Pennsylvania State Treasurer Barbara Hafer ought to stop the demagoguery regarding the state's custodial contract with State Street Bank & Trust Co.
Ms. Hafer insists the contract -- and its extensions through 2002 -- will unfairly tie her hands in overseeing custody of the $64 billion in assets of the state's three largest pension funds: the Pennsylvania Public School Employees'; Pennsylvania State Employes'; and Pennsylvania Municipal retirement systems.
But Ms. Hafer's time would be better spent educating her constituents about custodial contracts and making public the terms of the deal with State Street, rather than trying to get out of the contract.
As state treasurer, she notes, she is personally liable for any problems with the contract signed by her predecessor, Catherine Baker Knoll. That is a legitimate concern.
To what extent, in turn, is Ms. Knoll liable? Ms. Knoll is said to have signed the contracts, effective Jan. 1, 1997, just before she left office. Ms. Knoll shouldn't have entered into such a long-term contract arrangement near the end of her term. There was no compelling reason for it.
Nevertheless, the questionable ethics of her action don't make the contract and its extensions necessarily illegal or invalid now.
For its part, State Street defends its contract. There is nothing wrong in asking the Commonwealth Court of Pennsylvania in Harrisburg to declare the contract valid and to protect its interests. It filed the action three days after Ms. Hafer sent the custodial work out for rebidding.
Beyond the immediacy of settling this contract dispute, the case raises significant issues that should be addressed by a number of parties, including the state Legislature and the pension funds' trustees, as well as the treasurer and State Street.
Among them, what is the statutory authority that allows a state treasurer to enter a contract that extends even beyond the potential second term of a successor, as occurred in this case? What is the past practice, that is, were custodial arrangements made so contracts expired at the end of a treasurer's term of office? Does anyone review such contracts signed by a treasurer? Should anyone?
The state treasurer is not the sole trustee of the three state pension funds. If the statute gives the state treasurer responsibility for overseeing custodial arrangements for the pension funds, does that law make sense in view of their joint trusteeship? Are such contracts awarded through a statutory competitive bidding procedure? If not, should they be?
Many of these issues ought to be taken up by the Legislature for review to decide whether statutes need to be changed.
In defending itself, State Street better make sure it has a fair contract. In a number of cases, involving investment management, a service provider has been found at fault, even though it might have appear to have a proper deal.
Ms. Hafer has made serious allegations of a secret deal between Ms. Knoll and State Street, including raising fees fivefold and a promise to steer other state business to the bank, although that didn't happen.
She should go public with such information as the terms of these so-called nonrevocable extensions. She ought to publicly compare the terms to similar contracts in the industry. Her highly charged rhetoric is no asset to the pension funds or to her case.