Krolicki defends fund management, responds to audit

CARSON CITY — Lt. Gov. Brian Krolicki said Thursday he broke no laws in his management of the College Savings Trust Fund during his eight years as state treasurer.

“There were legal contracts for all the things we were doing,” he said. “We created one of the finest programs in the country out of nothing.”

Krolicki expressed his objections to a legislative audit that concluded he broke three state laws by not depositing $6 million in state-earned fees into the state treasury. The results of the audit, released May 21, were turned over to the attorney general’s office for an investigation that could lead to charges being filed against Krolicki.

But Krolicki said he has spoken to the attorney general’s office and intends to give detailed information that will prove his innocence.

While contending Krolicki should have kept the $6 million with the state treasury, auditors also found none of the funds missing and that Krolicki had controlled how money was spent.

The funds were held in accounts of Strong Investments and Upromise Investment, two of the mutual companies running the state’s $3.3 billion College Savings Trust Fund, and with GIF Services, a company that performed consulting services for the treasurer.

Krolicki said there are “conflicts” between state laws, with some saying fees should be deposited with the state treasury and others allowing the funds to be held outside of state government.

He noted the Public Employees Retirement System has $19 billion of members’ funds held outside of the state treasury. The money is being invested by private companies.

“It happens all the time,” Krolicki said. “The Legislature cannot micromanage every contract.”

Emphasizing he is not a lawyer, Krolicki said the more specific statutes dealing with the trust funds were followed and are the overriding law.

Krolicki submitted a letter Thursday to the board of the College Saving Trust Fund in which he noted “each of the contracts involved was reviewed and approved by our attorneys from the attorney general’s office and by the Board of Examiners.”

“It was monitored every step of the way,” Krolicki added in an interview.

But auditors concluded that the Orrick, Herrington & Sutcliffe law firm of Sacramento was paid $428 per hour for services in 2001-02, although a contract stipulated a $225 per hour limit.

Auditors also found Reno-based Rose-Glenn Advertising spent $1.33 million more on advertising than allowed by state contracts in the three fiscal years ending June 30, 2006.

Krolicki said if excess payments were made, then new state Treasurer Kate Marshall can and should recover the money.

But he said Upromise was obligated by contract to spend $500,000 a year of its own money to market the college saving program. The company hired Rose-Glenn, which also had an existing $185,000 contract with the state to market the program, to perform its required services.

He speculated that Upromise might have mistakenly used state fees, instead of its own money, for the marketing services. That money can be recovered, Krolicki said.