Union Chief Under Fire for Wrong Reasons

Today the Oregonian ran a story by reporter Jeff Mapes about SEIU President Joe DiNicola, Mapes noted that:

"The largest union for state employees in Oregon is embroiled in a messy political and legal struggle over a claim from its elected president for nearly $110,000 in back overtime pay. Outraged members of Local 503 of the Services Employees International Union, including several board members, launched a recall campaign against the president, Joe DiNicola. In turn, DiNicola is seeking a court order charging that union and government resources are being used to aid the recall, which SEIU denies. He also has filed a civil rights complaint charging he has been discriminated against for making his wage claim."

Rather than engage in a conflict my advice would be for SEIU to cut the check for $110,000 with the stipulation that DiNicola advance two initiatives.

The first would be a natural for him, a tax auditor, and that would be to raise a discussion regarding the most abusive corporate tax loophole in 25 years, one that has both decimated union ranks through non sensical mergers and also short changed investors alike. Steve Duin referred to this tax loophole in an opinion piece and I also wrote about it in an article titled the "Amazing Carry and Tax Loophole Inside PERS" or Brainstorm NW magazine. If DiNicola is successful in closing this loophole the union could theoretically justify writing him a check for every dime it has and kissing his feet in gratitude because the net impact would be the preservation of millions of good jobs, a disproportionate share being union jobs.

The second recommendation to SEIU would be to encourage DiNicola to be more aggressive in representing issues key to domestic job growth at meetings of the Oregon Investment Council. This was not mentioned in the article by Mapes yet perhaps DiNicola's most important activity of all is attending the monthly OIC meetings on behalf of SEIU, where the $70 billion of PERS investments gets awarded to various managers.

OIC Hosts NW Natural CEO Mark Dodson

In June the Oregon Investment Council held its annual planning session and included a special presentaiton from NW Natural CEO Mark Dodson on Carbon limits and other energy topics. This is the same Mark Dodson whose firm NW Natural tried to acquire PGE with funding from the Texas Pacific Group. In addition, the law firm at which Dodson was managing partner prior to joining NW Natural, Atre Wynne, shared office space with Neil Goldschmidt and his partner Tom Imeson and did most of the legal work in Texas Pacific's separate later attempt to acquire PGE a second time.

The June 27, 2007 meeting minutes also note that a key topic was "socially responsible investment" and "sustainability" issues.

It was not disclosed whether OIC Chairman Solomon, a practicing CPA, does tax work for Dodson or any other executives at NW Natural. What is known is that NW Natural and Warren Buffett's Pacific Power have expended considerably time and energy in trying to upend a law that prevents utilities from charging ratepayers for taxes that they do not ultimately remit to the various taxing authorities. In addition, Dodson and Buffett tried to unseat Senator Vicky Walker form Eugene even though the legislation she sponsored was widely praised as an outstanding reform to the system.

Oregon Investment Council (PERS): Private Equity Investments

Here is a link to the history of private equity investments by Oregon PERS going back to 1981. The listing shows that more than $5 billion in new committments have been made to the private equity area in the last 18 months. KKR alone has received more than $2.5 billion in the last 3 years.

Although the historical returns looks good, it is hard to tell the real actual returns since the summary does not account for the time value of money given that some of the returns occurred 25 years ago, etc. In addition, private equity firms value the companies they own themselves since they are not publicly traded. Previously the OIC showed the total current outstanding balance of private equity on its quarterly spreadsheet yet this amount is now part of the overall OPERF total and not broken out separately. See quarterly excel spreadsheet summarizing portfolio.

One thing is clear and that is that a significant increase in private equity investments has occurred recently. In May of 2006 I wrote the following article titled PERS-The Amazing Carry Fee and Tax Loophole for Brainstorm NW summarizing the growth and related fees associated with these investments.

Oregon Investment Council: Structure, Members and Board Minutes

Today Oregon PERS is one of the nations largest public pension funds, with more than $70 billion in assets. In Oregon the administation of PERS is handled by the PERS administrative board yet the investments are managed by a separate board, the Oregon Investment Council (OIC). This link shows the members on the OIC in addition to minutes from recent OIC meetings. The council has 5 voting members, four appointed by the Governor, and the State Treasurer by position. The SEC has no oversight of public pensions, even though they are now 8 of the nations 10 largest investments pools, CalPERS alone having more than $150 billion.

It is noteworthy that the current OIC Chairman, Dick Solomon, has no biographical background information listed. Solomon is a practicing Certified Public Accountant serving many local top executives, including the previous OIC Chair Gerard Drummond, a former Pacific Power executive,for whom he had prepared tax returns for many years. Traditionally, this was considered an unacceptable conflict of interest between accounting and investing activities. Only when CPA's goes on to receive appropriate credentials in the investment industry is it considered appropriate yet Solomon has no such credentials or experience.

Prior to serving on the OIC, Solomon served on the Oregon College Savings Plan board. During his tenure on this board he and State Treasurer Randall Edwards, when faced with choosing a new key vendor due to the dismissal of Strong, they chose Oppenheimer over Vanguard. This was very unfortunate because the choice of Oppenheimer set up a system in which most participants are fleeced by investment advisors earning large commissions. A key selling point of the Oppenheimer program was its offer to provide $300,000 in free television ads, those would be the ads State Treasurer Randall Edwards appears in.

Today most credible advisors in Oregon recommend the Nebraska, Iowa or Nevada college savings plan, forgoing the small tax benefit to Oregon residents of the Oregon Plan. While Solomon and Edwards may argue that Vanguard choices do exist, one need only look at where the dollars have gone overall to see the influence of Oppenheimer's high fee program.

Solmon's candidacy to be on the OIC and later appointment as Chairman was aggressively championed by one of Oregon's most powerful Lobbyists, Len Bergstein. Berstain is a regular election day contributor, on the Democratic side, to the State's leading media outlets, including KGW TV and the Oregonian newspaper.

Bergstein also launched Neil Goldschmidt's campaign for Governor in the 1980's while leading his public relations company, NW Strategies. Another major contributor was the local office of Arthur Andersen, where I worked at the time. The managing partner of the office was Harry Demorest who was added to the Oregon investment council after Neil Goldschmidt's wife Diana and his best friend, Gerry Bidwell, were forced to resign over conflict of interest issues.

Bergstein has also done work for local utilities and supported acquisitions, including Warren Buffett in his takeover of Pacific Corp. While Buffett is served by Omaha public power and enjoys electricity rates considerably below market averages back home in Omaha, he is enjoying high profits off Oregon ratepayers and using these funds to finance several new coal plants in Utah, Pacific Power's second largest region behind Oregon.

There is currently no requirement in Oregon that investment firms who go before the OIC for contracts to manage funds, at times exceeding $1 billion, disclose who their lobbyists are.