acknowledged that he “wasn’t real happy” because he considered Mr. Oberg’s research to be outside his job description. “Plus, I didn’t understand the issues,” Mr. Whitehurst said recently. “In retrospect, it looks like he identified an important issue and came up with a reasonable solution. But it was Greek to me at the time — preferential interest rates on bonds? I didn’t know what he was doing, except that he wasn’t supposed to be doing it.” He told Mr. Oberg to stop because he wanted him to be monitoring grants, not lending practices. Officials also rewrote Mr. Oberg’s job description, documents show, barring him from further research into the subsidies. Although Mr. Oberg was a civil servant, the Bush administration may have seen him as a holdover from the Clinton administration. Mr. Oberg said he decided to continue his research in his free time because, “If you tell some people they can’t do something, they want to do it all the more.” But when he requested from his own department data on payments to lenders, known in the bureaucracy as the 9.5 percent Special Allowance Payments, Donald Conner, an analyst in the department’s postsecondary division, e-mailed Mr. Oberg saying, "I’m not permitted to give any 9.5 percent SAP information." Mr. Whitehurst, in an interview, suggested that Mr. Oberg was viewed by some senior officials as an annoyance. “I was told he was like a dog on a bone, agitating on this issue,” Mr. Whitehurst said. Ms. Spellings did not reply to a memorandum Mr. Oberg sent her about waste in the loan program just before his 2005 retirement, Mr. Oberg said. But Mr. Oberg’s warnings prompted a clamor in Congress and a string of reports by government investigators calling for a stop to the giveaways. Senior department officials disputed or declined to follow the recommendations of all of them. A 2004 report by the Government Accountability Office urged the department to rewrite its regulations to save billions of dollars in future loan subsidy payments. But Ms. Stroup, who had once worked for one of the lending companies that is now under investigation for the subsidies, argued in response that it would be simpler for Congress to clamp down with new legislation. Mr. Paige repeated that argument in a letter to Mr. Kennedy, who was pressing the department to curb the subsidies. Then, in 2005, the Education Department’s inspector general recommended that $36 million be recovered from a New Mexico lender. Ms. Spellings overruled the finding that the payments were improper and declined to recover the payments. And in January 2007, after the inspector general recommended that $278 million in overpayments be recovered from Nelnet, the department instead reached a settlement under which Nelnet could keep the money — if it dropped plans to bill the department for another $800 million in subsidies. Nelnet was the nation’s most generous corporate donor to the National Republican Congressional Committee in 2006, and its top three executives were the largest individual donors to the committee as well, according to the nonprofit Center for Responsive Politics. Nelnet was also well connected at the department. Don Bouc, Nelnet’s president through 2004 and president emeritus thereafter, sat on the department’s Advisory Committee on Student Financial Assistance from 2001 through Feb. 1 of this year, even while the department was auditing the company’s subsidies and negotiating the settlement. Mr. Bouc resigned from the committee 11 days after the department announced that it would not seek to recover the $278 million. Ben Kiser, a Nelnet spokesman, said Mr. Bouc’s service for the committee was unrelated to the audit. Robert Shireman, a researcher in Berkeley, Calif., who co-authored a private nonprofit group’s 2004 report on the subsidies called “Money for Nothing,” said, “There has been an outrageous lack of interest at the Education Department in doing anything to stop the bleeding.” Then this January, turning to a measure Mr. Oberg had recommended in 2003, the department issued a “subregulatory guidance” letter cutting off subsidy payments to all lenders except those who prove their eligibility with an audit. Kristin D. Conklin, a senior adviser at the department, said the department had been unaware, until its inspector general issued its Nelnet audit last September, that lenders were collecting subsidy payments on loans that were clearly ineligible. That audit documented how Nelnet had transferred loans repeatedly into and out of tax-exempt bonds issued before 1993 to expand the volume of loans eligible for the subsidies. The audit identified so-called first-generation loans, financed from the pre-1993 bonds, and second-generation loans, financed from the proceeds of the first-generation loans, as eligible for the government subsidies. It said later-generation loans were ineligible. “It’s not like we were sitting on this big problem and didn’t address it,” Ms. Conklin said. “We didn’t know the extent to which these third- and fourth-generation loans were being used. The full scope of this problem first became known to us in September, and we moved seriously to address it in the following months.” Ms. Conklin also said the department had previously lacked the power to cut off overpayments using a simple letter. Only intervening legislation passed by Congress made that possible, she said. Today, with Mr. Oberg’s predictions proven accurate, he has become a bit of a celebrity. Mr. Kennedy arranged his testimony before the Senate in February. “Taxpayers owe a tip of the hat to former Nebraskan Jon Oberg, who blew the whistle on the scheme that allowed companies to grab hundreds of millions in subsidies,” the Lincoln Journal Star wrote in October.
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