Ex-Public Workers Return With Lucrative Consulting Deals
by Darryl R. Isherwood
Just hours before voters narrowly approved a budget that cut programs and upped fees, board members in the regional school district quietly okayed a consulting contract for a retiring official who also would collect pension benefits.
Since July 1, former Business Administrator John Nemeth has been paid $12,000 per month, a total of more than $18,500 per month in salary and pension benefits, from a deal approved in an April 16 closed session board meeting.
Nemeth, a 15-year employee of the district, is among an unknown number of public employees who have retired from their positions and then returned to lucrative consulting deals, while drawing pensions from the state system.
Officials come across about a dozen cases per year, said treasury spokesman Mark Perkiss, and the legality of each is decided on a case- by-case-basis.
Nemeth's deal, which runs for six months, could potentially put the former administrator at odds with state pension authorities if it is determined he is doing the same job he retired from in July.
Two high profile cases have been raised lately in Rahway and at the state level. In both instances, the state Division of Pensions ruled that the consultant should have been considered an employee and has ordered the repayment of pension benefits.
In Hopewell, where Nemeth's contract was unanimously approved by the school board, quiet opposition has begun to fester.
One new board member elected in April is raising questions about the contract in light of the district's financial troubles that have forced officials to charge fees for sports and busing and eliminate some programs. "This doesn't sit well in the community," said school board member Jim Wulf, who was elected the day after Nemeth's contract was approved. "We are cutting programs and charging for busing and given all of these reasons we can't afford things and then this is going on behind the scenes."
A SMOOTH TRANSITION
This school year, the district began charging $100 per child at Hopewell Central High School and $50 per child at Timberlane Middle School to participate in certain extracurricular activities, including most sports, student council and jazz band.
The district is also charging students for busing not mandated by the state.
Nemeth did not return calls for comment, but a school board member defended the hiring, saying it was necessary to ensure an easy transition once Nemeth retired.
"As a board it got full support for all of the right reasons, which is to create a smooth transition of a long service employee," said board member Kevin Doran. "The consulting agreement was simply to deal with helping to close out things he is intimately involved in as an administrator. This is a good management practice. I didn't find any concern or issue as a board member and neither did the rest of the board."
An attorney for the school board also defended the hiring, saying he sees no issue with the contract from a pension standpoint. "When the contract was negotiated in early spring I went back to the Division of Pensions regulations and checked the tests they use for independence and at the time I felt he was independent and I still believe so," said attorney Robert Martinez. "I also understood that the district's auditor reviewed the agreement as part of his year-end audit and also approved it. I'm not aware of any issue surrounding the contract."
The contract signed by Nemeth outlines six job responsibilities including close-out of construction projects, labor negotiations, implementation of inter-local agreements regarding student transportation, facilities planning and administrative consultation. It is unclear how many of those duties Nemeth performed while business administrator, but Wulf said as a consultant the former employee is doing roughly 30 to 50 percent of his former job responsibilities.
In July, the district promoted former Assistant Business Administrator Robert Colavita to fill Nemeth's shoes at a salary of about $30,000 less than Nemeth made at his retirement. In addition, a spokeswoman for the district said overall, administration costs went down after a restructuring when Nemeth and another long-term employee left.
DEAL NOT UNIQUE
Nemeth's consulting deal, which is set to expire on Dec. 31, is not unique to Hopewell Valley.
A small handful are discovered each year through tips and media accounts and all are looked at on their own merits, Perkiss said. It's an issue, Perkiss said, when the consulting job is made up of the same work as the contractor's former position.
"When we become aware of these situations, we will make a case by case determination of whether the relationship is correctly classified as a contractor -vendor, or should more appropriately be deemed an employee-employer relationship," Perkiss said. "If someone comes back and is doing the same work they did before, that raises the question."
Similar issues have been raised locally in the Trenton fire and police departments when paid chiefs have retired to take positions as civilian directors. In the case of former Fire Department Chief Dennis Keenan, the courts ruled that his duty as a civilian director was different than his duties as chief and allowed him to keep his pension.
Police and fire officials draw their pensions from a different state system than education officials. Municipal workers also have their own pension fund, but all are administered by the state Division of Pensions.
A 2006 report by the NJ state Commission of Investigation (SCI) detailed the practice as one of many abuses practiced regularly by school administrators.
In a section of the SCI's 165-page report titled "Taxpayers Beware: What You Don't Know Can Cost You," investigators cite consulting deals as a form of severance package often used to pad an employee's compensation. The report, which was sent to every school district in the state when it was issued in March 2006, paints a grim picture of the state's educational administration. "The findings detailed here raise serious questions about the reasonableness and rationality of employment contracting standards utilized by boards of education and whether these local governing bodies -- as frontline stewards of the public purse -- are properly and adequately overseen in that regard by higher authorities," the report stated.
To repair the broken system, the SCI recommended a host of changes including more transparent contracts, benefit limits to limit the cash-in of unused sick and vacation days, forced adherence to pension calculations and the requirement that school boards be made financially responsible for any unfunded pension costs that arise from a violation of the system.
To implement the recommended changes, Assemblymen Bill Baroni, R-Hamilton and Kevin O'Toole, R-Cedar Grove, have introduced a pair of bills mandating many of the changes. Identical bills have also been introduced in the state Senate. Included in the legislation is a requirement that all contracts for school superintendents be forwarded to the state Department of Education for approval. One bill would also require a school board to provide the state education department with a statement detailing any benefits offered to an employee after retirement.
Reached Friday, Baroni said it's time to reel in pension abuse. "The pension systems were not built to accommodate these types of special arrangements, they were built for the rank and file public employees, police officers, fire fighters and teachers," he said.
Recent Comments