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Temporary solutions: can employee leasing from companies like Arkansas' Sunmark, ease the woes of the RTC?

Temporary Solutions

Can employee leasing, from companies like Arkansas' Sunmark, ease the woes of the RTC?

David Pryor, Arkansas' political free spirit, opens hearing in Washington today to explore whether the Resolution Trust Corporation is becoming just another way for highfliers to rip off American taxpayers.

Some of Pryor's constituents say, albeit privately, that the senator is already too late -- that the agency Congress created 13 months ago to "manage" the Savings and Loan debacle is a "joke" and a dumping ground for small-time bureaucrats where "nobody knows what he's doing."

The RTC, Pryor said through press secretary Damon Thompson, "will be running one of the largest government contracting operations of all time." He and his Subcommittee on Federal Services, Civil Service and Post Office of the Senate Governmental Affairs Committee, want to know what the RTC has done to insure "a contracting procedure free of conflicts of interest" and what the inspector general is doing to "monitor the action."

The Government Accounting Office, Congress' watchdog, is expected to release its report card on the RTC at the hearing. The GAO earlier helped Pryor expose how pre-RTC receivers for Arkansas' FirstSouth S&L had acted like "vultures picking a carcass clean" by toting home such assets as fine furniture, art and oriental rugs after paying "pennies on the dollar" of their value.

"Who's to say it can't keep happening unless we keep them under the microscope?" Thompson asked.

Also scheduled to appear is Comptroller General Charles A. Bowsher who revealed in June that misconduct already had been uncovered, and there was a "high potential for more scandal and rip-offs," principally by contractors who are managing seized real estate and selling off properties for the RTC.

The Wall Street Journal cited Pryor's hearing as part of a growing effort by the Democratic and Republican parties to put their own spins on the S&L scandal. For Democrats like Pryor, the newspaper said Sept. 13, the collapse discredits 10 years of Republican-inspired economic deregulation and the Bush administration's efforts to mop up the mess. Republicans say it's the result of corruption or ineptitude of individual politicians, many of them Democrats.

The Arkansas Connection

Pryor's hearing may not turn up many Arkansas connections or force Congress to face its own culpability in whatever weaknesses the RTC has, but there is at least one example in Little Rock that demonstrates both.

The example is Sunmark at One Financial Centre, which leases personnel to concerns that don't want the overhead and headaches of doing hiring, payroll, withholding and benefits. Though state Sen. Neely Cassady of Nashville owns controlling interest in Sunmark, the principals in this case are Keith K. Kennedy, the firm's vice chairman, and Rex L. Eley, its president.

The so-called S&L "bailout bill" President Bush signed into law August 9, 1989, mandates RTC to make heavy use of outside consultants for services. Brent Ciurlino, deputy director of RTC's Consolidated Office in Dallas, said Congress did this to avoid building yet another bureaucracy for what it saw as a temporary task and there was intense philosophical pressure as well to "privatize" what used to be regarded as proper government functions.

He did not mention and few seem to know that the S&L industry itself proposed that Congress create the RTC, which looks suspiciously like the Federal Asset Disposal Association (FADA).

Founded in 1986 as a private agency, FADA was subsidized by the Federal Savings and Loan Insurance Corp. (FSLIC) to manage and dispose of assets FSLIC took over from failed thrifts. FADA was so mismanaged and "woefully inefficient" that Congress wiped it out as it wrote the industry's proposed replacement -- the RTC -- into law.

Ebb and Tide of Employee Pool

When RTC takes over a failed thrift, it puts its own management in place but "assumes" the institution's support personnel -- primarily professionals such as accountants and others trained in handling assets and loans. These people tend to stay awhile, Ciurlino said, but then start looking for new jobs or drift away to temporary manpower agencies where they lose benefits and enter "an environment of uncertainty."

"We were using our employees to do field work (filling in for those who quit) when we needed to have them on our staff," Ciurlino continued.

Ciurlino said he was looking for a way to create a "stable pool of trained employees" who could be shifted from thrift to thrift as needed when he picked up the phone last May and called two staff leasing firms in Dallas and Sunmark's Kennedy.

He and Kennedy had known each other since the early 1980s when Ciurlino went to St. Louis to clean up $1 billion in bad Farm Credit bank loans, including some in Arkansas. Kennedy, a Harrison resident, formerly worked for the St. Louis lenders and helped explain Arkansas to Ciurlino.

Could leasing staff be the answer? If so, how should RTC go about finding a contractor who could meet its needs? Would Sunmark be willing to answer these questions as a consultant for the paltry sum of $5,000, which was the most Ciurlino could offer without taking bids?

The answer was yes -- with a condition. For a mere $5,000, Sunmark didn't want to be locked out of bidding for the contract if the Dallas office decided to go the leased staff route.

But how ethical would it be for Sunmark to bid on a contract that it had helped prepare? Wasn't this continuing a pattern that had contributed to the downfall of a third of America's 2,500 S&Ls at a cost to the taxpayers of at least $130 billion, not counting interest?

Such questions are bucked to the Contractors' Conflicts Committee and the Outside Counsels' Conflicts Committee under RTC regulations. Among other things, the rules bar a contractor from acting for the RTC "in the same particular matter in which it or a related entity has a business or financial interest."

But waivers can be sought, and Sunmark asked for one on grounds there would be "an open or competitive bidding procedure in which the contractor's work for the RTC would provide no competitive advantage."

Eley said Sunmark's report recommended that when it comes time to solicit bids for a contractor, RTC send its proposal to companies picked at random from the mailing list of the industry's trade organization, the National Staff Leasing Association.

"If the buddy system was at work," Eley declared in an interview, "we would have picket out 25 firms we could have beaten on bidding and not referred RTC to the trade association's mailing list....All we want is a fair shot."

Sunmark submitted its report July 2 and is still waiting for a decision. Dallas Consolidated is the only RTC office considering staff leasing, and Ciurlino said he has no idea when and if a decision will come. It is still wrestling with such issues as how large the employee pool must be to make the concept feasible and how much work will be available on a continuing basis. Also, he said, should RTC use staff leasing in one office, on a regional basis, or throughout the country?

Apropos of nothing but making an attempt to imply that Sunmark wouldn't be doing any RTC business in Arkansas even it if wins a contract, Eley, Kennedy and Cassady all pointed out at one time or another that the state is not even in the RTC's Dallas region, which covers only Texas and Oklahoma.

Evidence in federal court records shows that Arkansas' S&L problems are linked directly to Texas--not only to its basket-case economy brought on by the oil bust but to its "high-flier" mortgage brokers who used Arkansas thrifts as "piggybanks" to round out their development loan schemes.

Even so, Arkansas is in RTC's Kansas City region, which encompasses 12 Midwestern states. It has only two consolidated offices, one each in suburbs of Chicago and Minneapolis. Jim Thompson, deputy regional director for resolutions and operations at Kansas City, said splitting Arkansas from Texas was a "business decision," but he didn't know what factors went into it. RTC's other two regional offices are at Atlanta and Denver.

No Respect

In savings and loan losses per capita, Arkansas ranks third in the nation at $588 behind Texas and Arizona. And Arkansas is giving RTC one of its biggest legal headaches by challenging the agency's authority to override state law and sell an S&L with branches outside of Pulaski County to Worthen Banking Corporation.

Despite these points, Arkansas seems to be getting little "respect" from the RTC. For example, RTC plans to auction $300 million in hotels, office towers and empty shopping centers taken over from failed S&Ls on Nov. 15. The auction, which is being booed by the private real estate industry and ignored by many investors, is to take place simultaneously on three continents.

Not one of the more than 400 Arkansas properties reportedly under RTC's control are on the block. Asked why, Thompson in Kansas City said the RTC had to have "clear title" to the properties offered and they had to have "high enough appeal to attract investors." He vowed the RTC will sell all of its properties -- someday.

Since the Thompson telephone interview, the RTC has announced it is taking bids on 65 failed S&Ls, including six smaller institutions in Arkansas -- Madison Guaranty S&L at Augusta with $102.8 million in deposits; First Federal S&L at Fayetteville, deposits of $98.4 million; First America Federal Savings Bank at Fort Smith, deposits of $438.1 million; First State Savings Bank, FSB, at Mountain Home, deposits of $110.2 million; Commonwealth S&L at Osceola, deposits of $30.9 million, and Grand Prairie Federal S&L at Stuttgart, deposits of $15.6 million.

Sales of the state's two largest S&Ls under federal control -- First Savings and Savers, both in Little Rock -- have been postponed until 1991. Together these institutions had first quarter 1990 losses of $48.8 million.

RTC Under Attack

Meanwhile, some Arkansans who are working to staunch the bleeding red ink, attack the RTC bitterly for delays, policy confusion and philosophical decisions. They won't allow their names to be used, however, because they fear informal blacklisting, similar to what happened to "whistleblowers" who tried to tell government regulators what was going on in the early 1980s.

One took sharp exception to piece-meal sale of an S&L's assets. He likened it to selling off the tires, then the radio, then the air-conditioning on a 3-year-old Cadillac. "If you sell off the loans, the credit cards, and limit institutions to certificates of deposits at sub-market rates, what have you got? A hulk. What's left is nothing. No bidders will want it and the government will end up paying off the depositors." He blamed the situation on the RTC being staffed by former Federal Deposit Insurance Corporation bureaucrats whose experience was limited to "liquidating $10 million banks."

Some complained of "revolving door" changes in RTC personnel, especially managers and credit specialists, while others focused on delays of up to six months for Kansas City to assign cases to outside counsel or approve real estate appraisals.

Thompson at the Kansas City office flatly denied there had been any such long delays. He admitted, however, that assigning personnel had been a struggle but added, "It should be stabilizing now, barring unforeseen circumstances." Even as Thompson spoke, however, the managing agents of three bankrupt Arkansas savings and loans had just had their locations shuffled with Little Rock going to Fayetteville, Fayetteville to Fort Smith, and Fort Smith to Little Rock, all for the purpose of broadening their experience through "cross-training."

Might Kansas City be a candidate for the staff leasing Dallas Consolidated is considering?

Not the way Thompson tells it. Yes, the RTC is new; yes, the bailout is bigger than Congress anticipated, and yes, Kansas City's workload is "extraordinary" and growing. But is the RTC understaffed? "Not us," Thompson insisted.

PHOTO : POLITICAL FREE SPIRIT: Senator David Pryor says the RTC will run one of the government's all-time largest contracting opeations.
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Title Annotation:Resolution Trust Corporation
Author:Griffee, Carol
Publication:Arkansas Business
Date:Sep 24, 1990
Previous Article:A fishy proposition.
Next Article:Buenos Tia's.

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