State still owes interest on 19-year-old case

By Steve Korris | Jan 29, 2010


CHARLESTON – Nineteen years after auditors caught West Virginia pension managers swindling $12 million from federal agencies and 11 years after judgment, state taxpayers still owe the original amount plus a far heavier load of interest.

U.S. Health and Human Services Secretary Kathleen Sebelius, who revived the claim last year, plans to charge 15.75 percent interest back to 1991.

In 1999, a judge ordered West Virginia to return overpayments to federal agencies and add interest at the rate in each agency's regulations.

The secretary of health and human services moved for reconsideration, claiming the agency's rate applied to all the money.

The motion languished until Sebelius took charge of the agency, 10 years later.

"Until a decision is made on the motion for reconsideration and the judgment thereby becomes final, defendants cannot even collect on the principal," assistant U.S. attorney general Tony West wrote on Sept. 1.

Until a decision was made, he wrote, neither side could appeal.

U.S. District Judge John Copenhaver took care of that on Sept. 30, granting the motion for reconsideration and vacating part of the old order.

He directed Sebelius to calculate the interest and decide how to distribute the proceeds to other agencies.

The state appealed to the Fourth Circuit in Richmond, Va., and so did Sebelius.

According to West, federal agencies provide funds to states for Medicaid, aid to families with children, foster care and adoption assistance, and child support enforcement.

For employees in joint federal and state programs, he wrote, federal agencies provide matching funds for state contributions to pensions.

Federal agencies generally contribute as much as a state contributes for employees in general fund programs, he wrote.

He wrote that an audit of West Virginia's retirement system from 1985 to 1989 found that it charged federal agencies more than it contributed for general fund workers.

It found that the state diverted funds for uses other than pension support, he wrote.

In 1991, he wrote, Health and Human Services sent West Virginia notice of the debt.

The agency claimed entitlement to $897,321 in interest that accrued on overcharges before the state received the notice.

In 1994, the agency's appeal board ordered West Virginia to refund $8,131,865 in excess contributions and $3,821,670 in improper diversions.

A dispute over interest rose to federal court, where the 1999 order held that it did not accrue on debts before the notice.

Copenhaver ruled that it did accrue, restoring the agency's $897,321 claim and raising the total debt to $12,850,856.

He didn't decide whether to impose a blanket interest rate of 15.75 percent.

"Without an identification of all affected federal agencies, it would be impossible to determine what agencies were involved, and, accordingly, what statutes, regulations or contracts applied," he wrote.

He remanded the case to Health and Human Services for determination of the rate and the amount of interest on sums owing to each agency.

After both sides appealed, however, they jointly moved to stay proceedings.

Copenhaver granted a stay on Jan. 8.

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