Private lawyers, public pensions: The loophole

Gov. David A. Paterson signed a bill this month to crack down on private attorneys who improperly secured public pensions, but a loophole remains.

Take for example the case of John Spellman, 64, an attorney who for years has been reported as a full-time employee of one village in Nassau County and part-time in two others, while also maintaining a private practice and billing the villages for millions in legal fees.

To date, he has secured public health benefits, more than 26 years of credit in the state retirement system and almost $8 million in legal fees for his Garden City law firm, according to records.

And even though both the state attorney general and comptroller have been cracking down on private attorneys who improperly secured public pensions through this very type of employment arrangement, officials in the state comptroller's office say certain appointed officials across the state, in positions like Spellman, are entitled to membership in the state retirement system.

Although most public employees must file time sheets, work regular hours and meet other criteria to qualify as public employees, the comptroller's office says elected and some appointed officials do not have to. As a result, hundreds of officials statewide are allowed to earn coveted pension credits without having to keep time sheets of the hours they actually worked in what essentially is an honor system.

Spellman declined to comment for this story. His attorney, Kevin Keating of Garden City, said Spellman has done nothing improper.

"He has the highest reputation for his ability and integrity," Keating said.

Critics say the state has a responsibility to better manage who gets pensions and how pension credits are determined.

"It sounds like the comptroller is bending over backwards to protect these guys and their deals," said E.J. McMahon, director of the Empire Center for New York State Policy, a conservative think tank in Albany.

Meanwhile, New York Attorney General Andrew Cuomo has subpoenaed Spellman's records of his employment with the villages, as well as those of other local lawyers, as part of his office's ongoing investigation into pension practices, spokesman John Milgrim said.

A Newsday examination of public records shows that at least 29 villages on Long Island have reported attorneys as employees. A number of them receive both salaries and legal fees for their law firms.

Booted from pension system This year, dozens of school attorneys who state officials say improperly secured public pensions by being reported as employees have been expelled from the retirement system in the wake of Newsday stories on pension abuses. In June, the State Legislature passed a sweeping package of pension reforms aimed at limiting such abuses.

The law's sponsors say they hammered out the best package they could; others, like Assemb. Ginny Fields (D-Oakdale), would like to see it go even further.

"In these times, when we're going through an economic crisis and we are expecting the residents of New York State to make huge sacrifices, why would we ever give any pension to someone who works once a month and makes a huge salary?" Fields said. "It makes no sense."

Under the comptroller's rules, elected and certain appointed officials get pension credits based on a sample of a single month worked, said Dennis Tompkins, a comptroller's spokesman.

Comptroller Thomas DiNapoli plans to tighten that regulation in January by requiring a sample of three months each term of office. The remaining nine months of the year are to be reported under what is essentially an honor system, said Emily DeSantis, a comptroller's spokeswoman.

"These are the most rigorous demands that have ever been placed on local governments for the purposes of reporting for retirement," Tompkins said. "There's no bending over backwards."

Asked why the comptroller doesn't require those appointed officials to report the hours they actually worked, DeSantis said her office - which oversees a $154 billion pension fund that is the second-largest in the country - doesn't have the authority to require time sheets.

In Spellman's case, records show that, since 2002, he has been reported by the villages to the comptroller's office as working more days than there are in a year. In 2004, for example, he was reported by the villages as having worked a total of 590 days. All public employees only get credit for one year, regardless of the number of days reported.

Beginning in 1986, the village of Mineola reported Spellman as a full-time employee. Since January, he has been reported as a part-time employee there. He is also a part-time employee of the villages of Roslyn and New Hyde Park. Records show he earns a total annual salary of $92,004 from the three villages; he receives state health benefits through Mineola. Records show that the villages have paid his Garden City law firm, Spellman, Rice, Schure, Gibbons, McDonough & Polizzi, nearly $8 million in legal fees since 1994.

Listed by water district Spellman also was reported as an employee of the Albertson water district - until auditors discovered he was getting pension credits for hours the auditors determined he did not work, according to records.

The district hired Spellman as its attorney in January 2003 and, at his request, made him an employee, according to former Commissioner Lloyd Gelb. They agreed to pay him an annual salary of $16,000 for attending board meetings. At the end of the year, district auditors discovered that Spellman had been credited in the state pension system with 18 days. In fact, records show, he had worked 10 days, and a legal associate had worked the other eight.

In a Jan. 26, 2004, letter, Albertson auditor Joseph Ferreira told the district's commissioners that they should not report Spellman as both an employee and independent contractor.

Furthermore, Ferreira wrote, "It is the commissioners' responsibility to ensure that the time records for the attorney are as complete and accurate as they would be with any other employee."

Commissioners got the message, Gelb said in an interview. In a letter dated Jan. 29, 2004, Gelb asked Spellman for a breakdown of his time worked.

The next day, the commissioners spoke by phone to Spellman, and Spellman quit, Gelb and other officials said.

Keating said Spellman was unaware of what hours were reported to the state on his behalf because village clerks handle that. "Mr. Spellman had no knowledge or control over what hours were being reported by Albertson to the state with regard to the services rendered by Mr. Spellman."

However, all members of the state retirement system receive annual statements detailing their service credit.

Although Spellman does not submit time sheets, his law firm submits monthly invoices to the villages. A Newsday review of those invoices shows that, in some instances, the time reported to the state retirement system for Spellman correlated to the hours billed by the law firm.

In Mineola, for example, state pension records report Spellman was working full time, or 20 days, in September 2007. Invoices submitted to the village show the firm billed hours totaling 20 work days. Of those, Spellman worked slightly more than 20 hours and other members of the firm worked the rest, the records show.

Roslyn reported that Spellman worked 18 days in November 2007, according to state pension records. Invoices show the firm billed hours totaling 18 work days. Of those, Spellman worked slightly more than nine hours.

New Hyde Park reported Spellman as having worked six days in September 2007, according to state pension records. Invoices show he worked four hours. Calls left last week for the law firm as well as Spellman were not returned.

Villages: Two kinds of work Officials in all three villages said they reported the sample month required by the comptroller. They also said that Spellman's work as village attorney was separate from the village legal work he does as part of his law firm.

However, the firm's invoices obtained through a Freedom of Information request show Spellman billing for the kind of routine activities covered in his employment agreement.

In Roslyn, for example, Spellman's employment agreement states his salary covers routine telephone conferences and preparation for meetings, among other things. Invoices from 2007 show him billing separately for such things as telephone conferences, preparation for a public hearing and planning board issues.

Despite the questions raised by the billing, officials in all three villages vigorously defended reporting Spellman as an employee.

Mineola Mayor Jack Martins, who is running for Congress against Democratic Rep. Carolyn McCarthy, wrote an eight-page memorandum dated last March 24 asserting that Spellman is a village employee.

"He attends the retirement parties of his fellow employees," Martins wrote. "He attends all employee holiday parties. He has a mailbox at Village Hall. He has, since 1992, been a participant in the village's employee savings bond plan ... He parks in the employee parking lot. He is treated as a fellow worker by all other employees of the village."

In an interview, Martins reiterated his support for the arrangement. "From an administrative standpoint and trying to get the best bang for the buck standpoint, we're very happy with the arrangement that we have with John Spellman."

Roslyn Mayor John Durkin declined to be interviewed, but issued a statement saying, "The cost of Mr. Spellman's retirement benefit is minimal when compared to the savings realized by the village's taxpayers."

And New Hyde Park Mayor Daniel Petruccio said the village planned to keep Spellman as an employee.