College savings plan ads sported Krolicki’s image

Thursday, March 15, 2007 | 7:17 a.m.

CARSON CITY - Lt. Gov. Brian Krolicki is suspected by senior Democrats in the Legislature of using for his political advantage money that should have gone to a state-run college savings plan.

More than $1 million was spent on advertising for the college savings plan, which featured Krolicki's face and name, during the 2006 campaign season when he was still state treasurer and head of the board that oversees the college fund. He did so without authorization from the Legislature.

Krolicki has asked Attorney General Catherine Cortez Masto to investigate the college savings plan, which began in 2001 and has nearly $3 billion in investments.

The state, which receives fees in exchange for investing its money with asset managers, received nearly $5 million, but only $1.6 million wound up in the fund. The other $3.4 million was spent on advertising and legal fees.

Krolicki, a Republican, said he was authorized by the Legislature to enter into the contracts without legislators' express authorization, and pointed out that the treasurer's office always does so when it goes to the capital markets to borrow money for the state.

He also defended the advertising as good marketing for the program. He noted that he asked for an opinion from the Ethics Commission before the ads ran and received a go-ahead, and was cleared when an ethics complaint was later filed with the commission.

Nevertheless, Assembly Speaker Barbara Buckley and Assemblyman Morse Arberry, chairman of Ways and Means, on Wednesday asked the legislative auditor to complete his own investigation.

Separately, Krolicki's Democratic successor, state Treasurer Kate Marshall, said she has been "hampered by a lack of historical documents" in the treasurer's office.

A source familiar with the investigation said Marshall has asked the state's computer technicians to retrieve e-mails from the final three months of Krolicki's term.

Krolicki, saying his office followed protocol when it destroyed some office documents and correspondence, contends it would make no sense to retain everything. "If it's clutter, you get the clutter out of the filing cabinets," he said.

All contracts are kept at the state Board of Examiners, he said, adding that Marshall could have found all of them if she had looked harder.

Krolicki dismissed Marshall's allegations as "reckless" and politically motivated.

The $3.6 million that did not wind up in the college fund was "redirected" to an account held by UPromise, a company that administers the program, according to a treasurer's office document released Wednesday.

The money was then "distributed at the direction of upper management in the state treasurer's office," the document says. "Upper management" seems to refer to Krolicki's chief of staff, Kathy Besser, according to the treasurer's office.

Of the money in question, $2.2 million went to a Reno-based advertising firm, the Rose/Glenn Group.

Krolicki said his office entered into a contract with UPromise directing the company to spend $700,000 of its own money on marketing during the first year and $500,000 in subsequent years.

He said it is possible that an accounting error led money to be taken from the state "bucket" for marketing when it should have come from UPromise's "bucket." Krolicki said he has asked for the investigation to determine whether that's the case.

Krolicki said he could not explain why Besser would sign off on spending for UPromise marketing given that it wasn't - or at least wasn't supposed to be - the state's money being spent, but UPromise's.

Another $1 million was spent on outside legal counsel, which Krolicki said was a reasonable sum given the amount of work over six years.

The outside counsel, William Donovan, and his law firm, Orrick, Herrington & Sutcliffe, have contributed at least $22,000 to Krolicki's campaigns. The Rose/Glenn Group has given $6,500 in contributions.

Marshall's office also has raised questions about a key contract involving the college savings plan that was amended just days before Krolicki left his job as treasurer to become lieutenant governor. The contract had 20 years left on it when it was renegotiated.

The new agreement changed the fee from a percentage per savings agreement to a flat fee. The fee for the investment company, Vanguard, now is set at $1.5 million annually plus inflation, while the UPromise fee was a one-time fee of $1 million.

A treasurer's office document released Wednesday notes: "We are concerned that the amendment may not be in the best interest of the state of Nevada."

Krolicki said the companies threatened to take their business elsewhere without a new agreement. After they contacted him in September or October, he got a good deal for the state, he said.

Sun reporters Jeff German, Steve Kanigher and Cy Ryan contributed to this report.