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Otto brings campaign for state auditor to Bemidji

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Otto brings campaign for state auditor to Bemidji
Bemidji Minnesota P.O. Box 455 56619

Calling for a criminal investigation into a former Minneapolis teacher pension fund only a month from the fall elections could be seen as political grandstanding, says a DFL candidate for state auditor.

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Current Republican State Auditor Pat Anderson last week released her special review into the Minneapolis Teachers' Retirement Fund Association, which ceased to exist July 1 as it was folded into the statewide Minnesota Teachers' Retirement Association.

Anderson asked Hennepin County Attorney Amy Klobuchar to conduct criminal investigations that the former association's board and executive director violated fiduciary standards of law and several state laws in sheltering $1.5 million into a trust fund that by law was to have been sent to TRA by July 1.

"There's nothing new," DFL state auditor candidate Rebecca Otto said Friday about Anderson's report, in an interview while she was in Bemidji. "This has been in reports for a while, and they were close to a settlement."

The report took more than six weeks, with Otto saying that "it took her an awful long time to get it done. There's really nothing new within that report -- it's all old information."

Anderson said that the Minneapolis fund, under state law to cease and have its assets folded into the state's TRA on July 1, diverted after the legislation passed a $1.5 million liquidating trust fund supposedly to cover any lawsuits filed against the executive director or board members that they acted in bad faith, something not normally covered by insurance.

The GOP state auditor, who is campaigning as "the public's watchdog," charged that the former board was holding the fund hostage until it is given bad faith indemnification and release of claims from the state.

Anderson's news conference on the matter last week "didn't really reveal anything new," Otto said. "We already knew all the situation around those expenditure reports. Some people are accusing her of being highly political and partisan for political gain."

Pensions funds must be accountable, but state officials need to be more pro-active, Otto said. The need to move the Minneapolis fund into the state came when it was discovered that bad investment policies would lead the fund to be bankrupt.

"To me, the auditor's office is going to be about good government, about strengthening communities," she said. "It's going to be about helping folks to avoid pitfalls in those situations. If you do the preventative, pro-active work, you don't have to do the reactive, punitive work."

Differences should be worked out without being heavy-handed, the Democrat and former state legislator said.

"You don't run around campaigning on it," Otto said, "you sit down at the table. You work with local government and help them to meet and be successful with the new accounting standard requirements."

The state TRA took over the Minneapolis fund by taking assets of $700 million and will use state subsidies to offset unfunded obligations of nearly $1 billion to 13,500 current and former Minneapolis teachers.

"They would have been out of money -- bankrupt -- in like seven years, that's how bad it was," Anderson said in a previous interview, adding Minneapolis teachers weren't happy with the fund board and director, either.

"The state has the best interest in fixing it, because ultimately the state was responsible," Anderson said. "The problem was getting $120 million a year worse. Each year it would have gotten worse, and the more taxpayer money would be involved in bailing out the fund."

The fund was poorly managed and the investments were not good, she said, plus administrative costs were high. "Why do you let them continue to exist, when you as a state are going to have to pay off their debts anyway?"

Overseeing public pensions is an important function of the office, Anderson says.

"We did a bipartisan solution for shoring up pensions," Anderson said of the bill that also provided the teacher fund merger. "This pension legislation wasn't just the merger, we capped benefits ... there was a whole bunch of pension reform in the bill."

Benefit increases were capped and the bill allows the state's other teacher pension funds now invest through the State Board of Investment and not separately. "It will provide a sound system for the future at the least cost to taxpayers," Anderson said.

Other post retirement benefits are also posing problems for governments, both Anderson and Otto agreed. Otto referred to new accounting standards that local governments must use to account for those benefits, which in many cases is causing deep budget problems.

For example, the city of Duluth faces $280 million of unfunded liability in health care it is providing to its city retirees.

"Most of it is retiree health care, subsidized or free," Anderson said. "They have to hire an actuary, figure out what their liability is. We've found no case so far where it's funded."

The amount must now be posted on financial statements, and in some cases it's a huge amount, she said, adding she estimates $5 billion statewide. "There will be a lot of Duluths around Minnesota."

Anderson said "governments and policy makers need to realize how much it's actually costing them."

The state auditor should be helping local governments through that crisis, says Otto.

"You're going to help them be successful, you're going to sit down and provide them information and whatever they need so they can successfully figure out how to come up with common-sense solutions, but make sure our pensions are solid," Otto said.

The state auditor needs to be watchful, but not alarmist that the sky is falling, the DFLer said. "Pensions are there to make sure we don't have poverty in our senior population. We don't have to take a radical approach like privatizing Social Security."

In unfunded liability for retiree health benefits, Otto says common-sense solutions also need to be found. "There are a lot of options out there -- some things need to be done, obviously.

"As an office, what you can do is provide any analysis that they need or information that they need to help them make those decisions," Otto said. "It's a local control issue, but the office, if I serve there, can do anything to help them through this process, we'll do that."

Now, the state auditor has "an adversarial relationship with local government," Otto said. "It's difficult to trust, it's difficult to communicate and it doesn't feel like a real team approach."

Otto continues her campaign, saying she wants to advocate for local governments by pushing for lower property taxes while Anderson insists that Local Government Aid to cities can be cut by not funding what she calls non-essential services such as libraries.

And Otto continues to be the "watchdog" over reports issued by Anderson, saying one of the latest on school district finances is $87.5 million different than the state Department of Education, while both use the same figures.

"I will make sure that the numbers add up," says Otto, "because there's been error after error after error, and they're not just a small amount of dollars."

On the latest report, "how can two state agencies be off by over $87 million on the total revenues for our schools for 2005?" asks Otto. "That's not acceptable. ... You need to be consistent ... and there are some quality control issues within that office that need to be addressed."

Mistakes happen, Otto said, noting she also found mistakes in a county finance report as well as another education report, "but it's what you do with those mistakes as a leader that really shows if you're a leader or not."

Also vying for the post is Independence Party candidate Lucy Gerold, who is running on a combined platform with IP constitutional candidates, led by gubernatorial candidate Peter Hutchinson.

"You're not there to do the work of the governor, you're there to do the work of the people," Otto said. "You're there to make sure our communities are financially healthy and nobody's pocketing money. So I don't know if it's the best approach to do whatever the governor tells you to do."

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