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Union money troubles drove CCSD to dump consultant

A $100,100 settlement recently freed Clark County School Board President Erin Cranor from a lawsuit, but it stirred up more public accusations of backroom dealings, misuse of public money and questionable motives for actions taken by her and by school district administrators.

District officials last month sent the settlement check to Business Benefits, a consulting company the school district once employed to negotiate better rates for health insurance for school support staff. The payment, made without School Board approval or notification, focused attention on administrative decisions that could prove expensive in coming months: Superinten­dent Pat Skorkowsky canceled the Business Benefits contract midterm, at Cranor’s urging, knowing it would trigger litigation that could cost taxpayers millions of dollars, according to sworn depositions, minutes of closed-door meetings and other documents related to the lawsuit obtained by the Review-Journal.

Cranor refuses to say much about the matter, other than her intentions were good: She wants to shift all 30,000 employees and their dependents to one health plan that would be less expensive than the current system of separate coverage for teachers, support staff, administrators and school police, with some plans run by labor unions and others by the district.

But a different picture emerges from depositions and other court papers related to the Business Benefits lawsuit and interviews with senior school district and union officials.

“Her intentions are not pure,” said a senior district official who asked not to be identified.

The official said Cranor got involved in the insurance issue at the behest of John Vellardita, executive director of the district’s teachers union, the Clark County Education Association, who has jockeyed to replace Business Benefits as the district’s insurance broker.

“He (Vellardita) has realized the money isn’t in the union members — it’s in their benefits,” a high-ranking teachers union member said.

Vellardita did not return telephone calls seeking comment for this article.

Gaining control of a district-wide health plan would pay dividends for both the teachers and the plan’s new administrator.

The union’s self-funded Teachers Health Trust for years paid its now-retired CEO and subrogation lawyer, Peter Alpert, more than $500,000 per year, according to financial statements filed with the IRS. Coincidentally, Business Benefits made $500,000 in annual commission for its work. At those rates, Vellardita, who has made it clear that he wants the job, probably would increase his current salary as union executive director.

And the district-wide contract would bail out the Teachers Health Trust, which provides health insurance to 18,000 teachers and 19,000 dependents. The trust is losing millions of dollars each year and approaching bankruptcy, according to confidential financial documents obtained by the Review-Journal.

“He (Vellardita) has got his paws into this, and Cranor is Vellardita’s sidekick,” the union leader said. “She’s part of his inner circle.”

At the very least, Cranor is on good terms with the unions.

In her first run for a School Board seat in 2010, Cranor reported receiving a total of 37 campaign contributions. The two biggest accounted for more than a quarter of her total — $5,000 came from the teacher’s union, and $3,000 came from the Education Support Employees Association, another affiliate of the National Education Association. All three unions have endorsed her for re-election on Nov. 4.

RUN FOR THE MONEY

The Business Benefits lawsuit has roots dating to 2011, when former Superintendent Dwight Jones hired the company to negotiate a health plan for 22,000 support staff and their dependants covered by United Healthcare.

The strategy paid off: United Healthcare remained the provider, but Business Benefits was able to arrange much more favorable rates of $526 per employee, per month for the HMO. By comparison, less robust coverage costs City of Las Vegas employees $800 and district Teachers Health Trust members $900.

While teachers were paying far more for health coverage, their union leaders resisted the idea of dropping their self-managed trust and joining the district in one big plan.

But that changed in 2013, when union leadership changes increased Vellardita’s influence, even as economics made it much harder to go it alone.

Last year, the Teachers Health Trust posted an operating loss of $2.2 million. For the current year, the union projects a $3.9 million deficit as its $15.69 million in expenses are expected to exceed its $11.8 million in revenue.

The trust is self-funded, meaning it takes in premiums and directly pays claims.

In labor contract negotiations in mid-2013, Vellardita lobbied the district to drop United Healthcare and create a district-wide self-funded plan that he would administer, Edward Goldman, the district’s chief labor negotiator, said in a sworn deposition.

The school district’s response: Excluding United Healthcare was out of the question because it controls 75 percent of the market. Other companies have either declined to bid for the district’s business or were unwilling to offer more than a one-year contract because of the huge number of employees.

Goldman, who declined comment for this article, then testified that Vellardita said he should replace Business Benefits as the district’s broker with United Healthcare.

“He said that he could do the job himself, and he could do a better job because he had a lot of experience doing this,” Goldman said.

“I said ‘BBI is our broker, and you’re not going to dictate who our broker is,’ ” said Goldman, recalling that Vellardita emphasized his experience as a union leader in Oakland, Calif.

Vellardita was head of the long-term care division for United Healthcare Workers-West in Oakland until SEIU, its parent organization, sued him and 16 other leaders for unraveling the local after hearing that SEIU wanted to take it into trusteeship and replace them, in part because of financial improprieties. He was ordered to pay the largest share of damages at $77,850 shortly before he started work in Las Vegas.

THE ‘PUSHING FORCE’

As Vellardita was lobbying hard to take Business Benefit’s place as broker for a new district-wide health plan, Cranor without the knowledge of other School Board members started looking into Business Benefits and its president, Tim DeRosa.

Goldman said Cranor accused him of accepting kickbacks from DeRosa, and an attorney representing Business Benefits said in his deposition that Cranor in the fall of 2013 accused unspecified school district officials of taking bribes. The attorney asked the district to provide evidence of kickbacks, but it got none.

Cranor later dropped the allegation — Goldman wasn’t even involved in negotiating the Business Benefits contract — but didn’t give up.

According to minutes of a closed-door meeting on Sept. 23, 2013, Skorkowsky told the School Board that the support staff plan had a healthy surplus, but in prior years it had been millions in the red because of assumptions made by Business Benefits. The broker, he explained, thought more employees would sign up for low-cost coverage, but many initially took a higher-cost option.

“I will say, specifically, Trustee Cranor has been the pushing force for us delving into this deeper,” Skorkowsky told the board.

District Chief Financial Officer Jim McIntosh told the board that former Superintendent Dwight Jones, who had resigned four months earlier, directed Business Benefits to hide the deficit by using reserves to cover it.

Skorkowsky and other top administrators also criticized DeRosa for negotiating a higher commission from United Healthcare, starting in 2014.

The broker works for CCSD but gets no direct payment from the district. Instead, it is paid a half-percent commission by United Healthcare, or about $500,000 per year.

United Healthcare agreed to pay DeRosa 2.25 percent after he learned the company gave that rate to other brokers representing 500 or more covered employees, according to subpoenaed documents.

In a departure from past practice, United Healthcare Nevada CEO Don Giancursio told DeRosa that he needed the district’s written approval because the commission, now $2.5 million, would be rolled into premiums over the length of the two-year contract, according to his declaration in the lawsuit.

DeRosa’s attorney, former Clark County Commissioner Rory Reid, then asked the school district’s head attorney, Carlos McDade, for a written acknowledgement. McDade demurred.

“McDade suggested that would not be a good idea because someone, I don’t know who, had made Freedom of Information requests regarding these matters and that if they put that in writing, that it would be discoverable (by the public),” Reid said in his deposition. “He (McDade) acknowledged having seen the commission schedule and that it would be in the best interest of everyone to not have it in writing.”

In a lawsuit deposition, McDade said, “I might have said those words, but the problem is that there was no agreement as to how the commission was going to be paid.”

McDade asserted that Reid “always, always, always” told him the commission wasn’t paid from the district’s premiums.

In the weeks after the meeting, DeRosa asked Skorkowsky to let him meet board members to refute any allegations of wrongdoing. He refused.

And in October 2013, Cranor sent Skorkowsky an email:

“It appears there may be intent to continue to the current contract with the broker (Business Benefits), even though the contract is now known to be unfavorable to the district,” Cranor wrote. “The reason this is a concern is that it would seem to limit both our ability to sever the existing unfavorable contract and to limit our options going forward with a plan that includes the CCEA (teacher union) employee group.”

Failure to act now, she wrote, would delay movement to a unified health plan for years.

In November, Cranor loaded copies of documents and other research material she had collected on a thumb drive and delivered it to Skorkowsky, who was far more receptive than Jones had been. In contrast to Jones, Skorkowsky is on good terms with the unions and maintains an open door policy for Vellardita.

The district’s governance policy for board members states that “the president has no authority to supervise or direct the superintendent.” Doing that requires a majority vote of the School Board.

ABRUPT CANCELLATION

On Dec. 31, Skorkowsky abruptly notified Business Benefits that its contract, which would expire the next day, would not be renewed. The terse notice baffled Business Benefits. The contract actually required an automatic rollover on Jan. 1 unless a cancellation notice had been sent the prior June.

In his haste to dump Business Benefits, Skorkowsky risked a breach of contract lawsuit that could cost taxpayers more than $2 million, based on the 2.25 percent commission the company would have received.

Skorkowsky in a statement last week said he can’t reveal “details” of the decision to kill the contract because of the ongoing lawsuit but said the deal was not “serving the best interests of our taxpayers or our students.

“Trustee Cranor did not direct me to make this decision,” Skorkowsky wrote.

He did not address Cranor’s email, however, and would not take questions.

Cranor, in a separate statement last week, said she can’t reveal much because of the lawsuit.

“I can confirm that my actions last year were taken on the advice of the District Attorney’s office, upon which I relied for guidance and direction after discovering discrepancies in CCSD’s health benefits spending,” wrote Cranor, referencing the lawyer the Clark County district attorney’s office provides to give the board legal advice.

“I look forward to the resolution of this issue when the facts will come to light, and I hope the facts will be reported as aggressively as have been the speculation and conjecture so far.”

In his lawsuit deposition, Skorkowsky testified that he alone directed McDade to send the termination notice, without consulting anyone.

Yet Skorkowsky and McDade knew that dropping Business Benefits without full notice could cost taxpayers millions of dollars in litigation and had discussed it with School Board members, according to transcripts of the Sept. 23, 2013, closed-door meeting.

“We’re looking at possible damages and things like that if we did terminate …” McDade told board members, arguing that any lawsuit would probably be settled out of court.

As expected, Business Benefits sued the district in May. But in a rare move, Cranor was also named as an individual. The plaintiffs said she had stepped beyond her authority to undo the contract, and the lawsuit raised questions about the district’s communication with Vellardita in regard to Business Benefits.

At that point, it became imperative to get Cranor clear of the lawsuit, senior district officials familiar with the lawsuit told the Review-Journal.

In August, the district offered Business Benefits $100,100 to drop Cranor as an individual.

District officials sent the settlement check — stamped with Cranor’s signature as board president — on Sept. 12 without informing board members, who had expected to have a chance to vote on it. Board members were in the dark about the payment until they read an Oct. 15 Review-Journal article about it. District officials have said board approval wasn’t required despite a regulation mandating a vote on “total settlements” of more than $100,000.

While the settlement shields Cranor from the potential of being held personally liable for damages, it may have made things worse for her in other ways.

The district’s attempt to make the issue quietly go away has invigorated the low-key campaign of Joe Spencer, who is challenging Cranor in the November election.

Spencer has called on Cranor to resign and step out of the race and has filed a complaint against her with the state ethics board.

Cranor is no stranger to that board, which earlier this year settled another complaint after she acknowledged breaking campaign laws forbidding use of taxpayer money to push the district’s 2012 ballot question.

Nor has the lawsuit settlement dampened questions about why the district had to precipitously dump its broker rather than make a clean break after the agreed-upon six-month notice.

Why did it rush and risk millions?

The answer may lie in the fortunes of the Teachers Health Trust.

Vellardita has repeatedly denied the trust’s financial troubles and approaching insolvency, but financial statements make it clear. In September, Vellardita wrote that the teachers union is “taking proactive intervention measures to assist THT’s (the Teachers Health Trust) financial situation.” He said more changes will be needed in the future to “provide financial stability.”

“We’re bleeding pretty bad,” said a high-ranking union leader in reference to the trust, noting that teachers are complaining about late payments to their doctors.

Those money problems would disappear if the union were in charge of a district-wide health plan, both union leaders and district administrators told the Review-Journal.

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