Assistant District Attorney, Al Serrato concludes investigation of Sequoia Healthcare District
 in  response to complaint filed by Director, Jack Hickey

Partial transcript of July 5, 2013 meeting audio.

E-mail from Mark Hudak to ADA Al Serrato

On May 23, 2013, Jack Hickey submitted the following to District Attorney Steve Wagstaffe:

"Mr. Wagstaffe, I am an Elected Director of the Sequoia Healthcare District.  I ask for your assistance to seek a remedy to an action of my Board which I consider to be a misappropriation of public funds.  At our December, 2012 meeting, the Board approved a $300/month increase in Board Health Insurance subsidy (from $1200/month to $1500/month).  I questioned the applicability of this increased benefit to sitting Directors.  Subsequently, Mark Hudak, District counsel issued a memo which contained the following caveat “The answer is not entirely clear, but I think it can be done.”  Directors began receiving the increased benefit in January."  In that submission, Mr. Hickey included a thread of e-mail exchanges between himself and Board President, Jerry Shefren seeking resolution of the matter.

On 10/25/2013 2:50 PM' in response to ADA Serrato's conclusion, Jack Hickey posed the following questions to ADA Serrato:
Was it reasonable to allow Directors to vote on a motion which would immediately benefit them?
Was it reasonable for the CEO to put the increased cap of $1500 for those same Directors into effect on January 1, 2013, without further Board discussion or action?
Was it reasonable for the District, after deciding to reverse the increase because of the risk of litigation* and public opinion, to leave a “gift” of $1800 each to the 3 Directors who voted for the initial increase?  What “public purpose” did that serve? 
Al Serrato's response:
Mr. Hickey,
I have had a chance to review your email and I have also spoken with Inspector Massey. I understand that you have questions about the decision I reached, and I would be happy to speak with you about that decision and the reasons for it if you would like.
In the meantime, I will answer the questions you posed. You ask whether the decisions of the Directors was "reasonable." As I addressed in my memo, the law in this area does not put the District Attorney in the position of weighing the wisdom of the choices that are made. The Directors sought the advice of counsel and were told their decision appeared to find support in the Attorney General's opinion. Health benefits for board members are considered a legitimate public purpose and are, therefore, not considered a gift of public funds. Consequently, I cannot say that the failure to reimburse the increased benefit was unreasonable.
It bears noting that my decision is a limited one. I do not offer an opinion on what the Board should or should not do, as the law deems such decisions best left to the political process. I simply determined that the law does not compel the result you seek.
Albert A. Serrato
Assistant District Attorney
San Mateo County

History of Sequoia Healthcare District action on Director benefits

Note: The District has only 6 regularly scheduled meetings per year.  It has a $192,800/yr CEO and 2FTE's.

On April 7, 2010, the Board modified Policy No. 15.1 as follows:

The District shall pay the premiums for health care insurance for the Directors and their spouses and dependents (or reimburse the Directors for their payment of such premiums) up to $1,200 per month, while Directors are on the District Board of Directors. 

NOTE: previously, their was no cap on the benefit, and some Directors had received benefits costing the District well in excess of $1,200 per month.

From minutes, December 5, 2012 Meeting of SHD Board of Directors

5.e. Consider Increasing Premium Amount Allowed for Health Care Insurance for Directors and Staff

Director Kane reported she surveyed several special districts and in an environment of increasing healthcare premiums, to add dental and vision coverage she suggests raising the amount reimbursed to directors and staff to $1,500 a month.

Motion: To approve an increase in amount reimbursed to directors and staff to $1,500 a month effective January 1, 2013.

By: Director Kane Seconded by: Director Faro

Director Hickey asked that the maker of the motion amend it to no reimbursement for healthcare premiums for directors and that they receive a stipend for meeting attendance.  The suggested amendment was not accepted by the maker of the motion.

Vote: 3-1-1 with Director Shefren abstaining and Director Hickey opposed.

Motion Passed

Additional research will be conducted by a subcommittee of the Board and item shall be placed on the February 6, 2013 meeting agenda for re-evaluation. Mr. Hudak will research to determine if increase is applicable to current directors.

Note: The 3 Directors who voted FOR the increase in benefit, Kane, Faro and Griffin, are the only Directors who stood to benefit from the increase.  None of these 3 Directors recused themselves from the vote, nor did they disclose the fact that they would directly benefit if  the increase were applicable to sitting directors.

January 2, 2013, Health Insurance premiums in the amount of $1346 were paid to CalPers for Directors Faro and Kane .  This was $146 over the original $1200 cap.  Subsequently, Directors Faro and Kane were reimbursed an additional $165.94/month  for medicare premiums to bring the monthly total to $1500 for the first 6 months of 2013.  On January 30, 2013, Director Kim Griffin , then President of the Board, submitted invoices  for Blue Cross Health Insurance amounting to $8,400 and was reimbursed by the District .  This included $6,000 for the first 4 months of 2013.  Apparently CEO Lee Michelson had instituted the increased cap of $1500 for Directors effective January 1, 2013, without further Board discussion or action.

From minutes, April 3, 2013 Meeting of SHD Board of Directors

5.c Consider Subcommittee Recommendations to Revise Health Benefits for Directors and Employees

Mr. Michelson noted that a Board subcommittee comprised of Directors Kane and Faro and himself, conducted additional research and met several times to discuss the premium amount allowed for health care and dental insurance for directors and staff. The committee’s recommendations are:

1. Medical and dental premiums are to remain at a maximum of $1,500 per month as approved in December 2012; however, effective July 1, 2013 participating directors and staff will be required to pay 10% of the premium expense with the District paying 90%. In the instance of CalPers Health premiums paid monthly by the District, directors and staff will reimburse the District 10% of their individual premium cost.

2. Effective July 1, 2013 the inlieu benefit offered to employees who opt out of the District’s benefit plan shall be reduced from $400 to $200 per month. (Employee Policy 5.05).

3. Effective July 1, 2013 Employee Policy 5.10 providing reimbursement of $40 per month for gym membership shall be eliminated.

4. Effective July 1, 2013, the District shall offer employees a paid term life insurance policy valued at $50,000 at no cost to the employee. Employees cannot increase the value of this policy by paying an additional premium. This benefit will cease upon termination of employment from the District.

Counsel Hudak noted that he reviewed this item and concluded that this type of reduction could not be imposed involuntarily on sitting Board members but would apply to newly-elected Directors. Staff, however, are subject to the reductions as noted effective July.

Motion: To approve revisions to directors and staff benefits effective July 1, 2013.

By: Director Kane

Seconded by: Director Griffin

Director Hickey asked that consideration be given to amend the motion to pro-rate the inlieu benefit for part-time employees. Director Kane declined.

Vote: 5-0

Motion Passed

On April 7, 2013 I received a copy of the AG Opinion supporting Counsel's conclusion that "this type of reduction could not be imposed involuntarily on sitting Board members".

On April 10, 2013, I requested and received a copy of a Dec. 6, 2012 memo from Mark Hudak to Lee Michelson, which was not distributed to Directors at the time it was written. In that memo, Mr. Hudak stated: "I researched the issue of whether an increase in the amount reimbursable for health care premiums can take effect during each Board member's current term. The answer is not entirely clear, but I think it can be done." That memo should have been discussed at the February meeting of the Board, and, at the very least, should have been included in discussion of item 5c at the April 3, 2013 meeting.

On April 24, 2013 I included the following in an e-mail which I sent to President Jerry Shefren:

"It is my opinion that, if pursued, a Writ of Mandate would issue to remedy the situation by delaying the increased subsidy for board member health insurance until the next elected directors are seated." This was included in my original e-mail to the District Attorney.  Subsequently, on the advise of Mark Hudak, the issue was put back on the agenda of the June meeting.

From minutes, June 5, 2013 Meeting of SHD Board of Directors

5.e. Attorney Report on Health Care Benefits For Sitting Board Members

Mr. Hudak reported that in December the Board voted to approve increases to both employees and directors for health insurance premiums based on his legal review as there is a restriction against sitting board members voting themselves new benefits. There is very little published authority on the issue but there is an Attorney General opinion stating that benefits could be increased if they were part of a general increase for everybody, including employees. However, the District’s circumstances are somewhat different in that directors and staff don’t all participate in one unitary plan so although premiums are going up generally, they are not all going up at the same rate for everyone. He cannot state that the AG’s opinion is 100% authority or that a different conclusion could be reached. Therefore he thought it prudent to report this back to the Board.

Motion: Effective July 1, 2013 reset the healthcare benefit for sitting Board members to a maximum of $1,200 with no 10% payback. For newly elected board members the benefit will be $1,500 maximum with a mandatory 10% payback to the District.

By: Director Shefren

Seconded by: Director Faro

Roll Call Vote: 5-0-0

Motion Passed

The following statement in the minutes was an attempt to legitimize the "gift" of $1,800 to Directors Kane, Faro and Griffin: 

"Directors who received additional benefits based on the increase between January-June 2013 will not be required to repay those amounts as the increase was voted on based on the best available information at the time."  I challenged this statement suggesting that a review of the meeting  audio recording  beginning at 1:00:00 would not support such a conclusion. 

Note: The minutes of that meeting were submitted by Director Kathleen Kane, Board Secretary, and a beneficiary of the $1,800 "gift".