At least 130 times in recent years, the Florida State Board of Administration has signed auxiliary agreements with private firms that were investing billions of dollars for the state and for local governments. But aside from the assurances of the agency's executive director, there is no way for the public to verify if any of those so-called "side letters" contained improper kickbacks similar to those being uncovered in pension plans in New York and elsewhere. The agency has stonewalled public records requests for the side letters. More disheartening, the three statewide politicians who oversee the SBA — Gov. Charlie Crist, Attorney General Bill McCollum and Chief Financial Officer Alex Sink — appear to have no interest in pressing the matter. They should reassess their positions.
The public would be far better served if the trustees took the advice of the late President Ronald Reagan to "trust, but verify." As St. Petersburg Times reporter Sydney P. Freedberg has reported in recent months, the SBA staff has repeatedly misled investors, advisers and pension members about the status of assets since the mortgage-market meltdown in mid 2007. In one example, senior staff once claimed the agency had zero exposure to the subprime mortgage market even as it held investments in Countrywide and Washington Mutual securities, two large subprime players. Now there is a new executive director and additional disclosures to local governments that invest through the SBA. But not nearly enough has changed.
For example, the Times' reported Sunday that the agency filed a $682 million claim against Lehman Bros. in January over risky securities the firm sold it in mid 2007. But the SBA staff did not publicize the claim or provide a copy to the trustees. It also failed to fully brief the agency's advisory groups. The claim came eight months after it was last discussed in a public meeting and four months after Lehman declared bankruptcy. (By contrast, when the state sued a money manager for $281 million in losses due to 2001 Enron buys, it was discussed repeatedly in public meetings.)
The Times also reported Sunday that a public records request to review the side letters had met with repeated delays. Only four of the 130-plus agreements have been turned over. The SBA staff told the Times that reviewing the letters would be a "labor intensive and costly project" and would require "redaction of trade secret and confidential material." That is not a legally defensible reason to deny access to public records.
Any of the SBA trustees — Crist, McCollum or Sink — could also demand to see the letters. But so far, none of them have. McCollum did raise the issue at an April SBA meeting, but he appeared satisfied when SBA executive director Ash Williams publicly told him there had been no kickbacks.
The lack of veracity is a disturbing trend among the three politicians — and suggests, once again, that the current governance system is flawed. Three elected officials have multiple distractions, inherent conflicts of interest and often lack expertise to oversee complicated financial investments. All three have said they want more transparency from SBA staff, but to what effect? As they each seek higher office in 2010, will any of them adequately oversee the SBA? They need to figure out a better way to get it done.