Deficit to Surplus/AFT Local 2121 Brings Charges
Ex-Chancellor Defrauds City College of Millions
• • • • • • • • • • November 2024 • • • • • • • • • •
City College of San Francisco Faculty Union AFT 2121 brought charges of management fraud against ex-Chancellor David Martin after Martin allegedly supplied the union with doctored and incomplete financial information while negotiating teachers’ contracts for the academic year of 2024-2025. Comparing these and prior documents previously used to bargain showed that Martin tried to doctor standing financial policy and defrauded the college of at least $8 million during his two-year tenure. There has been further speculation that this is only a fraction of the money he removed from legally accessible college funds.
David Martin began his tenure at City College in November of 2021 after ex-chancellor Mark Rochas resigned in March 2020. That followed the Board of Trustees’ decision to place him on administrative leave after only three years as chancellor. Martin’s name was a familiar one to CCSF, having previously served as the college’s CFO and interim vice-chancellor for financial affairs from 2015 to 2017; an accountant by profession, Martin seemed a prime choice for succeeding ex-chancellor Rochas’ financially rocky tenure. His subsequent actions were both a surprise and a blow to City College after nearly a decade of hard budget cuts, staff and class reductions, declining student enrollment, and COVID-19 fallout.
Ex-chancellor Martin’s course of action might have led one to believe City College was in dire financial straits. That was easy to believe after years of financial mismanagement and the disruption caused by COVID-19. However, the fiscal reality was that CCSF had a substantial surplus due to the various channels of revenue that continued to flow into the college’s coffers...”
Ex-chancellor Martin immediately set the tone for his new administration when he refused to give the Service Employee International Union branch 1021 (SEIU 1021 represents “non-classified” staff, i.e., janitors, administrators, groundskeepers, etc.) the information necessary to conduct fair contract negotiations, leading the union to file a charge against the District with the Public Employee Relations Board (otherwise known as “filing a PERB”). Under Martin, the District reneged on the newly negotiated framework that would require them to identify areas of cost savings before imposing layoffs. But in a stunning reversal, Martin immediately imposed layoffs that launched entirely new contract negotiations for which he refused to provide the proper paperwork. To add insult to injury, many staff received their pink slips over the holidays, the first in a round of firings that continued into the spring.
The American Federation of Teachers union branch 2121 (AFT 2121) was lucky enough to escape these cuts, having already completed contract negotiations for the 2021-2022 academic year. It wouldn’t be long, however, until they, too, were put under the same blade.
How it worked
Ex-chancellor Martin’s course of action might have led one to believe City College was in dire financial straits. That was easy to believe after years of financial mismanagement and the disruption caused by COVID-19. However, the fiscal reality was that CCSF had a substantial surplus due to the various channels of revenue that continued to flow into the college’s coffers; at this point, matters got complicated.
Funding for City College is initially deposited into a general trust, from which sums are then allocated into sub-trust funds that serve various purposes—paying teacher’s salaries, financial aid, pension benefits, and more. Among these are two sub-trusts dedicated solely to retirement costs and benefits: the Other Post-Employment Benefit sub-trust (OPEB) and the Retiree Health Care Trust Fund (RHCTF). Funds are transferred first to the OPEB and then funneled directly into the RHCTF, where they can no longer be touched; annual deposits into the sub-trusts are calculated and capped by a strict formula. Each transfer must be approved by the Board of Trustees in the annual budget process, which must also undergo a thorough auditing process. This, theoretically, prevents gross financial mismanagement.
The purpose of the OPEB and RHCTF was to help prevent pension and benefit costs from draining CCSF’s funds, using what should have been a fairly simple and streamlined process. Unfortunately, because of a highly irregular, one-time investment into the RHCTF, followed by an equally irregular withdrawal of the whole sum several years later ($21 million, withdrawn to cover COVID-19 costs), the numbers were far murkier than predicted. That resulted in several widely differing analyses of the state of the two retirement funds.
Perhaps this uncertainty allowed ex-chancellor Martin to get away with stashing millions of extra dollars into the RHCTF for two years. But AFT 2121 discovered the transfers during the 2023-2024 contract negotiations.
According to the evidence provided by AFT 2121, Martin attempted to account for the extra $8 million in retirement deposits by first fabricating a financial policy called the “2046 Plan,” mandating that City College increase their deposits into the OPEB by $4 million every year under the guise of a “service cost contribution.” He then attempted to doctor standing financial policy as well as previous school budgets and related documents to make the “2046 Plan” appear as an established statute.
AFT 2121 exposes fraud
The first sign that something wasn’t quite right with CCSF’s financials came to light early in 2022 when the Trustees approved the budget. In examining the allocation of funds, AFT 2121 reps found that an extra $4 million would be going into the RHCTF, a discovery they took issue with. It was a fact that other areas of the college needed greater financial resources. According to AFT 2121, they were not informed that this sum was available during contract negotiations; further, the Trustees had neither seen nor approved this allocation of money into the retirement fund, implying that ex-chancellor Martin had gone behind their backs to make the transfer happen.
It was not until later that the College explained that the $4 million was a payment to cover the service cost and was a “transfer made through permissible adjustments.” While the transfer was technically legal, this particular type of transfer would have required the approval of two-thirds of the Trustees. There was no record of such approval, nor had it even been presented for a vote. Instead, “it was a discretionary expenditure… made by Chancellor Martin and his administration during the process of closing the books [on FY 2022].”
The second irregularity came to attention in January 2023 when AFT 2121 reps sat down with the District again for 2023-2024 contract negotiations. Throughout the negotiations, the District “expressed limitations in its bargaining authority, citing a financial obligation to fund it’s other post-employment benefits (OPEB) at a rate of $4 million per year.” When asked to provide documentation to substantiate these claims, the District initially gave AFT 2121 nothing. Pressed, it then offered “knowingly false and misleading information,” presenting the $4 million as a mandatory expense of an established policy that the College could not make available for negotiations.
After months of negotiations and many requests for documentation proving the legitimacy of the “established policy,” ex-Chancellor Martin first referred to the “2046 Plan” on August 24th, which supposedly mandated this annual allocation. He later claimed that the plan could be found in public college documents dating back to 2020.
However, in a reply to a Sept. 6th email from AFT 2121 rep Alayna Fredericks asking where those public documents were, Martin provided a vague document with a list of projections of the OPEB funding status at the current contribution rate [1] until the year 2045.
Further investigation into the matter by AFT 2121 revealed that the first—and only—mention of the “2046 Plan” was posted online in 2023, as a possible component of a packet of information to be sent to the College’s accreditors. Further, in examining the Trustee’s 2020 Funding Strategy Resolution, the only remarkable aspect was the temporary change in the contribution formula for the OPEB and RHCTF for the fiscal year of 2020-2021; there was no mention of a compulsory $4 million service cost payment.
Revealed in the records from the College’s then-contracted actuarial company, Total Compensation Systems, Inc. (TCS ), was further confirmation that there was no adopted funding strategy in 2020 for the two retirement funds mandating an extra $4 million on top of the regular contributions. There was a singular mention of the year 2046 in an email from Sept. 25, 2020, in which TCS actuary Geoffrey L. Kischuk elaborated on the fiscal consequences of withdrawing that $21 million from the RHCTF during COVID-19. 2046 was the projected year that the sub-trust would be fully funded again when CCSF re-adopted its original funding strategy.
An email written on Sept. 15, 2023, by Will Kane, the District’s consulting actuary from 2022-2023, added further weight to AFT 2121’s case. In it, Kane confirmed that the numbers Geoffrey Kischuk had projected for 2020 were “not explicitly provided to the College in 2020… [they] do not give specific direction to the College regarding future contribution.”
The most damning piece of it all was the ex-Chancellor’s confession – at a Trustee meeting on September 14, 2023. Martin “explained that the District created [the “2046 Plan” list of projections previously sent to AFT 2121 rep. Alayna Fredericks] at a later date and added it to the record.” The District’s own statement on the matter clarified that Martin “himself created the document and therefore could not have been ‘inadvertently left off as an attachment in board docs at that time,’“ referencing a claim he made in that same email sent to Fredericks.
Ex-Chancellor Martin tendered his resignation to the Trustees shortly after the Sept. 24th meeting, stating that he did not intend to renew his contract. AFT 2121 filed a PERB on November 8th, 2023, charging Martin and the SF Community College District with violating fair labor practices; it levels 14 allegations at Martin and the District, all relating to obstruction and prevention of fair labor practices. The District opted to pursue a hearing, rather than settle out of court—in doing so, they chose to submit the case to a judge whose arbitration on the matter will be final. The $8 million fraudulently transferred to the RHCTF cannot now be withdrawn and used for other purposes in spite of Martin’s actions. AFT 2121 speculates that the $8 million is just part of a larger sum that was withheld from the college budget.
[1] Remember, the funds – i.e., “contributions” – that go into the OPEB and RHCTF are calculated and capped using a specific formula mandated by section A8.432 in the SF City Charter; it was changed only once for the 2020-2021 fiscal year due to the disruption from COVID-19.
Maura Corkery lives and works in West Portal.
November, 2024
