Tax $$$: Fraud & Waste
2006 Reports of Waste, Fraud, & Mismanagement: The Best (Worst?) Cases of "Your Tax Dollars (Not) at Work"
A COMPILATION BY THE
CAL-TAX STAFF OF NEWS MEDIA REPORTS AND AUDITS
Here are more than 60 cases of questionable if not illegal spending of tax
dollars during 2006 in California:
STATE GOVERNMENT
Taxpayer-Financed Preschool Ads. The spending of some $18 million from tobacco tax revenues was questioned as Rob Reiner's preschool tax initiative was circulating and about to qualify for the June ballot. Negative publicity forced the movie actor/producer to step away from the campaign. His Proposition 10 tobacco tax-financed movement failed to convince voters to approve universal preschool (Proposition 82), but state investigators and the Sacramento County district attorney concluded there had not been illegal use of the money as the initiative had not yet qualified when the money was spent. However, there was no shortage of editorial criticism of the Reiner operation over its use of tax money, including those who said all along, in effect, if it wasn't illegal, there ought to be a law. A state audit was ordered. (Caltaxletter: January 6, 2006 from various publications.)
Audit Underscores Lack of Accountability in Spending Proposition 10 Tobacco Taxes. State auditors found lax oversight of millions of dollars in contracts, as well as padded expenses in deals made by the Rob Reiner-led California Children and Families Commission. The scathing report from the Bureau of State Audits found, however, that there was no conflict of interest between the commission's work and Mr. Reiner's universal preschool initiative campaign. The commission failed to use competitive bidding for $47.7 million in contracts. Senator Dave Cox, who requested the audit, said, "This is an agency that is unaccountable and has frankly run amok. This may very well not have violated the law in regards to use of funds for political purposes, but it doesn't pass the smell test." Cal-Tax President Larry McCarthy: "This audit confirms what many have been saying all along about tax initiatives creating reckless, out-of-control spending of tax dollars through unaccountable government agencies. This 'ballot box budgeting' puts many millions of tax dollars at risk." (Caltaxletter: November 10, 2006 from state audit released October 31, 2006, press releases and various publications.)
Prison Guard Overtime Soars. California's prison guards, formally called correctional peace officers, were paid $277 million for overtime in 2005 – double the overtime pay for 2004. About 2,400 of the 22,800 guards exceeded $100,000 in compensation, including overtime, compared with 557 in 2004. One guard grossed $187,000, exceeding the salary of the state prisons director by $56,000. The guards' contract with the state made it easier to achieve sick leave, which caused a huge increase, and that in turn boosted the need for guards to work overtime. Union leaders blamed a shortage of staff, and mismanagement in Sacramento. (Caltaxletter: March 3, 2006 from San Diego Union-Tribune, February 27, 2006.)
State Workers Live Rent-Free. The Bureau of State Audits has reported that millions of dollars have been lost to the state because several state agencies provided free or discounted rent for their employees to live in state dwellings. The benefits were not properly reported as income, so went untaxed, costing taxpayers even more. Auditor Elaine Howle said the state in 2003 lost about $8.3 million in possible rent revenues as 13 agencies provided housing to employees who either stayed free or paid only a fraction of potential fair market rent. She said the state and federal government lost nearly $3 million because employee compensation was under-reported. (Caltaxletter: March 31, 2006 from Sacramento Bee, March 27, 2006.
Lax Oversight of Student Loan Program. EdFund, a nonprofit arm of the California Student Aid Commission that administers the student loan program, spent thousands on executive bonuses, parties and travel while facing an $8.3 million operating deficit. The Bureau of State Audits said lax oversight and questionable spending decisions raise doubts about the state's ability to sustain the program. (Caltaxletter: April 28, 2006 from Oakland Tribune, April 21, 2006.)
Mega-Pensions for Fire Chiefs. Up to 20 supervisors have retired since January from the California Department of Forestry and Fire Prevention with pensions of up to about 115 percent of their salaries. However, the Schwarzenegger administration changed course and decided to prevent the supervisor retirees from cashing in on dual pensions, likely limiting them to 90 percent of final pay in their retirement checks. The retirement spree was caused by a loophole in labor contracts negotiated with former Governor Gray Davis' administration. (Caltaxletter: April 28, 2006 from Oakland Tribune, April 20 and April 26, 2006 and San Diego Union-Tribune, April 26, 2006.)
State Prison Healthcare Wastes Tax Dollars. The $1.4 billion-a-year system of caring for the health of state prison convicts is a state of utter disrepair that is both harmful to inmates and wasteful of tax dollars, concluded the first bimonthly report to a federal judge who placed the system in receivership. The receiver, Robert Sillen, blamed "bureaucratic paralysis," among other factors, for causing "almost every necessary element of a working medical care system" to be nonexistent or "in abject disrepair." He reported that California spends up to $80 million a year more for pharmaceuticals than a comparable prison system. Failing to use discounted rates from manufacturers was a factor, along with frequent purchases of large amounts of unneeded medicine. (Caltaxletter: July 7, 2006 from Los Angeles Times, Sacramento Bee and San Francisco Chronicle, July 6, 2006.
Auditors Cite Waste and Suspected Fraud in Prison Health Care. State auditors believe millions of tax dollars are being wasted, some possibly involving criminal conduct by providers of health care for state prison inmates. State Controller Steve Westly released audit findings showing a 437 percent increase in prison health care spending is too large to be explained by normal health care cost drivers. The increase was from $153 million in 2001 to $821 million in 2006. "Waste, abuse and management deficiencies are rampant" in the department's contracted services, he said, calling for a Department of Justice investigation and consideration of criminal charges against unnamed doctors and others. He cited a urologist's bill of $2,036 an hour to treat convicts and an orthopedic surgeon billing the state for 30 hours of work within a single day. (Caltaxletter: August 11, 2006 from San Francisco Chronicle, August 1, 2006.)
Disability Retirement Reform is Shelved. Legislation that for the first time would make it a crime to lie on an application for a disability pension – introduced in the wake of newspaper reports detailing abuses, much of them by high-ranking state highway patrol commanders – died in the Legislature. Even though AB 456 (Torrico) seemed to have bipartisan support, the author, Assemblyman Alberto Torrico, shelved his own bill. He said he would not revive it until the governor makes it clear he will not pursue large-scale overhaul of the public employee pension system. "If he tells us that, we'll send him the bills tomorrow," Mr. Torrico said. Assemblyman Keith Richman, whose pension reform measures have been rejected by majority Democrats, said, "This is just another example of legislative leaders promising one thing and doing another thing, and giving the public another reason to be cynical." (Caltaxletter: August 25, 2006 from Sacramento Bee, August 24, 2006.)
Wasted and Misused State Bond Funds are Found. Amounting to millions of dollars, a series of Department of Finance audits found wasted and misused state bond funds. Looking at four such bonds totaling $10 billion approved by voters between 2002 and 2004, auditors questioned or challenged spending on public relations, lobbying and even yoga classes and weight-loss programs. It was noted that just a fraction of the total bond money was associated with problems of faulty government agency management. Auditors found that the Oakland-based California Coastal Conservancy spent $38,000 on questionable purposes that included $29.000 for lobbing in Washington, D.C., $5,000 for employee transit subsidies and $3,500 for employee yoga and weight-loss programs. "We will not spend money for yoga classes. People will make mistakes and auditors will hopefully find them so we can fix them … That's why you do audits," said Samuel Schuchat, head of the conservancy. (Caltaxletter: October 13, 2006 from San Jose Mercury News, October 10, 2006.)
California Owes $2.9 Million from Improper Secretary of State Conduct. The federal Election Assistance Commission has ordered California to repay $2.9 million that was improperly spent during the administration of former Secretary of State Kevin Shelley. He resigned in March 2005 in the face of bipartisan criticism. California has been the only state penalized by the election commission for misusing federal Help America Vote Act Funds. The state received $349 million since 2003. The commission said $536,112 was spent for purposes not allowed by the law and $2.4 million was spent on allowable activities but lacking documentation. State and federal audits found that state employees were paid with federal money for consulting and other partisan political activity, including purchases of buttons and balloons to promote Mr. Shelley. (Caltaxletter: October 27, 2006 from San Francisco Chronicle, October 17, 2006.)
Federal Prisons Overseer Makes $500,000, Plus Benefits. A federal judge has given the California Prison Health Care Receivership a "virtual blank check" to use state dollars to fix the prison medical system. Documents filed with the state show Robert Sillen, the court-appointed leader of the receivership, is being paid $500,000 a year plus a 30 percent benefits package. His team includes a $350,000 chief medical officer, a pair of $275,000 information officers and a $275,000 chief financial officer, and so on, down to $200-an-hour consultants for nursing and medicine. "I'm sure Sillen thinks he works very hard, but he works for the people of California and the taxpayers now. It's called public service. Sillen is attempting to cut prison drug costs, which have spiraled out of control. He also has ordered up seven new medical facilities at an estimated cost of $3 billion for three to five years. And why not? It's free money," wrote the Los Angeles Times' Bob Salladay. (Caltaxletter: December 15, 2006 from Los Angeles Times Political Muscle, December 6, 2006.)
HEALTH AND WELFARE
$1.5 billion: Child-Care Welfare Fraud. Authorities in Los Angeles County say an increasingly popular type of welfare fraud involving child care is "looting the public treasury" by as much as $1.5 billion a year – statewide. James Cosper, head deputy district attorney in the county's Welfare Fraud Division: "There is so little regulation. The Legislature is either unaware or indifferent to the tremendous losses. It's a completely broken and dysfunctional system" that is a "tragic looting of the public treasury." Fraud takes 40 percent to 50 percent of the annual $600 million child-care allocation for Los Angeles County, and, Mr. Cosper said his counterparts "up and down the state" have similar estimates of fraud loss from a statewide program that costs taxpayers as much as $3 billion a year. Fraud typically involves welfare-to-work recipients who make up employers or exaggerate work hours to qualify for child care assistance. A person with five children can be paid as much as $5,000 a month from the program. They split the cash with friends and relatives who pretend to be caring for the children. (Caltaxletter: February 3, 2006 from Los Angeles Daily News, January 31, 2006.)
More Child Care Fraud is Found. San Diego County supervisors are seeking state legislation that would allow the county to suspend payments to child-care providers who are involved in fraud until full repayment is made. Supervisor Dianne Jacob said a recent district attorney's investigation found fraud in 51 percent of the 177 cases that were investigated over a year's time. Fraudulent payments amounted to $450,000. State law prevents counties from stopping payments even if fraud is involved, as long as there is ongoing need for child care. The program uses state dollars but is administered by counties. (Caltaxletter: May 19, 2006 from San Diego Union-Tribune, May 17, 2006.)
Grand Jury Calls Child-Care Program "ATM for Thieves." The Los Angeles County Grand Jury called child care programs an "ATM for thieves" that cost taxpayers $500 million a year in fraudulent claims. (This is more than was previously estimated in this county.) Jurors said the failure of county social workers to verify that welfare-to-work recipients qualify for child care has resulted in about half of the $1.1 billion CalWORKS child-care program being lost to fraud. (Caltaxletter: June 30, 2006 from Los Angeles Daily News, June 30, 2006.) The newspaper also reported (October 24, 2006) that county prosecutors believe this kind of fraud can be reduced by two-thirds if an independent agency would conduct random, unannounced visits to welfare-to-work participants' homes, according to recommendations from a Citizens' Economy and Efficiency Commission.
Food Stamp Fraud is Probed. Los Angeles County supervisors ordered an investigation into food stamp fraud, saying it is costing taxpayers millions of dollars. Grocery and convenience stores exchange electronic food stamp benefits, typically for 50 cents on the dollar, and pocket the difference. The benefits are often fraudulently obtained. District Attorney Steve Cooley said more needs to be done to ensure county social workers verify that welfare applications quality for benefits from the program that involves $29 billion nationally and are now on electronic transfer cards instead of stamps. Mr. Cooley said it is time "those who give out public benefits … recognize first and foremost it's taxpayers' money … and should be guarded and protected against those who want to rip off the system." He said there is an almost philosophical battle against a general attitude that "a certain amount of fraud is an acceptable cost of doing business of handing out these benefits." (Caltaxletter: December 15, 2006 from Los Angeles Daily News, December 12, 2006.)
Skid Row Welfare Scams Cost Millions. Authorities in Los Angeles say skid row has attracted rip-off artists who are stealing millions of dollars by using the homeless. State and federal investigators say they have broken up two food stamp scams, one involving a merchant accused of giving homeless folks 50 cents on the dollar, then charging the entire amount ($6 million) to the government. The homeless with Medi-Cal or Medicare cards are recruited for expensive medical tests at a clinic where tests cost taxpayers at least $1.6 million. "We have taxpayer money meant for food being converted to cash that goes to buy drugs from dealers and gang members," said police Captain Andrew Smith. (Caltaxletter: December 15, 2006 from Los Angeles Times, December 15, 2006.)
HIGHER EDUCATION
Cal-Tax: Reports of questionable fiscal policies at the University of California continued during 2006 and also spread to the California State University system. Hardly a week went by, it seemed, without new twists and turns in this ongoing saga of mismanagement. As a result, some are suggesting the need for a constitutional amendment that would alter the UC system's somewhat unique autonomy and independence from legislative oversight. Most of the higher education fraud and waste issues cited below involve the UC, management shortcomings and lack of oversight by the Board of Regents. The San Francisco Chronicle is to be commended for its tenacious investigative reporting in this area.
Above-Salary Pay is Detailed. UC released information on how $871 million went to employees in addition to their regular salaries and overtime, including $449 million to health sciences faculty and hospital administrators from clinical revenue; $151 million to faculty members for additional teaching and research; $70 million in "differential pay' to union employees for working unusual shifts; $58 million as bonuses; $57 million under special contracts; $54 million in vacation and severance; $30 million for honorariums and stipends, and $9 million in auto and housing allowances. (Caltaxletter: January 13, 2006 from San Francisco Chronicle, January 12, 2006.)
UC Defends "Secret" Payment. UC spokesmen defended a secret $248,000 payment to UC San Diego Chancellor Marye Anne Fox in 2005 that was in addition to her $350,000 salary. She requested and received the value of a sabbatical that she had earned as president of North Carolina State University but had to forfeit when she accepted the UC San Diego job. (Caltaxletter: January 20, 2006 from San Francisco Chronicle, January 20, 2006.)
Severance Pay for Retiring Executives is Criticized. About two-dozen top UC executives a year receive severance checks when they retire. When UC President Richard Atkinson retired in 2004, he got more than a pension and a retirement party. He got $322,534. Why are severance checks issued to those who are retiring or voluntarily leaving their jobs? A UC spokesman said it is one way the university competes with other major universities. Officials at Stanford, MIT and the University of Virginia reported nothing similar to the UC Senior Management Severance Pay Plan. (Caltaxletter: January 27, 2006 from San Francisco Chronicle, January 27, 2006.)
Dog Run: $30,282. The university spent $30,282 on a dog run at the residence of UC Santa Cruz Chancellor Denice Denton, noted the Sacramento Bee as it urged the Board of Regents to exercise more control. The editorial said the regents reacted to the scandal by giving a veneer of accountability and vesting more authority in the system president to set salaries as high was $750,000. "This board no longer runs the university system. The chancellors do," said The Bee. (Caltaxletter: January 27, 2006 from Sacramento Bee, January 22, 2006.) (Note: Chancellor Denton, who also was under fire for hiring her partner to a high-paying UC management position, committed suicide June 24, 2006 when she jumped from a 42-story San Francisco apartment building.)
UC Halts Exec Pay Plan. The University of California decided to phase out its Senior Management Severance Pay Plan and replace it with a new benefit. The decision to end the program, which has drawn considerable criticism, was prompted by concern that it could run afoul of federal tax rules on deferred compensation plans. UC has given 119 executives some $8 million in severance when they quit or retired. (Caltaxletter: February 3, 2006 from San Francisco Chronicle, February 1, 2006.)
UC Davis Payoff. UC Davis Chancellor Larry Vanderhoef, talking with the Sacramento Bee editorial board, said he was told that six or seven members of the Legislature's Black Caucus had contacted a UC regent urging a fair settlement agreement for Celeste Rose. Her husband worked for a member of the caucus. Ms. Rose threatened to file a discrimination suit claiming she was pressured to resign her position as vice chancellor for university affairs. She didn't file such an action and received her $205,000 annual salary for two years with no duties to perform, plus $50,000 to drop her threat. (Caltaxletter: February 3, 2006 from Sacramento Bee, February 3, 2006.)
UC President Apologizes. UC President Robert Dynes apologized to a legislative committee and acknowledged public accountability failures. He said his "ethics are upset by this" and promised "cultural changes." He said there were internal investigations under way when a legislator asked if anyone had been fired or whether gifts of public funds might "border on "criminality." A 1992 legislative report was cited that called for reforms, including elimination of severance pay, executive life insurance and automobile allowances. Those three perks still exist, although severance pay is being transformed into a retirement package. (Caltaxletter: February 10, 2006 from San Francisco Chronicle, Los Angeles Times and Santa Cruz Sentinel, and the legislative hearing, February 9, 2006.)
Berkeley Chancellor Used Relocation Allowance to Buy Car, Furniture. Chancellor Robert Birgeneau of the UC flagship campus at Berkeley got a $97,500 relocation allowance in addition to his $390,000 salary, but UC also paid a private moving company $20,615 for the actual costs of moving his stuff from Toronto and Massachusetts. UC then spent $131,703 to remodel his office and $76,945 to renovate his on-campus mansion that is provided by the university. He used his relocation allowance to buy a car and furniture. Senate Education Committee Chair Jack Scott suggested placing a cap on campus chancellor salaries that provides no extra perks. (Caltaxletter: February 24, 2006 from Oakland Tribune, February 22, 2006, and San Francisco Chronicle and Santa Cruz Sentinel, February 23, 2006.)
Departing Merced Chancellor Keeps Salary. With paint hardly dry on the new UC Merced campus, chancellor Carol Tomlinson-Keasey, 63, decided to step down. She will continue to receive her $260,000 salary for a one-year administrative leave while she prepares to go back into teaching and research, and working on a book about the new campus. (Caltaxletter: March 17, 2006 from Merced Sun-Star, March 17, 2006.)
UC Adopts Pay Scale. UC Regents adopted a pay scale designed to lure the best faculty with higher salaries for 400 employees, including chancellors and hospital administrators. Without regents' approval, which used to be required on all salaries over $168,000, the president can pay the chief executive at UC Davis Medical Center up to $792,000, compared to the current pay of $420,000. The UC Davis chancellor, now paid $288,000, could top out at $447,000 without regents' approval. Also, UC President Robert Dynes must approve any renovation of a chancellor residence that costs more than $25,000. UC spends $1 million a year maintaining the spacious residences of top administrators. (Caltaxletter: March 17, 2006, from San Francisco Chronicle, Sacramento Bee, and Los Angeles Times, March 17, 2006.)
Task Force: Change UC "Wholly Unacceptable" Practices. UC President Robert Dynes, responding to a task force report, said major change will begin to be implemented immediately. He responded to a Board of Regents Task Force report in the wake of a continuing series of financial missteps and eye-popping executive compensation packages cloaked with secrecy. He said he will upgrade computer systems to track executive pay, appoint a public records request coordinator, conduct ethics training for all university employees and appoint a new internal committee to examine compensation policy issues. Actions must be accompanied by accountability, he said. UC will review results of three audits before looking into consequences for problems that have occurred, he said. (Caltaxletter: April 21, 2006 from San Francisco Chronicle, April 18, 2006.)
$1.5 Million Audit Confirms UC Pay Perks. A $1.5 million outside audit of the University of California's system of quietly compensating senior executive essentially confirmed numerous press reports of extra pay and benefits without proper approval by the Board of Regents. The PricewaterhouseCoopers audit found 91 exceptions to policy and procedures over the past decade, with 44 executives benefiting without regents' knowledge. Missing from the audit: what happened, when and why, said Senator Gloria Romero. "How do you have heads roll if you don't know which heads will roll?" (Caltaxletter: April 28, 2006 from San Francisco Chronicle, April 26, 2006.)
Audit: $300 Million in Unchecked UC Compensation. The ongoing scandal heated up again with the release of a Bureau of State Audits report described by Assembly Speaker Fabian Nunez as "the final nail in the coffin of the (UC's) outrageous compensation practices. Over $300 million in compensation flows unchecked through their system … We must see immediate and marked improvement in their failed system." However, he joined Governor Arnold Schwarzenegger in urging moderation in the Board of Regents reaction as three members of the state Senate Education Committee called for UC President Robert Dynes to resign or be fired. He needs opportunity to correct problems, according to the Assembly leader and governor. (Caltaxletter: May 5, 2006 from San Francisco Chronicle, May 3 and May 4, 2006.)
Former CSU Chancellor Paid Well for One Class. The hiring of a former California State University chancellor to a "trustee professor" position to teach one class at CSU Los Angeles has prompted anger from the California Faculty Association. Barry Munitz, who quite CSU eight years earlier, is teaching one English course and performing other duties, including fundraising. For this, he gets $163,776 for the year, which is about $50,000 more than a full professor's pay. Mr. Munitz left CSU to become president of the J. Paul Getty Trust. He resigned from the trust earlier in 2006 amid allegations regarding spending practices. (Caltaxletter: May 12, 2006 from San Francisco Chronicle, May 10, 2006.)
UC Separation Agreements Cost $23 Million. In the past five years, UC negotiated at least 700 separation agreements worth about $23 million. They include a UC Berkeley associate athletic director who was passed over for promotion in 2005, but then got $183,000 over three years while taking a full-time job elsewhere. In 2002, UC Berkeley forced an Athletic Department administrator to quit, then agreed to keep him on the payroll for 2 ½ years at $86,000 a year so he could reach retirement age and qualify his family for health care benefits. (Caltaxletter: May 19, 2006 from San Francisco Chronicle, May 17, 2006.)
Management Pay Scandal hits CSU System. In addition to generous pensions and lifetime health benefits, extra-special goodies handed out to retiring California State University System management and campus presidents have cost taxpayers millions of dollars. Assembly Speaker Fabian Nunez: "I am deeply troubled by allegations that former high-level CSU officials have been given dubious positions after their tenures, collecting hundreds of thousands of dollars for no discernable work while students have seen their tuition rise." An example: Former Cal State Stanislaus President Maralvene Hughes resigned in 2004 to take advantage of an offer of extra benefits for long-term faculty who retire early. She then was rehired the next day as interim president with a $204,252 salary, plus her retirement payoff. She moved to New Orleans to become president of Dillard University. (Caltaxletter: July 28, 2006 from San Francisco Chronicle, July 17-18, 2006.)
Boondoggle Hall of Fame: UC Merced. If there were a boondoggle hall of fame for squandering tax dollars, UC Merced would be in the running for membership. The year-old campus has had to scale down its anticipated growth rate from 800 to about 675 students per year – a "very minor glitch," according to its departing chancellor. Campus officials hoped to use a new $3 million federal grant to partner with a community college in Fresno County to recruit more students. (Caltaxletter: August 18, 2006 from Modesto Bee, August 16, 2006, except for the boondoggle editorial comment.)
UC Employment Lawsuits Cost Millions. In cases involving such allegations as sexual harassment, discrimination and "consensual relations" with students, the University of California has paid out at least $12 million in settlements over three years. (Caltaxletter: September 15, 2006 from San Francisco Chronicle, September 14, 2006.)
UC Regents OK Pay and Perks. Responding to an audit that questioned unauthorized compensation to UC executives, the Board of Regents unanimously agreed that 140 execs can keep at least $6 million that they received without proper approval or public disclosure. The board also gave retroactive approval to more than $1 million in compensation for about 60 top execs for such things as improper car allowances to extra vacation time. The biggest "gift" was worth $258,000 to a dean who returned to faculty status after a one-year paid administrative leave that had not been approved in advance. (Caltaxletter: September 29, 2006 from San Francisco Chronicle, September 22, 2006.)
Trustees Modify Executive Perks. California State University trustees voted to scale back a benefit allowing current top executives to continue being paid for a year after leaving their jobs. The changes, though, apply to future hires, not to the current chancellor and his four top deputies, as well as 17 of the 23 campus presidents, unless they voluntarily agree. The perk allows them to continue being paid for a year after leaving their jobs. Senate Education Committee member Gloria Romero, a tenured CSU faculty member on leave, urged trustees to "cut the perks that in any other business would be called fraud. … giving away public funds … embezzlement." (Caltaxletter: November 17, 2006 from San Francisco Chronicle, November 16, 2006.)
UC Gives $916 Million in Above-Salary Pay. Already criticized for giving top managers millions in undisclosed or questionable pay in recent years, UC officials say more than $916 million was given in pay and perks above regular salaries in the 2005-06 fiscal year. That compares to $843 million the prior year. UC Regents Chair Gerald Parsky said there was nothing "inherently inappropriate" with general payroll growth or extra compensation. (Note: The Chronicle's early reporting on UC compensation issues revealed that the extra compensation was not noted in a consultant's comparison of UC pay with that of other universities around the country as regents considered salary increases for UC employees.) (Caltaxletter: November 17, 2006 from San Francisco Chronicle, November 16, 2006.)
UC Merced Dorms are Hurting. Yet another story pointing to the boondoggle that is UC Merced: It can't fill dorm rooms to provide the revenue to pay the $1.7 million-a-year mortgage costs for student housing. And it is building a $31.5 million student housing project on campus with two more dorms to open in late summer and in 2008. Yet there are so many empty beds in existing dorms that students are being asked to reconsider their choice of living off campus, some of whom responded to requests to move out of dorms to make room for freshman enrollment that wound up below expectations. There are 371 students in dorms designed for 586. (Caltaxletter: December 15, 2006 from Modesto Bee, December 5, 2006.)
UC Spends to Polish Image. In what was described as an "uphill climb," the University of California has spent about $500,000 trying to learn what people think of UC and how it can change the people's picture of the institution. Three outside consultants have been hired to conduct research seeking a frank assessment in the wake of relentless investigative reporting of fiscal mismanagement. The impression that UC wastes money and spends too much on executive compensation existed before the compensation practice scandals began making headlines late in 2005, reported the San Francisco Chronicle, noting that UC is $500,000 into this process and "still hasn't settled on a message nor spent a penny on getting the word out." (Caltaxletter: December 15, 2006 from San Francisco Chronicle, December 5, 2006.)
UC Home Loan Program is Abused. The UC low-interest loan program has become a $1 billion enterprise with nine full-time employees processing loans for faculty and administrators. While it has helped more than 2,500 new college faculty achieve home ownership in a 22-year-old program designed to help recruit talented educators, it also has become a "system-wide perk" that has helped nearly 50 veteran employees refinance their homes with interest rates as low as 3 percent. Some save on monthly payments or take cash out from equity for renovations or install swimming pools and backyard barbecue islands. Some used funds to buy out an ex-spouse – under threat of leaving the university for another job. Senate Education Committee Chair Jack Scott: 'I'm distressed because this is public money. Where do you draw the line (on enticements)?" He urged UC leaders to stand up to threats that faculty will leave without questionable demands being met. "Employees are smart enough to game the system," the senator said. (Caltaxletter: December 15, 2006 from Sacramento Bee, December 3, 2006.)
EDUCATION
(Cal-Tax: Followers of the Caltaxletter's ongoing reporting of fraud and waste in education should notice a lack of material regarding misused tax dollars by the state's largest district, Los Angeles Unified. LAUSD has dominated these pages in the past, but in 2006 the big news was Mayor Antonio Villaraigosa's move into at least partial control of the district as well as the changing of superintendents. The new guard promises greater accountability. We certainly hope so. Was there fraud and waste in LAUSD during 2006? Of course there was, and muckraking reporters will be digging it out. And Cal-Tax will be taking note.)
State Budget for Emergency Repairs Goes Untapped. The state has budgeted more than $200 million to pay for emergency repairs at schools, yet almost none of the money has been allocated to local districts. Why: The Legislative Analyst's Office, in its critique of the governor's proposed 2006-07 budget, said "school districts are reluctant to spend money on repairs because it is uncertain if the state will reimburse them after-the-fact for the work." (Caltaxletter: March 24, 2006, from Capitol Morning Report, March 20, 2006.)
Local School Bonds Aren't Paying Off. Nearly half of Orange County's school districts have significantly reduced construction projects promised with voter-approved bonds. Nineteen districts passed bonds totaling $1.7 billion since 1990, but only six are delivering nearly everything that voters were promised. The others have struggled for various reasons, including rising construction costs, bad timing, politics and unstable soil. (Caltaxletter: June 23, 2006 from Orange County Register, June 18, 2006.)
School Bond Bait and Switch. Voters who approved a $133 million school bond in Vallejo ion 1997 expected to see schools fixed, not administration buildings. The district intends to spend $1.7 million of the bond money on a new district office. (Caltaxletter: June 23, 2006 from Vallejo Times-Herald, June 20, 2006.)
LOCAL GOVERNMENT
Touting its Tap Water, Public Water Agency Buys Bottled Water. The Los Angeles Department of Water and Power spent $1 million over two years touting the quality of tap water. However, the agency spent $88,900 over the same period buying bottled drinking water. "I am stunned," said L.A. Controller Laura Chick. A Public Records Act request was needed to get information from the DWP, and L.A. Times columnist Steve Lopez, building on his paper's reporting, said this may be small potatoes in a $4.3 billion DWP annual budget, but "this is the historically reckless DWP, where you could take all the small potatoes over the years and stack them higher than the Himalayas. (Caltaxletter: January 6, 2006 from Los Angeles Times of January 3, 2006 and January 4, 2006.)
L.A. Neglects Parks. According to a city controller's audit, the Los Angeles Department of Recreation and Parks has neglected its assets, failing to maintain 54 swimming pools. Six had closed and 24 were in serious disrepair, and the department lacks the $4 million to $6 million needed to replace the substandard pools. Furthermore, the audit found it would cost $78 million to properly restore all of the city's 13 golf courses. "We are building new parks but not taking care of the ones we have," said Controller Laura Chick. (Caltaxletter: January 13, 2006 from Los Angeles Times, January 10, 2006.)
S.F. and Water = Waste. The City and County of San Francisco spent more than $2 million on bottled water in the past 4 ½ years, including 342 five-gallon jugs delivered to the city in 2005. This happened despite the fact that the city's tap water comes from the Hetch Hetchy reservoir near Yosemite National Park and is of renowned quality. City officials said a contract with some employee unions, including nurses, require bottled water for employees. (Caltaxletter: January 27, 2006 from San Francisco Chronicle, January 27, 2006.)
L.A. Spends Millions on Private Attorneys. The Bureau of State Audits criticized Los Angeles for spending $32 million on private attorneys during 2005 without "documents necessary to demonstrate it followed its policies and procedures when assessing the need." City Controller Laura Chick wanted to audit the office of City Attorney Rocky Delgadillo, but he said she lacked authority, so the task was handed over to the state auditor. Costs of hiring private counsel by the L.A. city attorney has almost doubled in six years, from $17.5 million to $31.9 million. Despite a staff of 500 attorneys, Mr. Delgadillo said his staff lacked expertise for some cases. (Caltaxletter: January 27, 2006 from Los Angeles Daily News, January 27, 2006.)
L.A. Bonuses Quadruple. In five years, bonuses given Los Angeles municipal employees quadrupled, from $27.7 million to $117 million a year. Mayor Antonio Villaraigosa was not pleased and he, along with others, identified the bonuses as one of the targets in belt-tightening needed to reduce a $300 million budget shortfall. A union spokesperson said the attack on bonuses was "petty." (Caltaxletter: March 10, 2006 from Los Angeles Daily News, March 9, 2006.)
L.A. DWP's Overtime Bonanza. The Los Angeles Department of Water and Power had more than $51 million in overtime pay during the last half of 2005, with 8,100 workers getting some of the pay. It added 50 percent or more to the base pay of some electrical and mechanical engineers who otherwise make $74,000 to $100,000. "You have emergencies, people take time off … overtime is just a given in the business," said DWP chief administrative officer, Robert Rozanski. (Caltaxletter: March 24, 2006, from Los Angeles Daily News, March 20, 2006.)
Pay for No Work. Eighteen employees of Oakland have been paid more than $500,000 while missing more than three months of work. Eleven are police officers on administrative leave as a result of a court order stemming from a corruption scandal. This has caused the city to pay out nearly $12 million in 2004 to settle more than 100 cases of police misconduct. That still leaves seven employees out of 4,000 on the payroll who are paid to do nothing. In San Jose, with 7,000 employees, seven are on administrative leave with pay. Berkeley has four of its 1,600 employees being paid to stay home. (Caltaxletter: March 31, 2006 from San Francisco Chronicle, March 27, 2006.)
L.A. DWP Buys Extras. An independent study of the Los Angeles Department of Water and Power's budget shows more than $16 million was spent on "non-core" activities in fiscal 2005-06, including more than $1 million for parenting and breast-feeding classes, a fitness center and a choir for employees. (Caltaxletter: April 7, 2006, from Los Angeles Daily News, April 3, 2006.)
Alameda County's Taj Mahal. Alameda County's property manager, C. Candace Fitzgerald, says the county is paying Taj Majal prices for its new welfare offices in downtown Oakland. Her whistleblower suit said the building is costing taxpayers millions more than comparable space in some of the Bay Area's most luxurious skyscrapers. She charged the county, in a $51.7 million no-bid deal, is paying way over market for the space, and won't even own the building after paying $136 million over 30 years, just an option to buy for $19 million. Taxpayers are paying $44.35 per square foot, compared to $27.60 for top-flight spots in the heart of downtown Oakland. Even the Bank of America tower in San Francisco goes for $32 a square foot. (Caltaxletter: April 7, 2006 from San Francisco Chronicle, April 3, 2006.)
San Diego Leaders are Skewered for Mismanagement, Illegal Acts. A long-awaited $20 million investigative report documented misconduct by San Diego political leaders and top administrators stemming from a scheme to cover up an underfunded pension system while seeking investors to buy city sewage bonds. The 266-page report took 18 months to prepare by New York-based Kroll Inc., a risk-management firm. The report said eight former city officials likely committed securities fraud by acting with "wrongful intent" in releasing misleading financial information to potential investors that hid the city's pension debt. However, the report said elected leaders who broke laws did so without intent. There were "years of reckless and wrongful mismanagement involving any number of city and pension board officials" with unlawful renewal of the city's pension underfunding plan in 2002," the report stated. (Caltaxletter: August 11, 2006 from San Diego Union-Tribune, Los Angeles Times and Voice of San Diego, August 8-9, 2006.)
Illegal Immigration Costs L.A. County $1 Billion a Year. Illegal immigration costs the county of Los Angeles $1 billion a year for public safety, health care and other social services, county Supervisor Mike Antonovich testified before a congressional hearing. "The fiscal drain on the taxpayers by those who are here illegally is catastrophic," Mr. Antonovich told the House Judiciary Committee at a special hearing in San Diego. He said about 12 percent of his county's 10.2 million residents and about 25 percent of the county's jail inmates are in this country illegally. (Caltaxletter: August 11, 2006 from North (San Diego) County Times, August 2, 2006.)
L.A. is Fleeced on Construction Contracts. Los Angeles City Controller Laura Chick, speaking with local reporters, said the city is being fleeced out of untold amounts of money each year on its construction contracts. "The city does not do oversight of our contracts. To find that there has been over-billing, fraudulent billing, excessive billing and unreasonable markups is no big surprise," she said. (Caltaxletter: September 1, 2006 from Los Angeles Times, August 30, 2006.)
San Jose Officials Violate Spending Policies. Taxpayer money has been used by San Jose officials to buy gifts for VIPs while also violating spending policies limiting spending for meals and travel, among other things. A city auditor report found the control weaknesses increase the risk of fraud, waste and abuse. The city manager's meal expense restriction was violated by the spending of $135,000 in a 12-month period, including a six-person lunch costing $226, including a $25 steak. A city employee charged $400 for personal car expenses at a Hayward tire and auto shop. Another charged a $400 limousine ride from the Newark airport to a hotel. The Police Department expensed $24,000 for catered food without a purchase order. Six $95 Tiffany key rings were given to visiting Japanese airport officials. Three $180 Mont Blanc pens were given to airline executives. (Caltaxletter: September 29, 2006 from San Jose Mercury News, September 18, 2006, and the city's audit report.
L.A. Pays Millions in Civil Rights Settlements. The Los Angeles City Council agreed to pay $3.57 million in the settlements of six civil rights lawsuits against Los Angeles police officers, including $720,000 to a man who had spent 11 years in prison before his release after police determined DNA evidence linked another man to the deaths of women he was convicted of killing. The rest of the settlements involved five federal suits for individuals who said they were framed by police involved in the Rampart Division corruption scandal dating back to the mid-1990s. (Caltaxletter: October 13, 2006 from Los Angeles Times, October 5, 2006.)
Orange County: State Owes Back Taxes. Orange County may have lost as much as $300 million in property tax revenues over 10 years because the state Department of Transportation acquired property under eminent domain and later sold the land without using all or part of it for a highway project. Officials said they will seek reimbursement from the state, inviting other counties to join in their quest. (Caltaxletter: October 27, 2006 from Orange County Register, October 16-17, 2006.)
SEC says San Diego Officials Committed Securities Fraud. Citing reckless misconduct by unnamed city officials, the federal Securities and Exchange Commission on November 14 sanctioned the city for committing securities fraud violations. A settlement requires the city to cease and desist from misleading municipal bond markets about its financial well-being and hire an outside monitor to make sure the city complies with disclosure obligations under federal securities laws. The order said the SEC investigation "is ongoing" into individuals and other entities that may have violated the laws. (Caltaxletter: November 17, 2006 from Voice of San Diego and San Diego Union-Tribune, November 14, 2006.)
L.A. Fire Department: Public Protection Agency or Animal House? The City Council reversed an 11-1 vote to give $2.7 million of taxpayer money to Los Angeles fireman Tennie Pierce, who filed a racial discrimination suit after colleagues at the fire station put dog food in his spaghetti dinner. Mayor Antonio Villaraigosa vetoed the award after a Los Angeles radio show aired criticism and photos emerged showing Mr. Pierce participating in other crude firehouse pranks. Only six of the 15 council members voted to override the veto, prompting a renewal of settlement talks in an effort to head off a Superior Court trial. The council's three members who are black, as is Mr. Pierce, voted to grant the $2.7 million. One of them, former police chief Bernard Parks, said the case could wind up costing taxpayers "significant dollars" in excess of $2.7 million. In any event, one columnist noted that this may be the most expensive can of dog food ever bought by anyone, anywhere. Mr. Pierce, who is on administrative leave, referred to himself as "big dog" in a firehouse volleyball game, urging teammates to feed him the ball so he could spike it over the net. That night, two years ago, the dog food was mixed into the 6-foot-5 firefighters' dinner. Two fire captains who are white and a Latino firefighter were disciplined over the incident. (Caltaxletter: December 1, 2006 from Los Angeles Times, Los Angeles Daily News, November 30, 2006.)
Local District Raises Taxes; Spends on Boondoggles. After gaining voter approval in 2004 for a $52 parcel tax, raising $6.1 million for their beleaguered West Contra Costa Hospital District, officials started spending on all kinds of perks. A board member spent $1,800 to attend a leadership conference at a Palm Springs resort, and also ran up a $76 mini-bar tab at a Lake Tahoe hotel while attending another conference. The hospital CEO used district dollars to buy eight administrative employees and five board members $2,600 worth of crystal doves and other glass gifts for Christmas. There also was a $1,950 bill for a holiday party. In all, $50,000 was spent on meals, cell phones, travel and gifts from January 2004 to July 2006. (Caltaxletter: December 1, 2006 from Contra Costa Times, November 19, 2006.)
Cal-Tax Digest. January 2007
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