Pensions still available for those in DPS scheme

Jennifer Chambers
The Detroit News

Thirteen former and current Detroit Public School principals charged with a felony in a $2.7 million kickback and bribery scheme at the district remain eligible for their state pension.

No known court order has been requested to revoke the state-funded pensions of 13 administrators who face federal charges or accepted plea agreements in connection with a scheme uncovered by an FBI investigation into the financially beleaguered district.

Gina Balaya, spokeswoman for the U.S. Attorney’s Office, said the federal government is seeking full restitution from all 14 defendants in the case, including school supplies vendor Norman Shy who is accused of paying $908,518 in exchange for $5 million in business with his company Allstate Sales and has pleaded guilty in the case.

The scheme deprived DPS students of more than $2.7 million in resources, officials said.

But the U.S. Attorney’s Office does not have standing to request a court order to revoke the pensions.

“They will all be ordered to pay restitution and maybe they can use their pensions to pay that, but we don’t have any legal standing to take the pensions,” Balaya said.

The Michigan Public School Employees Retirement System fund pensions for both school administrators and teacher.

Caleb Buhs, a spokesman with the state Department of Technology, Management and Budget, which is in charge of the Office of Retirement Services and Michigan Public Employees Retirement System, said state statutory language says that if an employee is found in violation of the public trust, a court can order a revocation of his or her public pension.

Whether the charge faced by the DPS administrators is considered a violation of the public trust is up to a judge, Buhs said.

“There is not a listing of crimes that fall into the category. It’s at the discretion of the judge,” he said.

Michelle Zdrodowski, DPS spokeswoman, said pension issues are governed by the state and deferred questions to state officials.

Asked whether DPS Emergency Manager Steven Rhodes would request such a court order, Zdrodowski said: “Judge Rhodes is on record as saying that he will investigate legal options for recovering the stolen funds.”

Michigan is one of a few states that has a pension forfeiture law for public employees.

Public Act 350 says a public employee or retiree convicted of a felony arising out of official duties “is considered to have breached the public trust" and may have his or her rights to a vested retirement benefit in forfeited.

Under the law, passed in 1994, a felony can be defined as misusing public funds or resulting from the receipt of a bribe or other financial benefit in that person's capacity as a public employee.

Peter Henning, a former federal prosecutor and current professor of law at Wayne State University, said revoking pensions can only be done in state court since the issue falls under state law, not federal, where the criminal cases are playing out this month.

"It's not an issue for the federal judge. All the federal judge can do order is restitution," Henning said.

Federal prosecutors are seeking restitution against all 14 defendants in the case.

Shy has been ordered to pay more than $2.7 million. The 13 DPS officials must payback the money they accepted from Shy in bribes and kickbacks, which ranges from $4,000 to nearly $325,000.

Larry Dublin, a professor at the University of Detroit Mercy's Law School, said a judge has the power under the state law to revoke the pensions.

"It would seem to be an injustice to have public school employees who enter guilty pleas to felonies for collecting kickbacks thereby depriving children of needed educational funds to be able to collect their pensions," Dubin said.

jchambers@detroitnews.com