STATE OF WEST VIRGINIA







PRELIMINARY PERFORMANCE REVIEW

OF THE



STATE RAIL AUTHORITY





Retirement Programs

Board Travel and Compensation

Open Meetings

By Laws

Election of Officers





OFFICE OF LEGISLATIVE AUDITOR

Performance Evaluation and Research Division

Building 1, Room W-314

State Capitol Complex



CHARLESTON, WEST VIRGINIA 25305

(304) 347-4890



June 1999



Background of the State Rail Authority

A 1994 amendment redesignated the West Virginia Railroad Maintenance Authority as the West Virginia State Rail Authority. The Authority consists of seven members. The Secretary of the Department of Transportation is an ex officio member. The other six members are appointed by the Governor, by and with the consent of the Senate, for a term of six years. No more than three of the appointed members shall be members of the same political party. Appointed members may be appointed to serve additional terms.



The Authority elects one of its members as chairman and another as vice-chairman. It also appoints a secretary-treasurer, who does not have to be a member. A director of the Authority is also appointed by the Authority. Four members constitute a quorum. The secretary-treasurer is required to give bond in the sum of fifty thousand dollars and each member is required to give bond in the sum of twenty-five thousand dollars.



The Secretary of the Department of Transportation does not receive any compensation for serving on the Authority. The six appointed members receive the same compensation as members of the Legislature for their interim duties as recommended by the Citizens Legislative Compensation Commission. This compensation is paid for each day, or substantial portion thereof, members are engaged in the discharge of official duties.



The Authority, generally speaking, oversees and prepares plans for the operation of rail transportation in the State. It has the power to make loans and grants to governmental agencies and persons for carrying out railroad projects. Railroad projects may also be operated by the Authority itself. It may also issue railroad maintenance bonds and notes. The Authority may own, acquire, and sell property. It may receive grants for railroad projects or research and development from any State or federal agency. The Authority collects fees for the use of any railroad project.



The bonds issued by the Authority are revenue bonds and, therefore, are repaid from revenues received by the Authority. These bonds do not mortgage any railroad project and do not constitute a debt or pledge of the faith and credit or taxing power of the State or any other governmental entity in the State. The Authority's funds may be invested in any securities in which the State Board of Investment Management is authorized to invest.



A 1995 amendment to the Code continued the West Virginia Rails to Trails Program within the State Rail Authority instead of within the Division of Tourism and Parks, as it was previously. The Authority has certain powers and duties associated with this program. The Authority is authorized to enter into agreements on behalf of the State to acquire an interest in any abandoned railroad right-of-way, to develop, maintain, or promote rail trails. The maintenance and operation of rail trails is transferred to the Division of Natural Resources. The Authority also assists political subdivisions or persons in acquiring an interest in any abandoned railroad rights-of-way and in developing, maintaining or promoting rail trails. Furthermore, the Authority evaluates existing and potential abandoned railroad rights-of-way so as to identify suitable lands for non-motorized recreational trail use. The Authority holds fee simple title or any lesser interest in land, on all abandoned railroad rights-of-way acquired by the State and utilized for interim non-motorized recreational trail use.



Issue Area 1: Most employees of the State Rail Authority are members of both the Public Employees Retirement System (PERS) and the U.S. Railroad Retirement Board's system and may retire with benefits exceeding 100% of final pay



Out of 25 permanent employees of the State Rail Authority, 20 are members of both the Public Employees Retirement System (PERS) and the U.S. Railroad Retirement Board System. The benefits of the two retirement programs are comparable, and jointly make employees eligible to earn retirement benefits well in excess of 100% of their final salaries with the SRA. The retirement coverage is duplicitous in nature and is caused by a federal requirement that railroad employees participate in the U.S. Railroad Retirement program and the lack of a State exclusion from the Public Employees Retirement System. If duplicitous participation in the PERS were discontinued, the State could save $44,012 each year.



In addition to the 20 permanent SRA employees that participate in both retirement programs, five employees contribute solely to the Public Employees Retirement System. The Authority also has four temporary employees who receive no benefits, including retirement benefits. Since the State contributes to both retirement systems, the costs of providing these 20 employees with retirement benefits is much greater than those associated with other State employees.





Cause of Duplication



Title 20, Chapter II, Section 345.101 of the Code of Federal Regulations, which discusses employee benefits, requires any railway employer to pay the Railroad Retirement Board a contribution with respect to the compensation paid to an employee in any calendar month for his/her services. This requires the participation of all State Rail Authority employees which work for the South Branch Valley Railroad, Central Railroad and other SRA railroads in the Railroad Retirement Board's system.



The State Rail Authority, as a department of State government, is also required by Chapter 5, Article 10 of the West Virginia Public Employees Retirement Act to participate in the Public Employees Retirement System (PERS) since it has full-time employees. Employees of specified agencies are not, according to 5-10-17, required to participate in PERS since they have their own separate retirement systems, including, teachers, judges, policemen, and firemen. Railroad employees of the State Rail Authority are not likewise exempted under this section.





State's Cost for Both Programs



The State's contribution as an employer to the Railroad Retirement system is divided into four components. During 1998, the time period for which data was provided, employee gross earnings of up to $68,400 were subject to the Tier I tax rate of 6.20% payable by employers. Earnings of up to $50,700 were subject to the Tier II tax rate of 16.10% for employers. 1.45% of an employee's gross earnings is subject to tax for Medicare hospital insurance. The rate of the supplemental retirement annuity tax paid solely by rail employers is determined quarterly by the Railroad Retirement Board. The rate for all four quarters of 1998 was 35 cents per work-hour. During 1998, employees of the State Rail Authority worked four 10-hour days per week, minus a half-hour for lunch. This resulted in an average work week of 38 hours. This means that for an employee earning less than $50,700, the total employer contribution is 23.75% of gross earnings plus 35 cents per work hour.



These tax rates served as a basis for calculating the monthly cost of the Railroad Retirement system to the State (see Table 1). The monthly cost of the Public Employees Retirement System to the State is also presented in Table 1. PERS is funded at a rate of 9.5% of an employee's gross wages by the employer.





Table 1: State's Monthly Contribution for Employees Covered

By Both Retirement Systems



Employee Monthly Salary State share of RR Retirement State share of PERS
1 $2,154.00 $567.58 $204.63
2 $2,792.00 $719.10 $265.24
3 $2,307.00 $603.91 $219.17
4 $1,972.00 $524.35 $187.34
5 $1,987.00 $527.91 $188.77
6 $1,683.00 $455.71 $159.89
7 $1,331.00 $372.11 $126.45
8 $1,412.00 $391.35 $134.14
9 $1,918.00 $511.53 $182.21
10 $2,019.00 $535.51 $191.81
11 $1,718.00 $464.03 $163.21
12 $2,277.00 $596.79 $216.32
13 $1,568.00 $428.40 $148.96
14 $3,327.00 $846.16 $316.07
15 $2,014.00 $534.33 $191.33
16 $1,539.00 $421.51 $146.21
17 $2,670.00 $690.13 $253.65
18 $1,128.00 $323.90 $107.16
19 $1,329.00 $371.64 $126.26
20 $1,462.00 $403.23 $138.89

Monthly Total

$10,289.23 $3,667.67





Table 1 illustrates that the monthly cost of the State's contribution to the Railroad Retirement system ($10,289.16) greatly exceeds that of its contribution to PERS ($3,667.67). The State's monthly PERS contribution constitutes only 35.6% of that made to the Railroad Retirement system. Since most employees of the State Rail Authority are already required to participate in the Federal retirement system, if the State exempted them from mandatory participation in PERS, as much as $44,012.04 could be saved annually in employer contributions.





U.S. Railroad Board Retirement Benefits



The Railroad Retirement Act is a Federal law that provides retirement and disability annuities for qualified railroad employees, spouse annuities for their wives or husbands, and survivor benefits for the families of deceased employees who are covered under the Act. These benefit programs are administered by the U.S. Railroad Retirement Board. It also administers the Railroad Unemployment Insurance Act and has administrative responsibilities under the Social Security Act for certain benefit payments and railroad workers Medicare coverage.



The basic requirement for a regular employee annuity is 120 months (10 years) of creditable railroad service. Service months need not be consecutive, and in some cases military service may be counted as railroad service. Credit for a month of railroad service is given for every month in which an employee had some compensated service for an employer covered by the Railroad Retirement Act. Railroad retirement benefits are based on months of service and earnings credits. Earnings are creditable up to certain annual maximums on the amount of compensation subject to railroad retirement taxes. Covered employers include railroads engaged in interstate commerce and certain of their subsidiaries, railroad associations and national railway labor organizations.



An Age and Service Annuity can be paid to employees with 30 or more years of service. They are eligible for regular annuities based on age and service the first full month they are age 60. Early retirement reductions are applied to annuities awarded before age 62. Employees with 10 to 29 years of creditable service are eligible for regular annuities based on age and service the first full month they are age 62. Early retirement annuity reductions are applied to annuities awarded before age 65. Starting in the year 2000, the age at which full benefits are payable increases in gradual steps until it reaches age 67.



Regular railroad retirement annuities are calculated under a two-tier formula. The first tier is based on railroad retirement credits and any non-railroad social security credits an employee has acquired. The amount of the first tier is calculated using social security formulas, but with railroad retirement age and service requirements. The second tier is based on railroad retirement credits only, and may be compared to the retirement benefits paid over and above social security benefits to workers in other industries. Since 1975, if a retired or disabled railroad retirement annuitant is also awarded social security benefits, the Social Security Administration determines the amount due, but a combined monthly dual benefit payment is issued by the Railroad Retirement Board.



Table 2:

Fiscal Year 1996 Annuity Awards to 30-Year Employees Retiring Before Age 65



Average Monthly Award Average Years of Service
Retirement at Ages 60-61:
Employee $1,715 36.6
Employee and Spouse $2,420 37.2
Retirement at Ages 62-64:
Employee $2,006 38.4
Employee and Spouse $2,907 38.6
*Source: Railroad Retirement and Survivor Benefits Guide




Table 3: Railroad Retirement Board: Hypothetical Employee's Benefit Summary



Monthly Award Years of Service
Retirement at Age 60:
Employee $1,600.50 36.6
Employee and Spouse $2,113.50 36.6
Retirement at Age 65:
Employee $1,871.21 36.6
Employee and Spouse $2,500.00 36.6
*Source: U.S. Railroad Retirement Board, Bureau of the Actuary




Table 2 shows the average awards for Railroad Retirement Board annuitants during FY 1996. Table 3 provides data for a hypothetical retiree with 36.6 years of contributing service. Projected benefit levels were calculated by the Railroad Retirement Board for this report. Projections are provided for the same employee if he/she retires at either age 60 or 65 and for either employee only or employee and spouse annuities. In order to calculate annuity benefits for tier I, it was necessary to consider earnings history in both the railroad industry and in employment covered by the Social Security Act. In order to calculate benefits for the tier II portion, only railroad earnings were considered. For the purposes of this review, the Railroad Retirement Board extrapolated an earnings history resulting in a final salary of $30,000 per year for the hypothetical employee.





The Public Employees Retirement Benefits



In order to qualify for full retirement benefits a member must be 60 years old, currently employed by a participating employer, and have at least 5 years of contributing service. Also, members 55 or older qualify for benefits when their years of contributory service combined with their age in years equal 80 or greater. An individual with 5 or more years of contributing service who terminates employment prior to retirement but does not withdraw his employee contributions, will be eligible for retirement benefits at age 62. Qualified retirees will receive full benefits from PERS regardless of Social Security income or other private retirement benefits.



WVC 5-10-2 defines a PERS participating public employer as "...the State of West Virginia, any board, commission, department, institution or spending unit, and includes any agency created by rule of the supreme court of appeals having full-time employees, which for the purposes of this article is considered a department of state government..." This means that since the railroad employees are not listed in 5-10-17 among those employees not required to participate in PERS, they are enrolled in both PERS and the Railroad Retirement Board's program.



The program has three retirement options. The Straight Life Annuity Option is paid only during a retiree's lifetime. If an employee dies after retirement and all of his/her contributions have not been paid in benefits, the remaining funds will be paid in a lump sum to a named beneficiary. This retirement option generates the greatest payment to the retiree. Option A is a 100% Joint and Survivor Annuity paid to a retiree during his/her lifetime and, upon his/her death, the same amount is paid to a named beneficiary. Option B is a 50% Joint and Survivor Annuity paid during the retiree's lifetime, and upon his/her death, one half of the amount is paid to a named beneficiary. Options A and B will provide lower benefits than the Straight Life Annuity Option because they cover two lives.

Assuming that a PERS member retires with the Straight Life Annuity option, his/her annual benefit at the time of retirement is equal to his/her Final Average Salary x Years of Service x 2%. The Final Average Salary is the average of the three highest consecutive years out of the last 10 years of contributing service. Normally this figure comes from the last three years of employment. This means that, an employee who is 60 years of age, a Final Average Salary of $30,000 and has 36.6 years of contributing service will retire with an estimated annual benefit of $21,960 ($30,000 x 36.6 x 2%), or $1,830 per month.





Comparison of Retirement Benefits



As shown in Table 2, the U.S. Railroad Retirement Board's system pays benefits to spouses as well as to employees. The maximum total benefit initially payable by the Board to an employee and spouse was $3,605 per month in January 1997. The payment of spouse benefits substantially increases benefit levels for annuitants. This contrasts with PERS, which provides the highest level of benefits for retirees through the Straight Life Annuity Option, payable to the employee. If the employee's total contributions have not been repaid at the time of his/her death, then the difference alone is paid to a named beneficiary. PERS Option A and Option B provide for Joint and Survivor annuities, but at a lower level of benefits because these plans cover two people.



Given the example of the 60-year-old retiree with 36.6 years of service and a Final Average Salary of $30,000 (see Table 2), under PERS he/she would receive at most, with the Straight Life Annuity Option, $1,830 per month in benefits. The monthly benefit would be lower if a spouse received benefits as in Options A or B. The average 60 to 61-year-old retiree from the U.S. Railroad Retirement Board's system with at least 30 years of service received $1,715 per month in FY 1996 with an employee only annuity. A typical employee would have received an average benefit of $2,420 for an employee and spouse annuity. It can be concluded that the U.S. Railroad Retirement Board's system provides benefits that are at comparable, to those of PERS. Giving current State Rail Authority employees the option of dropping out of PERS would not, therefore, lead to a reliance on a retirement plan that is grossly inferior to the State's.



Table 3 illustrates Railroad Retirement Board benefits for a hypothetical employee with 36.6 years of contributing service if he/she retires at either age 60 or age 65. If a member of this system retires at the standard age of 65, he/she will receive an estimated benefit of $1,871.21 per month for an employee only annuity and $2,500 per month for employee and spouse annuities. Benefits are somewhat less at age 60 at $1,600.50 per month for an employee only annuity and $2,113.50 for employee and spouse annuities.



The Railroad Retirement Board's system, given the hypothetical employee retiring at age 60, would provide $229.50 less per month for an employee only annuity, $1,600.50 versus $1,830 per month under PERS (with a Straight Life Annuity). If benefits are provided for spouses, the situation is reversed, with greater benefits being paid by the Railroad Retirement Board's system. This would amount to $2,113.50 under the Railroad Retirement Board's system, while benefits under PERS would actually be reduced from the benefit level received through an employee only annuity. Benefits under the Railroad Retirement Board's system would be far greater than under PERS for many retirees due to this fact.



An important consideration is the fact that PERS annuity recipients also receive separate payments for Social Security benefits, since PERS does not include such benefits as a component of the annuity as the Railroad Retirement Board's annuity does. This increases the total monthly payments received by PERS annuity recipients above the level reflected by the annuity payments alone. A more complete discussion of the resulting effect on monthly incomes follows later in the report.



The amount received by retirees in total monthly annuity payments shows that both retirement plans are not necessary. For example, if the hypothetical retiree receives both annuities, his/her monthly income amounts to $3,430.50 per month or $41,166 annually. This greatly exceeds his/her pre-retirement income level of $30,000 per year. Retirement would actually give the employee a 37.2% raise.



Social Security Administration Retirement Benefits



Social Security benefits are financed by employer and employee contributions of 15.3% of gross salary, each party paying 7.65%. A retiree is eligible for full benefits at age 65, although benefits can be received at age 62. The benefit is reduced by 5/9 of 1% for each month benefits are received before age 65. This amounts to approximately a 29% reduction at age 62.



The Railroad Retirement Board's system administers Social Security benefits directly as a part of one annuity payment. A railroad retiree is entitled to apply for Social Security benefits on the basis of Social Security wages (non-railroad wages). If this happens, the railroad retirement tier I portion is reduced by the Social Security benefit received, thereby canceling out the effect of such benefits in most cases.



Table 4

Comparison of Monthly Payments Received Under the Two Retirement Systems: Including Social Security





Public Employees Retirement System

Railroad Retirement Board

Straight Life Annuity Option A Option B:

payment halved on retiree's death

Social Security Payments Employee Only Annuity Employee and Spouse Annuities
$1,830.00 $1,620.23 $1,718.36 $1,205.30 $1,650.00 $2,113.50





While the typical State employee, not employed by the State Rail Authority, is not covered by both PERS and another retirement plan, he/she does receive Social Security benefits in addition to PERS annuity payments (see Table 4). Utilizing the Social Security benefits calculation program available from the Social Security Administration, it is possible to obtain an estimate of Social Security benefits receivable by State employees who are only covered by PERS. For the hypothetical employee, this amounts to approximately $1,205.30 per month with full retirement benefits. The employee's family is eligible for a maximum family benefit of $2,080.40 in total Social Security payments. As the discussion of the hypothetical employee illustrates, if he/she retires with full benefits, his/her PERS annuity will amount to $1,830 per month with the Straight Life Annuity. If this employee is covered by the Railroad Retirement Board's system, he/she will receive $1,650 per month for an employee only annuity and $2,113.50 for employee and spouse annuities. This means that a State employee who is exclusively covered by PERS may receive payments totaling as much as $3,035.30 per month if he/she is the only Social Security recipient. Social Security payments received by other family members are not affected by the employee's membership in the Railroad Retirement Board's system.



It is important to remember that PERS annuities have three payout options, with the Straight Life Annuity having the largest benefit payments during the retiring employee's lifetime. If a spouse is also eligible for annuity payments, as in Options A and B, annuity payments are somewhat smaller due to the inclusion of another person. The Railroad Retirement Board's system, on the other hand, does not reduce benefit levels, but actually increases them, with the inclusion of a spouse for annuity benefits. If a retiring employee's spouse receives benefits, it can be concluded that the reduction in PERS annuity payments would serve to at least partially offset the extra income received in Social Security payments.



Conclusion



A comparison of average annuity payments and those of the hypothetical retiree show that the Railroad Retirement Board's system compares favorably with PERS, frequently meeting or exceeding the later's benefit levels. This is particularly the case if a retiree's spouse also receives annuity benefits since annuity payments are increased for spouses eligible for the railroad retirement annuity and payments are reduced for spouses receiving the PERS annuity.



The example of the hypothetical retiree illustrates that participation in two retirement programs is unnecessary. If the hypothetical retiree receives both annuities, his/her monthly income amounts to $3,430.50 per month or $41,166 annually. This greatly exceeds his/her pre-retirement income level of $30,000 per year. Retirement would actually give the employee a 37.2% raise.



The State could realize considerable savings by no longer requiring employees covered by the mandatory Federal Railroad Retirement Board's program to be enrolled in PERS. Since the Railroad Retirement Board's annuity is not inferior to the PERS annuity, it is not necessary for employees to be enrolled in both programs. The State could save the $3,668 it currently contributes each month to PERS, amounting to $44,012 per year.



Recommendation 1:



The Legislature should consider amending 5-10-17 of the West Virginia Code to permit employees currently enrolled in both retirement programs to choose whether to continue their participation in PERS, and disallow new employees covered by the U.S. Railroad Retirement Board program from participating in PERS.



Issue Area 2: Payments to Board Members for Travel and Compensation may be Excessive

Statute provides that members State Rail Authority Board of Directors are to be paid compensation and travel expenses in the same manner as members of the Legislature are paid for their interim duties. However, invoices submitted by Rail Authority members claim compensation for travel days and other days on which meetings did not occur. Further, travel invoices have been paid for several questionable claims, including $506 which was paid to one Board member to attend the funeral of another and $3,789 paid to the same member in travel and compensation to attend 19 meetings of a private foundation, as a member of its Board of Directors.



Criteria



As criteria for this discussion, 1.) the reasons for and circumstances of travel for which some reimbursement is claimed; 2.) the volume of travel and compensation claimed by some members; 3.) the disparity in charges between members; 4.) the amount budgeted each Fiscal Year for Board compensation; 5.) the results of an internal inquiry of member travel by a committee of the SRA and the DOT; and, 6.) legal/technical standards including the requirements that single day travel expenses not exceed $85, a purpose of travel be disclosed on the travel form, and receipts be submitted for out-of-state lodging, are each considered.



Reasons for and Circumstances of Board Travel Indicate Excess



This section provides examples of travel and compensation which raise questions about the statutory travel policy under which the SRA Board of Directors and other State entities operate, the value of travel which has been claimed, and the manner in which some travel has been claimed. As is evident from the examples cited, members routinely claim compensation for travel days, and events such as the AMTRAK ceremonies, participation on the Board of Directors of a private foundation, and attendance at conventions. A member was even paid two day's compensation in addition to travel expenses for attending the funeral of a fellow Board member. The anecdotal discussions in the bullet list below are taken from Board invoices covering the test period of July 1, 1995 to December 1998. See Appendix A for a complete list of Board charges for the test period.



On August 10, of 1998 Member A left his home at 11:00AM and traveled to Belington and Durbin, West Virginia to make inspections. The Member's total mileage was 350 miles which would have placed the Member over the daily travel expense reimbursement limit of $85 (350 x .32 = $112). However, the Member shows a return time of 12:30 a.m. on August 11. Because the Member returned after midnight, the invoice claims $442 in total expenses. The maximum a member could be paid for a daily commute is $185.



Volume of Travel and Compensation and Disparity Between Members Indicate Excess



Table 5 below summarizes the volume of travel and compensation by each member of the SRA. Member A accounted for 50% of the six appointed Members' invoices during this time and $34,878 (39%) of total charges. Travel expenses for Member A are the highest of all members at $17,378 despite living only 42.5 miles from the most common meeting location in Moorefield, WV. Member A's compensation expenses are equally high at $17,500 for the test period; $7,900 of which was incurred in 1996 alone (79 compensation days). Together, Members A, B and C accounted for 82% of the invoices and 87% of the charges incurred by the six appointed members.



Table 5

Volume of Travel and Compensation by Member

July 1, 1996 - December 31, 1998

Member A B C D E F Total
Number of Invoices 109

(50%)

40

(19%)

28

(13%)

14

(6%)

3

(1%)

22

(10%)

216

(100%)

Compensation $17,500

(43%)

$10,500

(26%)

$7,300

(18%)

$1,900

(5%)

$700

(2%)

$3,200

(8%)

$41,100

(100%)

Travel $17,378

(37%)

$14,715

(31%)

$9,698

(21%)

$1,592

(3%)

$604

(1%)

$3,259

(7%)

$47,246

(100%)

Total Reimbursed $34,878

(39%)

$25,215

(29%)

$16,998

(19%)

$3,492

(4%)

$1,304

(1%)

$6,459

(7%)

$88,346

(100%)

Frequently, Member A makes inspections of rail properties, meets with government/corporate/civic leaders, and attends meetings of other organizations. Occasionally, Members B and C also participate in these activities, especially when they occur during the proximate times of SRA meetings, sometimes adding extra days to meeting trips. These activities rarely if ever involve the participation of a quorum of members. In most instances, expense per diem and compensation were claimed for activities in which only one or two SRA members participated.



TABLE 6

Total Days Charged During Calendar Year (Compensation)

Year Member

A

Member B Member C Member D Member E Member F Board Meetings
1996 79 19 12 6 0 7 5
1997 20 29 23 7 0 11 7
1998 48 37 35 4 3 11 7
Totals 147 85 70 17 3 29 19
Meetings of Committees below represent additional meetings for noted individuals:

Exploratory Committee to investigate excessive member travel (1 meeting)

Committee to select operator for WV Central Railroad (1 meeting)

If compensation days for the SRA were limited to 30 days per year, as they are for members of the Legislature, it would have been exceeded twice by Member A and once each by Members B and C (see Table 6). It should also be noted that Member E rarely charges per diem and compensation to which he is required by law to accept for his Board-related duties. Of the 351 days charged during Calendar Years 1996-1998, only 98 were for attendance at a State Rail Authority Board meetings or committee meetings.



Member Compensation Budgeted



For the period reviewed, the State Rail Authority's annual budget provided $6,000 for Board Member Compensation. This amount is adequate to cover the compensation of Board members, assuming full attendance at each meeting, for ten State Rail Authority meetings annually. However, between FY 1996 and FY 1998, the State Rail Authority never held more than 7 Board meetings annually. The actual compensation charges for this Board, are $35,800 for the period FY 1996-1998. This amount presents a fiscal year average of $11,933 in Board member Compensation, or 98.8% over budget per fiscal year.



Internal Inquiries of Member Travel



In the Board's February 7, 1997 meeting minutes, the following self-contained statement is made:



Report from Exploratory Committee appointed after last meeting: [Member B], committee chairman, submitted written findings on issues studied by committee to be made a matter of record for the files of the State Rail Authority.



According to staff of the SRA, the Exploratory Committee was "appointed to look at [Member A]'s travel expenses after [Member E, the SRA Secretary/Treasurer] had questioned the validity of the numerous trips." The Exploratory Committee's written report, which is included in its entirety in Appendix B, states in substantive part,



(1) WE FIND no irregularities exist in the duties performed by the Chairman of the West Virginia State Rail Authority (S.R.A) and recommend that [Member A] be retained as Chairman of the S.R.A.



(2) WE FIND that the Chairman should be given total support in his endeavor with public relations, the Legislature and Governor's office.



(3) WE FIND that the Chairman should not be involved in daily operations of the railroad if he believes that information being given to him by the officers is not questionable.



With this report the Committee found that Member A should not be involved in the day-to-day operations of the SRA. It is Member A's practice of conducting inspections of rails, rail properties and derailments; interviewing vendors; engaging public officials; investigating theft of SRA property; and other daily operations and charging compensation and expenses for those activities which has created much of the problem addressed in this issue. Member A's charges for compensation alone canvas 79 days of Calendar Year 1996, the year of the Committee's report. Table 5 in the first part of this report provides insight into how these activities were curtailed in subsequent years, though participation in day-to-day activities continued throughout the review period.



In a related finding of the Department of Transportation performance review of the State Rail Authority, the DOT found:



Individual Board members hove, on several occasions, involved themselves in the day to day operations of the State Rail Authority, creating staff conflicts and directing assignments which are less related to agency goals as to Board member's individual interests.



The DOT also found:



Board travel costs appear to be excessive and uncontrolled. Board members approve their own travel requests, without the need to present them before the entire Board.



Minimal Travel Claims Do Not Meet Legal/Technical Standards



West Virginia Code 4-2A-7 which provides for the payment in-state travel expenses and per diem contains the following language limiting mileage and per diem for daily commutes: "Provided, That the total of this per diem allowance [$45] plus travel expense for a daily commuting member shall not exceed eighty five dollars per day." This portion of the statute was violated by members on eight occasions in the earlier portion of the test period, amounting to a total overcharge of $216. By March of 1996 the problem ceased to occur except for one isolated incident in 1998.



In two other instances, travel and compensation was reimbursed to Members B and C despite failure to include the purpose of travel on the travel invoice. Members B and C were reimbursed $491 and $455 respectively, in compensation, per diem and mileage. Because travel and compensation can only be paid for official duties, it cannot be assumed that the reason for travel met the standards required by law.



Of lessor concern, in three different instances, out-of-state travel reimbursement was paid to Member A when it should have been disallowed due to failure by the member to attach copies of receipts for lodging, as required by Code 4-2A-8, which states in part, "A receipt for the amount paid for housing and for travel by any public transportation to and from West Virginia shall be submitted with the expense voucher..." In each of these instances, Member A charged the standard the in-state overnight per diem of $85, $40 of which should not have been paid. The total amount of such unvouched reimbursement paid is $200. Each of the three trips were to Washington, D.C., where the cost of lodging is likely to exceed $40 per night.



Governing Statute Deficient



The statutes governing SRA Board travel and compensation contain several deficiencies. Most significant is the absence of limits on travel and compensation. Travel and compensation may be paid for any duty which is in any way connected with the State Rail Authority and in any volume. For example, limits have been placed on the Legislature which restrict compensation to days of Interim committee meetings only and further limit compensation to 30 days or $3,000 per year. These restrictions are negated by a clause in the SRA statute providing for payment of compensation and expense reimbursement for "each day or substantial portion thereof engaged in the discharge of official duties." Because of this clause, it is difficult to deem even the most extraordinary circumstances, such as Member A's reimbursement of $506 in travel ($306) and compensation ($200) for attending the funeral of a fellow Board Member, as being illegal.



To a reader not placing due emphasis on the "official duties" phrase, the statute can easily be misconstrued to require that compensation only be paid for committee meetings and limit compensation to $3,000 per calendar year. The source of the problem is the reference that SRA members "shall receive the same compensation and expense reimbursement as members of the Legislature for their interim duties..." The Legislative compensation and expense reimbursement statutes were not created to govern the compensation and expense reimbursement of other authorities. (See Appendix C)



The $85 limit on single day travel may have played a role in contributing to the excessive travel and compensation. The limit may deter travelers from making a trip in one day if actual costs cannot be reimbursed to the traveler. Simultaneously, the limit may encourage travelers to stay overnight, thereby earning an additional day's compensation of $100, per diem of $85 and full credit for mileage. To justify an overnight stay, State travelers under this policy may be motivated to add superfluous tasks to the excursion or make meeting times very early or late.



Intent to Receive Payment Inappropriately



The intent of Board members to receive payments which may possibly be excessive, cannot be overlooked as a cause. Examples exist in which Board meetings taking a few hours to complete turned into several day trips. Other examples include the $506 received for attendance at a fellow Board member's funeral and $3,789 paid to attend the meetings of a private foundation as a member of the foundation's board. The travel submissions of Member A reach such a volume that an internal Board of Directors Exploratory Committee was formed to investigate his travel. The Committee did not find "irregularities," but did recommend that the Member "...not be involved in daily operations of the railroad if he believes that information being given to him by the officers is not questionable."

Travel Approval



The approval process which existed at the time of this review had the member submitting the expense reimbursement voucher to employees of the State Rail Authority administrative staff for payment. Obviously, all employees of the SRA are subordinates of the Board of Directors. The Board of Directors frequently makes personnel decisions, including promotions, as a legitimate exercise of its power. Thus, employees of the SRA had little incentive to either question the integrity of their Board members, or deny payments to which the members felt entitled. This cause is particularly relevant to those charges which were found to be deficient in meeting the requirements that single day travel expenses not exceed $85, a purpose of travel be disclosed on the travel form, and receipts be submitted for out-of-state lodging.



Ignorance of Law



Ignorance of the travel and compensation statute may have played a role in some of the problems identified. This is particularly the case with some of the travel identified as being extra- legal. For example, until December 1996, SRA members were routinely submitting invoices for single day trips in which per diem and mileage exceeded the statutory $85 limit. The Board only had one isolated occurrence after this time, suggesting that Members desired to comply with the law, but were not aware of the $85 limit initially.

Conclusion



The Legislature may wish to address the deficiencies of the controlling statutes by installing practical limits on travel and compensation, such as those it imposes on its own members. Further, ambiguities in the statute may be corrected with the addition of language clarifying how the provisions of the Legislative compensation and travel statutes transfer upon other authorities, and providing definitions for terms such as "official business" and "daily commuting member."



The SRA should strive to improve its performance in this area, beyond the legal threshold. Simply because statute would permit payment does not justify the expense. Activities which duplicate the those of the full-time management and staff of the SRA and actions which serve only to increase compensation and travel reimbursement to members should cease. Further, travel forms submitted by members should be complete, including all destinations, incremental mileage and purpose of travel, or be returned to the member for correction.



In addition, the training program created by HB 3006 in Regular Session 1999, could be expanded to include State entities other than those created under Chapter 30 of the Code. This could help to limit errors caused by ignorance of State travel statutes.





Recommendation 2:



The Legislature should consider creating a new Code section on board compensation and expense reimbursement using legislative limits, but omitting discussions only relevant to Legislative interim travel. The Legislature may consider allowing reimbursement of travel expenses which exceed the current commuting maximum of $85.



Recommendation 3:



If it is the intent of the Legislature to set a maximum limit on compensation for Board members, the Legislature should consider an amendment to West Virginia Code 29-18-4 specifying such.



Recommendation 4:



I f it is the intent of the Legislature to limit compensation to the SRA Board of Directors to exclude travel days and other such activities, it should consider amending West Virginia Code 29-18-4 accordingly.



Recommendation 5:



The Legislature should consider amending West Virginia Code 30-1-2A to encourage the participation of all State boards and commissions in the State Auditor's Annual Training Program.



Recommendation 6:



The SRA should amend its bylaws to include a travel and compensation policy reflective of sound stewardship of State resources.

Issue Area 3: Committee meetings of SRA are in violation of Open Meetings Law



The State Rail Authority Board of Directors by virtue of its being a public body, has an obligation to the citizens of the State of West Virginia to conduct all of its meetings in compliance with the Open Meetings Laws. The Legislative findings of the Open Meetings Law, West Virginia Code 6-9A-1, reads as follows:

The Legislature hereby finds and declares that public agencies, boards commissions, governing bodies, councils, and all other public bodies in this state exist for the singular purpose of representing citizens of this state in governmental affairs and it is therefore, in the best interests of the people of this state for all proceedings of all public bodies to be conducted in an open and public manner. The Legislature hereby further finds and declares that the citizens of this state do not yield their sovereignty to the governmental agencies which serve them. The people in delegating authority do not give their public servants the right to decide what is good for them to know or what is not good for them to know. The people insist on remaining informed so that they may retain control over the instruments of government created by them.



The State Rail Authority should take care to make sure that the provisions of the Open Governmental Proceedings Statute are applied at all meetings of the Board of Directors as well as meetings of committees. On at least seven different occasions during the test period, committees were formed. These seven were mentioned in the minutes of regular board meetings. When staff of the Legislative Auditor requested the minutes from all committee meetings, SRA staff explained that minutes do not exist. The staff members then provided Auditors with information which explained committee formation and purpose for the seven committees. On at least seven occasions, assuming that each committee met one time, various committees of the State Rail Authority Board have met without public notice. These meetings were held in order to select vendors, to schedule events, and once to conduct an internal investigation. While the failure to comply with the Statute may not have been intentional, any Board action may be voided due to the precedent established in the case of McComas v. Board of Education,197 W.Va. 188, 475 S.E.2d 280 (1996) which states:



Because this section makes no mention of any intent requirement, but simply reads "...all meetings of any governing body shall be open to the public," proof of the intent to violate this section is not required to establish that a violation has occurred. McComas v. Board of Education,197 W.Va. 188, 475 S.E.2d 280 (1996).



There exists specific statutory language within 6-9A-3 of the Code which requires that "...all meetings of any governing body shall be open to the public." While the SRA Board of Directors has been in compliance with the law with regard to regular Board meetings, on occasion that a committee meeting is warranted, the Board has failed to maintained the same level of consciousness. Several select committees of the State Rail Authority Board have been formed and met on various issues to include the selection of vendors, in violation of the State Open Meetings Laws. In the Case of McComas v. Board of Education, a the Supreme Court voided a school board vote where a quorum of the school board had met with three members in the superintendent's office the day before the vote to discuss the topic to be voted on, and where this private meeting was not disclosed prior to the vote at the public meeting. The State Rail Authority may risk the courts discretion in similar instances where Committee meetings are held in violation of this statute.



Also within 6-9A-3 are filing requirements with the office of the Secretary of State which, in the event of committee meetings were not met. Within the statue is language which states "...Each governing body of the executive branch of the state shall file a notice of any meeting with the secretary of state for publication in the state register...". The statute further requires that "Each notice shall be filed in a manner so as to appear in the state register at least five days prior to the date of the meeting." In the conduct of the regular Board of Directors meetings, the requirements of registration with the Secretary of State were met. However, in the case of SRA committee meetings, at which business may have been discussed, this was not the case.



The selection of the operator for the West Virginia Central Railroad took place at a committee meeting held in Elkins, West Virginia on May 29, 1998. The meeting was attended by members A, B, C, and F. On June 5, 1998 at the regularly scheduled Board Meeting, Member D made the motion that the Durbin and Greenbrier Valley Railroad be selected as the operator of the West Virginia Central Railroad. The committee meeting prior to the Board vote closely parallels the circumstances of McComas v. Board of Education. While the failure to comply with the Statute may not have been intentional, any Board action taken in violation of this Statute may have been voided by a court. The statute of limitations of 120 days from date the "action complained of was taken or the decision complained of was made" has since tolled. While a mechanism exists which provided for notification of regular scheduled Board meetings, this committee meeting was not registered with the Secretary of State. Further, as stated previously, there are no minutes of the meeting as well.



The statute requires in 6-9A-5 that a record of governmental proceedings in the way of minutes be maintained as follows:

Each governing body shall provide for the preparation of written minutes of all of its meetings. All such minutes shall be available to the public within a reasonable time after the meeting and shall include the following information:

(1) The date, time and place of the meeting;

(2) The name of each member of the governing body present or absent;

(3) All motions, proposals, resolutions, orders, ordinances, and measures proposed,

the name of the person proposing the same and their disposition; and

(4) The results of all votes and, upon the request of a member, the vote of each member, by name.



The State Rail Authority Board managed to maintain accurate minutes of board meetings but failed in the application of the statute to keep minutes of executive sessions as required. The statute, 6-9A-6, is very clear in its language concerning violation of the Article:



Any person who is a member of a public or governmental body required to conduct open meetings in compliance with the provisions of this article shall be guilty of a misdemeanor, and upon conviction thereof, shall be fined not less than one hundred dollars nor more than five hundred dollars, or imprisoned in the county jail not more than ten days, or both fined and imprisoned.

Conclusion



The State Rail Authority Board of Directors has a duty as a representative body to conduct its meetings and business in an Open manner. In accordance with the statute, proper notification of meetings are to be made through the office of the Secretary of State within guidelines so as to be published within the State register. Minutes of meetings shall be maintained and made public, in a timely manner, so as to keep an accurate public record of proceedings.



Recommendation 7:



The State Rail Authority should fully comply with the Open Meetings Law, including the maintenance of minutes and public notifications for its committee meetings and minutes of all executive sessions of the Board and its Committees.



Issue Area 4: State Rail Authority Bylaws out-of-date



The State Rail Authority Board of Directors is authorized by statute in 29-18-6(a)(1) to:

"...Adopt, and from time to time, amend and repeal bylaws necessary and proper for regulation of its affairs and the conduct of its business..." It is estimated that the Bylaws have not been revised since 1982 at the latest. The Bylaws contain language which is in direct conflict with State laws and other policy which is obsolete. A copy of the most recent bylaws is included in Appendix C of this report.



Presently there are ten Articles in the bylaws. Article I, Section 1, of the bylaws requires the principle office of the Authority to be located in Kanawha County, West Virginia. With the largest rail operation of the Authority being located in the eastern portion of the State, the current office of the State Rail Authority has been located in the City of Moorefield, West Virginia since 1982.



Article II, Section 1, of the current Bylaws states that the Board of Directors of the Authority shall consist of six members pursuant to the provisions of 29-18-4 of the West Virginia Code. The 1991 amendment to statute changed this language to read, "...The authority shall consist of seven members. The secretary of the department of transportation shall be a member ex officio."



Article II, Section 2 of the Bylaws requires,



The Board of Directors shall hold an election during the month of January of each year and elect a chairman and a vice-chairman to serve in those capacities during the coming year. Only appointed members of the Authority shall serve in those capacities.



During this review, the Board failed to elect officers as required in January. In addition, House Bill 2791, which passed in the Regular Session of 1999, established the Secretary of Transportation as the Chairman of the Authority, ex-officio. The Authority is still required to elect a Vice Chairman and appoint a Secretary-Treasurer each year.

Article III, Section 1, states, "...regular meetings of the Board may be held without notice...within or without the State of West Virginia." This section is in conflict with the Open Meetings Law, which requires public notice for all regular meetings. While the Board appears to conduct its Regular Board meetings in accordance with the Statute, the fact that such language exists in the bylaws of the organization is evidence that there is a need for revision. Likewise, Section 6 of the bylaws provides that:



...any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the Board as the case may be, and such written consent is filed with the minutes of the proceeding of the Board.



This provision of the Bylaws is also in conflict with the Open Meetings Law which requires State business to be conducted in a forum that is open to the general public.



The cause of this condition is the failure of the Board to review and amend the bylaws on a regular basis. As the Bylaws became more and more obsolete, they ceased to govern the affairs of the Authority. The Bylaws are 11 pages in length and contain considerable out-dated policy which may confuse citizens, employees or members and may be found by a Court to be legally binding. The Bylaws of the Authority are an official document with statutory references and should be treated accordingly.



In addition to the out-of-date items which are addressed in the Bylaws, there are several other topics which should be addressed in the Bylaws. For example, there is presently no provision for purchasing and procurement within the bylaws of the Authority. Because the SRA has authorization for separate procurement authority from most of the Executive Branch, it should have organizational guidelines in place in the Bylaws, to reduce the potential for waste, fraud and abuse. Another procurement issue which should be addressed in the Bylaws of the Authority is that of Member travel. While there is presently no provision for member travel made in the bylaws, there is extensive travel among board members as well as employees of the Authority. An established agency policy would allow for better control of State resources.



Conclusion



Discussed above are but a few examples of ways in which the Authority's Bylaws are in conflict with the statutes or otherwise obsolete. The State Rail Authority Board of Directors has a duty as a Board to bring the present Bylaws current and in compliance with the West Virginia Code. Regular review and revision of the Bylaws of this organization will not only serve the State Rail Authority, but also assist the Authority in serving the residents of this State by keeping a focus on the Authority's mission.





Recommendation 8:



The State Rail Authority should revise its bylaws to reflect amendments to the West Virginia Code and operational changes, and keep said Bylaws current into the future.



Issue Area 5: Annual election of Officers not occurring as required by statute



West Virginia Code 29-18-4, prior to the 1999 amendments required the State Rail Authority to elect a Chairman and Vice-Chairman and appoint a Secretary-Treasurer. The specific language read as follows:



...Annually the authority shall elect one of its members as chairman and another as vice-chairman, and shall appoint a secretary-treasurer who need not be a member of the authority.



The bylaws of the State Rail Authority further specify the manner in which the election of officers is to be conducted. The following passage is taken from Article II, Section 2 of the Bylaws:



The Board of Directors shall hold an election during the month of January of each year and select a chairman and a vice-chairman to serve in those capacities for the coming year....If for any reason an election cannot be held during the month of January, the officers serving shall continue to act in their capacity until a meeting can be held to elect new officers. The term of office of any person elected at such later meeting shall expire at the end of the year in which that person was elected.



Authority meeting minutes for the period beginning February 3, 1994 and ending December 4, 1998 were reviewed to determine the dates on which officer elections were held. Minutes indicate the only elections held during this period were on the following dates: August 12, 1994; August 4, 1995; August 16, 1996; and October 2, 1998. In each case, a blanket motion was passed to retain the same officers as the previous year. While electing officers by blanket motion to retain the same officers may expedite the process and allow more meeting time for the consideration of other business, it is not democratic. An election, at the minimum, consists of a nomination opportunity for each office under consideration and a vote of support for those nominees. Frequently, elections may involve campaigning or presentations by nominees. Arguably, the election of a Chairman is the most important decision a governmental board will make. Even more concerning, minutes indicate no election of officers for more than two years beyond the August 16, 1996 election.



Certainly it was within the power of each Member present at these meetings to make a point of order concerning the manner in which each election was handled which could have forced a conventional election. For this reason, there is little reason to believe that the blanket motion outcome is different from what would have occurred had the process been more deliberate. One can only speculate, however.



Conclusion:



While House Bill 2791 which passed Regular Session 1999, establishes the Secretary of the Department of Transportation as the Chairman of the Authority, ex officio, the Authority will still be required to elect a Vice-Chairman and appoint a Secretary-Treasurer each year. The Authority should do its best to avoid irregular intervals between elections and handling elections by blanket motion. Further, the Bylaws should be revised to provide more meaningful controls over the election process.



Recommendation 9:



The Board of Directors of the State Rail Authority should hold annual elections as specified in the Statute.



Recommendation 10:



The Board of Directors of the State Rail Authority should elect officers by office rather than blanket motion.



Recommendation 11:



The State Rail Authority should revise its Bylaws to provide a more structured election process and reflect the statutory amendment of 1999. The new process should provide a method by which nominations are made and officers elected by vote. It should also establish a regular election time in which the risk of postponement because of inclement weather is unlikely.