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HomeNewsLocal newsAccount Ability: Can V.I. Schools Wean Themselves from a Fiduciary?

Account Ability: Can V.I. Schools Wean Themselves from a Fiduciary?

This article is one in a series about how to strengthen the V.I. government’s finances without raising tax rates. Each deals with a specific proposal.

Most educational systems under the U.S. flag handle their federal education grants directly, but in these islands (and some others) the funds are handled by a contractor. This costs USVI taxpayers $3 million a year.

One way for the V.I. government to dig out of its huge financial hole without raising taxes or cutting services is for V.I. officials to handle the federal funds directly, hopefully for considerably less than $3 million.

That hope has been expressed by at least two successive governors and by a larger number of Education commissioners, but it remains elusive. Recent research showed the contractor, sometimes called, in near regal terms, the Third Party Fiduciary, was still in place, and still was financed by island – not federal – funds.

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The problem of USVI/U.S. Department of Education difficulties is an old one that started three presidents ago when Bill Clinton was in the White House, and it has persisted through both Democratic and Republican administrations on the mainland.

Other island territories, notably Guam, have experienced and/or created similar difficulties in connection with education formula grants.

We should point out that many federal grants are competitive in nature; the entity has to make a better case for financing than the competitors. Usually only the highest quality proposals win.

But the grants that Guam and the V.I. government are having difficulty with are in a different and lesser league; they are not competitive at all.

Moneys are allocated by formulae to the various states and territories. To perhaps oversimplify, all the V.I. government has to do is to understand the rules, complete numerous forms, spend the money on education in keeping with the regulations, and account for the moneys spent in an appropriate manner. Having clean and prompt audits, as one might imagine, soothes the federal officials dealing with a program.

The Dismal History. As long ago as 1999 the U.S. Department of Education determined, in keeping with ongoing regulations (34 C.F.R § 80.12 to be precise) that the V.I. government was a “high risk grantee” in that “the grantee or a subgrantee has a history of unsatisfactory performance or has not conformed to the terms and conditions of previous awards” to quote from a letter written to the V.I. government by the inspector general of the U.S. Department of Education on Jan. 29, 2008.

The feds then forced the V.I. government into a compliance agreement on Sept. 23, 2002, which was supposed to eliminate the “high risk” judgment. But the V.I. government failed to meet its obligations to the satisfaction of the feds, and the V.I. government (specifically the V.I. Department of Education) was forced “to hire a third party fiduciary to manage all grant funds starting with those of 2004.”

Another report, from the same office, (dated Jan. 13, 2010) noted:

“Specifically, (the V.I. government) submitted its A-133 audits late for audit years 2003, 2004, 2005, and 2006. The GVI had not submitted its A-133 audits for 2007 or 2008.”

This was despite the presence of a well-funded contractor for most of those years.

More recently Gov. Kenneth Mapp complained that hiring the fiduciary had cost, over the years, more than $32 million. The $3 million-a-year fee is to manage a flow of money that has varied a bit, year by year, but the estimate for Elementary/Secondary Level assistance programs from Washington for the current year is $24.6 million.

Year after year federal reports have contained messages, from various agencies, that are similar to that of a White House Interagency Group on Insular Affairs in 2013:

“Despite noted gains in fiscal controls within VIDE and GVI over DEd funds, major challenges in terms of fiscal issues remain, specifically getting VIDE and GVI to take more ‘ownership’ of improvement initiatives overall versus falling back to the third party agent to manage and address these.”

The Fiduciaries. The V.I. Department of Education has not been lucky in its choices of contractors, because all three of them have failed to wean the territory from its dependence on them. (There are situations in life when an entity is rewarded for failure, and this may be one of them, in terms of continuing the $3 million-a-year contract that goes to the fiduciary.)

For years the contractor was Alvarez & Marsal, a D.C.-based consulting firm that, according to Wikipedia, specializes in “turnaround management.” Apparently their skills did not produce the desired results because the V.I. government after a number of years terminated its contract, just as Guam did last year, with its A&M contract, in a similar situation.

While A&M may not have been successful, it did not create the bad PR that the next fiduciary did; this was Thompson, Cobb, Bazilio and Assoc. Jeffrey Thompson was a much more active player in D.C. politics than he was in the USVI, though he did run one fundraising dinner for the then Delegate Donna Christensen.

Thompson, who once had huge contracts with the D.C. government, was sent to jail for very substantial, D.C.-related campaign finance violations.

The third and current contractor is Bazilio Cobb Assoc., the firm that succeeded the Thompson firm, minus Thompson. So far as we know it has not attracted negative headlines, has not been terminated, nor has it managed to end the territory’s dependence on a financial contractor.

Proposal. Since the current system has failed to get rid of the fiduciaries, perhaps the V.I. government should contemplate a different approach. There are literally hundreds of state officials who have successfully managed federal Education moneys for years. Perhaps the territory should hire one or two of them, give them supportive staff and full powers over the funds that they will administer, and promise publicly to fire them if they cannot, within two years, get rid of the fiduciary.

Predicted Results. If this were to be done, as suggested, it could very well lead to the termination of the fiduciary and savings of, one hopes, something like $2 million a year.

Sidebar. In order to confirm the name of the current contractor we did the following:

    • we called an office in the V.I. Department of Education and were told to call another office in the department;
    • we did so and left a message;
    • the call was not returned;
    • we called the second office again and were told by the person on the phone that she would have to find out the name, and asked for our email address. We gave it to her;
    • an email message arrived fairly quickly saying that a named person in the Office of Management and Budget would give us the information, and included a phone number;
    • the phone number was for the Finance Department and without noticing that we called it and were told that the person we wanted was not known to the operator – clearly our error;
    • we then called the right person at OMB, with the right number, and were told that only the director of the agency, a territorial cabinet officer, could give us the name, and that we were to call the director the next day;
    • the next day we called the director, but after a long pause, we were connected with the same person at the agency we had talked with before; we reminded her that we wanted the name of the contractor and her reaction was, “Let me close my door.” There was another pause, presumably as she closed the door, and then she told us the name.
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