Life insurance for late mayor raises eyebrows

With no questions and little discussion, the Assembly voted 9-1 on Feb. 16 to pay the money to the George M. Sullivan Irrevocable Life Insurance Trust.

Sullivan, who served 14 years as mayor before leaving office in 1982, died Sept. 23 last year at age 87.

In interviews in recent days, Assembly members called the $193,000 payment a questionable use of public money, especially at a time when the city has cut millions of dollars in spending for services and personnel to balance its books.

The current Sullivan administration recommended to the Assembly that the money be paid, with City Attorney Dennis Wheeler describing it in a Feb. 2 memo to Assembly members as a contractual obligation made by city officials in 1982 shortly after the late Sullivan left office.

Several Assembly members said they felt they had no choice but to pay it.

"I don't believe it was an appropriate thing to do when it was done ... But what do you do? You've got to honor your commitments," said Assemblyman Dan Coffey.

The one Assembly member to vote against it, Harriet Drummond, said the payment, and the arrangement that led to it, made no sense. "The municipality is not an insurance company," she said. "This whole situation is incredibly bizarre to me."

'NO OPTION NOT TO PROVIDE THE COVERAGE'

The unusual arrangement began in 1982 when the Assembly voted that George Sullivan, who had recently left office, should get life insurance through the city for the rest of his life -- with the same premiums and coverage he had when he was mayor.

Twenty years later, in 2002, Deputy Employee Relations director Karen Moore was baffled when Dan Sullivan, who was on the Assembly at the time, came to the city to make that year's premium payment, according to e-mails from the time. She asked the city's insurance carrier about a policy for Sullivan. The company didn't know about it either. The premiums paid by Sullivan and his family had been deposited into a city account, not given to Aetna.

Top officials in the administration of George Wuerch, who was mayor in 2002, spent months trying to figure out the history of the deal and what to do about it, according to the e-mails, released to the Daily News this week.

The city's life insurance carrier, Aetna, told the city in 2002 that it had no policy on Sullivan and wouldn't cover him anyway because its agreement was only for active city employees, according to the e-mails. Aetna made clear it wasn't liable for Sullivan, who was 78 years old by that time. The insurance company's legal department recommended the city just return the premiums to the Sullivan family.

The city finance director at the time, Kate Giard, told fellow city officials they could put an end to it by just telling the Sullivan family the city would no longer provide the insurance. Giard said another option was for the city to try to buy a life insurance policy for the former mayor, but she suggested that would likely be too expensive because of his age. She suggested the city put $193,000 into a reserve account, the coverage amount that was described in a 1982 memo, then pay it out to the family when George Sullivan died.

Wuerch's city attorney, Bill Greene, settled the debate with an e-mail in March 2002, saying he was going to look over the 1982 resolution and then declaring to the staff "there is no option to not provide the coverage." Greene liked the idea of continuing to put premiums from the Sullivan family into a city account, with the city to then pay the $193,000 after Sullivan died. The other Wuerch officials agreed. It didn't go to the 2002 Assembly for approval, and there's no evidence a written contract was ever drawn up spelling out the terms of the arrangement.

'REMAINDER OF HIS LIFE AT THE SAME RATE'

Deputy Municipal Attorney Rhonda Westover said last week that the Sullivan arrangement was one of a kind. She said her research could find no other examples where a former city official has been awarded such a benefit.

Up until his death last year, Sullivan had paid the city $19,663 in premiums, which were deposited into a city account, according to Wheeler's Feb. 2 memo to the Assembly. The memo said the premiums varied over the years but had stood at $556 per year since 1995.

In 1982, the city's benefits manager estimated that if Sullivan were to convert his city life insurance to a private policy, it would cost him $11,532 a year in premiums.

Wheeler's memo to the Assembly on Feb. 2 includes copies of the original Assembly resolution and a measure approved in 1982 by the city's Salary and Emoluments Commission resolving that the city should provide life insurance to Sullivan for "the remainder of his life at the same rate and with the same coverage as in existence on Jan. 1, 1982."

The request for the final payout came from the current Sullivan administration to the Assembly on Feb. 2 in the form a proposed resolution, accompanied by the memo from Wheeler. The administration asked the Assembly to appropriate $193,000 "to the trustee of the George M. Sullivan Irrevocable Life Insurance Trust ...to meet the commitment of the Municipality." The memo did not identify the trustee. Assembly member Drummond said she didn't get an answer when she asked who it was.

QUESTIONS FROM ASSEMBLY

In an interview last week, Mayor Sullivan said he is the trustee of the life insurance trust. He said that having the request come through his office was a formality. He said he was not directly involved as mayor in the request.

"It was simply honoring a contractual agreement," the mayor said. "Coincidentally the fact that I'm mayor and this was with my father the former mayor is really irrelevant to it, because certainly no actions taken by this administration either led to that contract or to the obligation to fulfill its terms and requirements."

Asked last week about the trust, Sullivan said "it was kind of news to me until a year or so ago when I realized that I was named as trustee for the life insurance trust and that there were payments that needed to be made on an annual basis."

Asked about it again Wednesday after the city produced documents showing he had paid the premium in 2002, Sullivan said what he meant was that he hadn't realized that "somewhere along the line it changed from being an insurance product to a contract." Sullivan said he always thought it was basically a normal policy through a city insurance carrier, and didn't realize otherwise until it came up as an Assembly issue over the past month.

As trustee, Sullivan said, he requested late last year that the city pay the money. He said he had no choice in the matter. "As trustee, my fiduciary obligation is to the trust. And really the trustree is simply an administrator; I'm required to file the paperwork to make sure that the instruments within the trust are executed."

Sullivan would not name the beneficiaries of the trust, saying that was not public information.

Assembly Chairman Patrick Flynn said he believes the Sullivan estate could have sued the city for breach of contract if it did not pay, although Flynn said he doesn't think that anyone on the Assembly requested a legal analysis before appropriating the money.

"Several members of the Assembly said, 'What? This is crazy,' " he said. "But we looked into it and I think everybody came to the same conclusion that whether we liked it or not, it was our obligation."

The measure passed late in the meeting, before an empty Assembly chamber. Only three Assembly members spoke: Flynn, Drummond and Debbie Ossiander. Ossiander said, "This could have been done differently I think."

Drummond questioned whether it was legal for the city to act like an insurance company, collect premiums and pay the trust.

"If there were enough (Assembly members) who realized this was stupidity and voted no, then Anchorage's taxpayers would still have $200,000 in the bank," Drummond said later. "And the Sullivan estate could have gotten the $20,000 in premiums back. Maybe that was the appropriate thing to do. But it was certainly not appropriate for the city to be acting as an insurance company, which it is not."

'I DON'T SEE ANYTHING WRONG WITH THAT'

George Sullivan left a huge legacy as mayor of Anchorage between 1967 and 1981, before the era of term limits. He was the first mayor of the combined municipality, overseeing unification of the city and borough governments. He helped secure state funding for the performing arts center, Loussac Library, the Egan Civic and Convention Center and Sullivan Arena, named in his honor.

On Jan. 19, 1982, about two weeks after he left office, the Assembly passed a resolution thanking Sullivan "for the many outstanding contributions he made to the general well-being of the citizens of the Municipality of Anchorage during his years of public service." The resolution asked the city's Commission on Salaries and Emoluments to consider granting him life insurance coverage for the rest of his life, with the same rate for the same coverage he had as mayor. Sullivan was considered a city employee until the end of October 1982, when his accrued hours of leave ran out.

Under the city charter, the salaries commission is required to "establish the compensation, including salaries, benefits, and allowances, if any, of elected officials." But in this case, the commission agreed to provide benefits for a former elected official, at the Assembly's urging.

The minutes from the Jan. 19, 1982, Assembly meeting show that Assembly member Gerry O'Connor, who died in 2005, proposed that the city provide life insurance for the retiring Sullivan. O'Connor, according to the minutes, said he felt Sullivan's insurance should be continued because he had triple bypass surgery and "was probably unable to pass the physical to qualify for private insurance."

By a 9-1 vote, the Assembly passed the resolution, which asked the city Commission on Salaries and Emoluments, to consider directing the city to provide the coverage.

According the minutes from the salaries commission meeting, O'Connor told the panel that Sullivan could have chosen to retire on disability at one point and draw 80 percent of his salary but instead chose to come back to work.

O'Connor told the commission he originally planned to award the benefit "at the George Sullivan Dinner," but that the city attorney advised that the matter should be handled by the salaries commission.

Commission members said they had received calls from members of the public who opposed the life insurance proposal, arguing that it would set a bad precedent, and elected officials should not receive additional benefits after leaving office, according to the minutes. One commissioner spoke out against the idea, saying it was not a benefit for George Sullivan but rather for the Sullivan family and should not be the city's responsibility. Commission Chairman Claude Millsap argued in favor of the coverage, which the commission approved.

Joe Josephson, an Anchorage lawyer who was on the Assembly at the time, said this week that he didn't remember the issue.

Don Smith, who was Assembly chairman then, didn't recall the specifics either. The intention was to allow the former mayor to keep a city policy he'd paid into through his many years in office, said Smith, who is now running for the school board.

"For the amount of work a person puts in, being mayor or being on the Assembly, a few of these kinds of benefits, particularly where you're paying it yourself ... I don't see anything wrong with that at all," he said.

Mayor Dan Sullivan said Wednesday he's not going to second guess the 1982 decision but "if you have an individual who was so uniquely beneficial to the city and gave literally his heart to it," then it might be an appropriate option in the future.

Sullivan called it an "odd coincidence" he's dealing with this both as mayor and trustee.

"If my dad had the misfortune to pass away before I got elected, I'd still be the trustee, I'd still be filing with the municipality and I'd still be doing my fiduciary duty. If he'd had the fortune, for me, to pass away later in life after I was mayor, it probably wouldn't be a concern ... it's a coincidental thing but it certainly has no bearing whatsoever on something untoward, or a conflict of interest."