Here in the Sunshine State, the state agency investing billions of dollars in taxpayer assets has become all too comfortable operating in the shadows. Twice in recent weeks, the St. Petersburg Times' Kris Hundley has written about how the Florida State Board of Administration's default mode is to block the public from seeing information on investment transactions. Such obstruction makes it impossible for the public to hold the agency to account, and it needs to change under the new governor and Cabinet.
Taxpayers in California and New York recently learned the hard way about the danger of such secrecy. Public pension funds in those states failed to disclose huge commissions paid to so-called private placement agents, opening the door for self-dealing by pension officials. The scandals triggered a new requirement that such agents, who broker deals between large funds and private companies seeking investors, register with the U.S. Securities and Exchange Commission.
But in a disconcerting display of arrogance, SBA executive director Ashbel C. Williams Jr. boasted to the SBA board of trustees that such graft couldn't happen in Florida because the SBA demands — before placing a private investment — to know what the placement agent will earn in the deal. Yet Williams won't share that information with the public, saying he promised the firms it would remain private. So much for transparency.
The State Board of Administration trustees — Gov. Charlie Crist, Attorney General Bill McCollum and Chief Financial Officer Alex Sink — should have ordered that information and much more to be public. The danger of secrecy isn't only graft; it's that general incompetence or bad decisions can't be rooted out and mitigated. And such transparency is particularly important as the SBA seeks to put more money, not less, in less-visible private investment opportunities. But too often, Williams' response to such calls for public information is a patronizing "trust us." That's unacceptable from a taxpayer-funded agency.
A recent case in point: Hundley's request to review a progress report on one of the SBA's more controversial private investments, Edison, a for-profit charter school operator. The SBA — which purchased Edison through a firm called Liberty Partners — blacked out all but nine of the report's 124 pages, citing public records exemptions. That made it impossible to make an independent analysis of how the investment is doing. What's more, Hundley found a previously undisclosed consultant's report that raised concerns seven years ago about Liberty Partner's contract with the SBA, its sole investor. Liberty has shared in all the fund's profits but none of its losses and collected a staggering $180 million in fees — or 7 percent of the SBA's total $2.5 billion investment.
The SBA took steps to wind down its Liberty stake by 2012, but the stagnant market has prompted a delay. Might the outcome had been different if the public was more aware, all along, of Liberty's generous contract and performance? Surely.
The SBA staff has traditionally enjoyed great deference in running the state's investments. But that era has come to an end as more Floridians are aware of the impact Wall Street has on Main Street. It's past time for the SBA staff to get the message that transparency must extend to the public — and Gov.-elect Rick Scott and the new Cabinet members should send it as soon as they take office.