Taxpayers Finance Settlements and Silence

A powerful state senator is accused of misconduct by a member of his staff. On his behalf, the Senate Rules Committee agrees to pay her $117,200 in a confidential settlement.

But the nature of the charge against the lawmaker, terms of the agreement and even his name are cloaked in secrecy.

That’s exactly the scenario that emerged last week as details of the secret 1998 agreement between former staffer Karri Velasquez and the Rules Committee, which acted on behalf of state Sen. Richard Polanco (D-Los Angeles), emerged in newspaper accounts.

But it is by no means the only case in which the expenditure of taxpayers’ money, sometimes totaling millions of dollars, is hidden from public view or masked by “confidentiality” agreements.

In another controversial settlement last year, arbitrators awarded a record $88.5 million in fees to attorneys who sued the state to recover illegal auto smog charges. The sum was kept confidential until it was leaked by outraged state officials, creating an uproar that forced California Gov. Gray Davis to ask that it be overturned.

In a third case, officials of Sierra College, a public two-year institution northeast of Sacramento, secretly settled a sex discrimination case brought by a former librarian for $576,000. A grand jury last year charged that they then tried to cover up the details.

Critics contend that out-of-court settlements are routinely kept from public scrutiny even when public funds are involved. When they are revealed, it is usually the result of dogged records searches or leaks from people privy to the settlements.

Under state law, the Rules Committee, which acted as Polanco’s employer, settled with Velasquez in the same way that private employers do when they are sued and can be held liable for the misconduct of their workers. State law treats elected officials like any other public employees in such matters.

Because of a Byzantine state records system, the number of settlements and the money involved are virtually impossible to track.

‘Taxpayers Really Have a Right to Know’

“What it means is that the state or local government is paying taxpayer money to buy silence about something the taxpayers really have a right to know,” said Terry Francke, general counsel for the California First Amendment Coalition.

Francke, whose group includes many news organizations, noted that both public and private sector settlements often require return of the payment if the accuser breaches its confidentiality provisions.

“That is a very strong deterrent against post-settlement whistle-blowing,” Francke said.

Every year, the Legislature approves millions of dollars to pay for lawsuits and legal claims against the state. But the appropriations occur after the lawsuits are resolved in court or negotiated outside of court.

Some lawmakers and other critics complain that there is no central mechanism in state government for routinely tracking money paid out in settlements, confidential and otherwise.

“I don’t know, but it’s probably in the hundreds of millions of dollars,” said state Sen. Tom McClintock (R-Thousand Oaks), a persistent critic of what he views as excessive spending by government.

Officials of the Department of Finance, which controls the state’s purse strings, the state controller, who writes the checks, and the attorney general, who defends the agencies, say they do not know in this high-tech era the volume or amounts of settlements.

“No, we definitely don’t have anything like that,” said a Finance Department spokesman.

“In terms of having a comprehensive set of numbers, that is not something anyone can provide,” said Nathan Barankin, spokesman for Atty. Gen. Bill Lockyer.

Barankin said Lockyer was “absolutely flabbergasted” to learn before taking office that the justice department had no case management system that would provide such information.

He said Lockyer is organizing such a system and intends to have it operational soon.

State officials say the state’s vast budgeting and accounting system does monitor upward of $100 billion a year in spending on the basis of broad government programs--education, health and welfare, transportation--but not by individual line items, they said.

McClintock said he is frustrated by the settlement process and wonders whether the public is getting a fair return.

“It has been a concern of mine for many years that it is much easier for the bureaucracy to settle a case than to defend it [in court],” McClintock said. “Without legislative and public review, there is no way to know to what extent the public’s right to be defended against such claims has been discharged.”

He said he believes that the Legislature, often preoccupied by the crisis of the moment, has surrendered its power of the purse to a bureaucracy that is “large and pervasive and independent from oversight.”

As in private industry, the economics of settling a case or proceeding to an expensive trial--and perhaps losing--is the biggest issue facing state lawyers, said Peter Siggins, a chief deputy attorney general.

“The most common and overriding criterion is: Is the settlement within what a likely jury verdict would be in cases that involve suits for monetary damages?” Siggins said.

He said that as a “general matter, we do not like confidentiality clauses,” but the department does agree to them in “a small percentage of cases,” usually personnel matters.

In the case of Polanco, the Senate Rules Committee admitted to no liability when it settled with Velasquez for unspecified “physical and emotional injuries,” back pay and paid leave. In exchange, she agreed to resign and keep quiet.

Her case began as a sexual harassment complaint filed against the veteran lawmaker with the Department of Fair Employment and Housing in 1996.

She withdrew it and later filed what sources said was a discrimination claim with the Rules Committee, claiming that she was unfairly passed over for promotion and treated badly by a senior staffer who is the mother of the senator’s out-of-wedlock child.

A confidentiality clause forbids Velasquez or anyone else connected with the case from disclosing its terms or original grievances. The document did not identify Polanco by name, but acknowledged that it was related to the original complaint she filed against him with the fair employment department.

Legislation is pending in the Senate and Assembly that would make it more difficult for businesses to impose secrecy restrictions on settlements such as those reached in the recent Firestone tire and Northridge earthquake insurance cases.

Under the legislation (SB 11 and AB 36), it would be presumed as a matter of law that the public has a right to inspect out-of-court settlements. However, a court judge could impose secrecy restrictions under certain conditions. These would include whether an “overriding” interest in sealing the documents outweighed the public’s right see them.

The bills, by Assemblyman Darrell Steinberg (D-Sacramento) and state Sen. Martha Escutia (D-Whittier), would apply to settlements involving defective products, environmental hazards, financial fraud and unfair insurance claims practices.

“In general, I think there should always be a strong presumption in favor of the public’s right to know,” Steinberg said last week. He said this also applies to settlements involving government agencies, but perhaps on a case-by-case basis.