Craig Harris

The Republic | azcentral.com

State pension trust admits it gave illegal raises to employees.

PSPRS refuses to say who received raises and how much public money was spent.

Gov. Jan Brewer expresses outrage and says she will seek reforms.

Public Safety Personnel Retirement System Administrator Jim Hacking acknowledged late Tuesday that the pension trust awarded pay raises to his staff without state approval — a violation of Gov. Jan Brewer's personnel reform law pushed through in 2012.

Hacking refused to say who received illegal raises, how much was paid or when the raises took effect. The information is supposed to be subject to state public-record laws.

The Arizona Department of Administration began investigating the raises after a contract employee's pay increase was questioned by The Arizona Republic last week for a news story published Monday. It remains unclear if illegal raises can be rescinded or whether the money can be recouped.

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Trust Chairman Brian Tobin, a Phoenix Fire Department assistant chief, did not return a call seeking comment. Brewer, however, expressed outrage through a spokesman.

"Gov. Brewer doesn't tolerate state officials turning a blind eye to their statutory responsibility," said Andrew Wilder, her spokesman. "The governor wants immediate action to correct the situation and will examine additional reforms that would ensure further transparency and accountability for taxpayers."

Asked if the governor would seek Hacking's removal or reappoint Tobin, whose appointment has expired, Wilder said, "We are exploring all options."

The raises are the latest problem for the trust, which is under a state workplace-violation investigation and a federal criminal probe. The $7.9 billion trust provides retirement benefits for Arizona police officers, firefighters, elected officials and prison guards.

Hacking, administrator since 2005, received approval in November from a divided seven-member board — all Brewer appointees — to give raises of up to 27 percent to five investment staff employees.

However, Brewer pushed through a change in the law in 2012 that requires the ADOA to authorize raises for any state employees not subject to employment contracts.

State Administration Director Brian McNeil has declined since late last year to approve any PSPRS raises because his agency is conducting an ongoing investigation into allegations of sexual harassment and workplace violations at the pension fund.

McNeil also is awaiting the findings of an FBI criminal investigation into the pension system, launched after ex-employees alleged that PSPRS used inflated real-estate values in annual reports to enhance staff bonuses.

"The (pension) system never obtained the needed approval by Arizona Department of Administration. This was a mistake. We are now working with ADOA to rectify the situation and implement a protocol to ensure that no such mistake occurs in the future," Hacking said in a statement. He would not answer other questions.

McNeil also declined comment.

The ADOA began an investigation last week into whether PSPRS had granted secret raises. It came after The Republic raised questions about a 13 percent pay raise and a $60,000 bonus that Hacking gave to Martin Anderson, a PSPRS executive who had admitted making sexual remarks to a female subordinate.

Trust spokesman Steve Meissner told The Republic in writing on Thursday that "ADOA-approved salaries were put into effect" for other staff members as well.

The Republic asked the ADOA about Meissner's comment. Jeff Grant, an ADOA spokesman, said the agency never granted the raises. McNeil then began an investigation.

McNeil and Hacking met privately Monday. Late Tuesday, in answer to additional questions from The Republic, Hacking admitted the other raises were inappropriately given.

The ADOA would not release PSPRS pay records it obtained for its investigation.

Hacking sought the raises last year to replace a controversial bonus program and to compensate shrinking investment staff for additional work they took on following the resignations of four employees.

Three investment analysts and the in-house counsel quit in protest last year amid allegations that the trust used inflated real-estate values to bolster its financial reports. Hacking has denied the allegations and has blamed the criminal probe on disgruntled employees.

The board suspended bonuses last September after TheRepublic disclosed in August that PSPRS gave its highest-paid staff members bonuses and guaranteed raises the prior five years even though the trust posted financial losses in 2008, 2009 and 2012. The fund required additional tax dollars to stabilize.

The ADOA began its workplace investigation of PSPRS this spring after receiving retaliation complaints from former employees. The inquiry later expanded to include allegations of sexual harassment.

The trust's board did its own investigation last year after staff complained of being "punished for disagreeing with management" on numerous issues. The pension system paid Lewis and Roca, a Phoenix law firm, $124,133 to do the inquiry. The trust has refused to release to the ADOA the findings of that investigation. It also has refused The Republic's request to examine the documents under the Arizona Public Records Law, citing attorney-client privilege.