Zurik: Public board denies public status, spends big at Grand Hotel

Published: May. 7, 2015 at 5:15 PM CDT|Updated: May. 8, 2015 at 2:41 AM CDT
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NEW ORLEANS (WVUE) - Staff from the legislative auditor's office have visited the Baton Rouge office of the Municipal Employees' Retirement System of Louisiana, retrieving documents linked to high spending by agency officers on meals and luxury accommodations. It's a move that a local legislator with oversight of the system warned was coming, following our investigation of MERS.

In another development Thursday, a city councilman in Covington says the executive director of MERS should resign and the board should also be held accountable for the suspect spending.

As we began to question state Representative Kevin Pearson about extravagant spending by MERS officials, he got a glimpse of a number we had in our interview notes.

"That's a lot," Pearson remarks. "I was looking at it as you were holding that… staggering. It's absolutely staggering."

Every summer, MERS holds an educational conference at the Grand Hotel in Point Clear, Alabama. This system manages retirement money for cities across the state, including Slidell, Mandeville, Hammond, Gretna and Lafitte. The conference allows board members to get their required education. But it comes at a cost.

Last year, the conference cost $62,242.67. That includes hotel rooms for board members, staff, and guests, meals, rental cars and gifts.

"If I'm an investor in that program, I'd be ballistic," says Rick Franzo, a member of the watchdog group Concerned Citizens of St. Tammany.

In 2013, the conference cost $54,378; 2012, $52,564.

"I don't see how anyone can explain that, justify it," Pearson says.

State Representative Kevin Pearson chairs the House Retirement Committee. That role automatically gives him a seat on every statewide retirement board, including MERS. So Pearson is familiar with how other boards educate their members.

We reached out to the District Attorney's Retirement Board. Their records show annual conference attendance last year cost $3,381.65 – compare that to the $62,242,67 for this one MERS conference.

Most of the other boards apparently send their members to the Louisiana Association of Public Employees' Retirement Systems, or LAPERS, conference annually in New Orleans. MERS allows its board members to attend that conference, too, but still hosts this pricey annual trip to Point Clear."The purposes of educational conference… I absolutely believe that's something that you don't need to spend dollars like that for," Pearson tells us.

But it's a closer look at the spending that has Franzo steaming.

"If I'm the mayor of Abita [Springs] or mayor of Slidell and I see what they're doing with my money, I'd be screaming," Franzo says. "And citizens – as me who's contributing to this, and you contributing to this, and the guy down the street who's contributing to this - should be outraged, outraged, of the abuse of the money."

The list of conference attendees includes board members, employees, their spouses, sometimes their children, and investment companies. Meals for last year cost $13,381. The meals are filled with alcohol. Remember - purchasing alcohol with public funds is against the law. But MERS paid for Bombay Sapphire, Jack Daniels, Crown Royal and, at one dinner, four lemon drops – all at an education conference.

"You got to love it," Franzo says. "It's the kind of conference that most people would like to go to because you're not really doing anything. You're just getting drunk and having a good time. It's crazy stuff."

The four-day conference begins most mornings with breakfast, then two hour-and-45-minute sessions, followed by lunch and an afternoon wrap-up at 1:00.

"Very heavy day of work," Franzo quips. "I'm being very sarcastic. I want to go on this vacation."

At 6:00, everyone gathers for cocktails, then dinner at 7:00. Those cocktail receptions cost about $900 a night, and have included platinum martinis, wine, beer and mixed drinks.

"They should invest in a liquor company, that's what they should do, because they buy so much liquor," Franzo says.

Here's the invoice for a surf and turf meal one year; the total cost was $3,800. Guests had filet mignon and fresh Gulf fish with truffle-whipped potatoes and haricot vert. Guests started with crab cake and ended with a white chocolate and blueberry dessert. They had alcohol, too. It's hard to imagine that much work is being done at such conferences.

Remember, that guest list includes board members, employees and investment companies. But it also includes guests. Look at executive director Bob Rust. One year he took his wife Kathryn and his son Cam. It's unclear if they attended these dinners, which were paid for by MERS.

Documents show the board members attending receive pricey board baskets or gifts. One year, those baskets included glasses, a galvanized white beverage tub, kitchen towels, ice tongs - and a Jimmy Buffet greatest hits CD. Another year, board baskets included Frappuccino mocha, Joel Gott Cabernet and Pinot Grigio.

Each year, Rust also purchased about $800's worth of shirts. And look at what we found one year: Even though Rust gets a $100 monthly car allowance, he got a rental car for out-of-town trips, including this conference. In 2013, the conference wrapped up on June 28. MERS paid for the rental car through July 2. In fact, on July 1-2, Rust took annual leave, vacation from work, but still charged the rental car to his public card.

"He kept the car for four more days," Franzo notes. "We paid for it."

Rust declined our request for an on-camera interview. In a letter, he noted some of the money used to pay for the educational conference came from outside sources. That's true; those investment companies pay a sponsorship fee, $1,500. Rust says that includes their meals and drinks.

Overall, Rust says "MERS has no public funds… Our system receives no tax money."

Rust has two points. First, there's a Louisiana appeals court ruling from 1983 that noted money set aside for retirees in state systems is not considered public funds. Second, most of the spending on trips and alcohol come from money given to MERS by those outside sources, the investment companies. Rust doesn't consider that money public.

But the state's legislative auditor disagrees with Rust, and told us Thursday that he considers MERS a public entity, and believes the money it spends - including that sponsorship money - is "public funds."

There may be two reasons why. First, that appeals court ruling that noted retiree money is not public money does not consider operating expenses or self-generated income, such as that sponsorship money. The second reason stems from opinions from the state attorney general that say "self-generated funds" are "public funds."

Ciolino says he believes at least some of that sponsorship or self-generated money, controlled by MERS but spent on alcohol and trips, is public.

"The Louisiana Supreme Court has made it very clear that it doesn't matter where the funds come from," Ciolino says. "Once they are generated by a public office, a public body, those become public funds."

State law puts the fiduciary responsibility on the MERS board. Consider this section from the Louisiana Revised Statutes:

A. Each board member shall discharge his fiduciary duties solely in the interest of the system's members and beneficiaries and for the exclusive purpose of providing benefits to the members and their beneficiaries, and defraying reasonable expenses of administering the system, with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

In addressing our stories so far, Rust has mostly focused on whether MERS funds are public. He has yet to answer questions about trips over Easter Weekend we reported Wednesday night. Regardless of whether these are public funds or solely belong to the retirees and public employees, Rust has not addressed why MERS money was spent on this travel.

Records show six board members attended the 2013 conference. Last year, records show, seven attended.

Rust says the conference provides "meaningful education for its trustees." Franzo strongly disagrees.

"This is just a paid vacation given to these people by the taxpayers," he says.

This government watchdog and the lawmaker who sits on the MERS board both say the cost and schedule of the conference make it hard to justify.

"For every extra nickel that you spend, it's going to increase the contributions that the cities are required to pay," Pearson warns.

Some of the people served by MERS have begun to react to our investigation. Covington Councilman Mark Wright issued a statement Thursday, demanding Rust's ouster.

Wright's statement reads, "As a councilman in one of the cities whose employees depend on the MERS management for pension stability, I'm appalled at this revelation... Every year, cities like Covington pay more and more into employee pension plans and the taxpayers foot the bill. That Mr. Rust makes nearly a quarter-million dollars a year in salary and still spends public money so extravagantly is obscene."

Wright also said the MERS Board should also bear some responsibility for Rust's spending."Who is minding Mr. Rust's spending - and are they minding the management of funds with any more frugality or scrutiny?" he writes. "There are more questions that need to be answered."

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