Column: Lawrence Wyllie’s federal fraud charges and the ‘Lake Wobegon effect’

There’s a scholarly theory in finance known as the “Lake Wobegon Effect.”

When it comes to CEO pay, the theory goes, no board wants to admit its chief executive is below average. Corporate boards are thus inclined to reward CEOs with compensation above the median.

As a result, pay for top executives across the spectrum continues to spiral ever upward, regardless of performance.

I believe in the “Lake Wobegon Effect,” and I think it has bearing on the situation that led to federal felony fraud charges announced Thursday against former Lincoln-Way Community High School District 210 Superintendent Lawrence Wyllie, 79, of Naperville.

I think some school districts, municipalities and other taxing bodies reward “rock star” executives with reputations for getting results and proven track records for creating improvements.

Sometimes it’s about status. Everyone likes to score well on “best of” lists. Schools and towns are no different. Reputation-building produces actual benefits in the form of increased property values that enhance the wealth of stakeholders.

Ask any real estate agent. They’ll tell you how important the quality of schools in a community is to home sales.

I think CEOs face enormous pressure to deliver results and justify their generous compensation packages. City managers and school superintendents face similar pressures.

Prosecutors allege Wyllie used at least $50,000 of school money to build and operate a dog obedience school known as Superdog and paid himself at least another $30,000 in retirement and vacation benefits that weren’t in his contract.

Federal authorities also accuse Wyllie of misrepresenting the district’s financial health and causing the district to assume at least $7 million in debt. Wyllie faces five counts of wire fraud and one count of embezzlement.

“Lawrence Wyllie, defendant herein, devised, intended to devise, and participated in a scheme to defraud and to obtain money and property by means of materially false and fraudulent pretenses, representations, and promise, and by concealment of material facts,” the federal indictment states.

In plain English, the feds accuse Wyllie of being a liar and a crook.

It’s important to note the charges are mere allegations at this time. Wyllie’s attorneys issued a statement Thursday maintaining the former superintendent’s innocence and praising his service as “a model educator in Illinois for 55 years.”

Former Lincoln-Way school board President Ron Kokal once called Wyllie “an absolute genius in school financing.”

The federal indictment follows a yearlong investigation by former Daily Southtown and current Chicago Tribune reporter Gregory Pratt, who exposed questionable financial practices at Lincoln-Way, private uses of public resources and deals benefiting insiders.

The true state of Lincoln-Way’s finances became apparent only after Wyllie retired in 2013.

The Illinois State Board of Education first placed the Lincoln-Way district on its financial watch list in 2015. Within months, the school board voted to reduce costs by closing Lincoln-Way North High School in Frankfort at the end of the 2015-2016 school year.

Lincoln-Way North opened in 2008 after voters approved a $225 million referendum to build two new high schools and update the two existing ones. Lincoln-Way West in New Lenox opened in 2009.

Fallout from revelations about the district’s financial straits included the resignations of several school board members and the loss in April of two incumbents seeking re-election.

There’s another consequence if the federal allegations against Wyllie are proven true. He could lose his pension.

Wyllie this year is receiving a pension of $321,444. That, according to a Better Government Association analysis, is the highest amount paid to a beneficiary of the Teachers’ Retirement System — one of several state pension funds for public-sector employees.

State law is crystal clear when it comes to pension recipients convicted of felonies related to their job performance.

“None of the benefits herein provided for shall be paid to any person who is convicted of any felony relating to or arising out of or in connection with his or her service as a member,” the Illinois Pension Code states.

Every year, pensions are revoked for retired public servants convicted of felonies, TRS spokesman Dave Urbanek told me on Friday. He said he was unable to readily provide comprehensive figures on the number of felons who have lost their pensions. There are more than 100,000 active TRS retirees.

“It’s not uncommon,” Urbanek said. “We do have every year a number of members who lose their pensions related to felony convictions. The felony has to pertain to their job performance.”

Wyllie will have his day in court and the opportunity to prove his innocence. He’ll continue to collect his monthly $26,787 pension — nearly $1,000 a day — in the meantime.

“(One) does not forfeit a pension until he is convicted and sentenced,” Urbanek said.

Everyone makes choices. Some choose to skirt laws and are confident in the belief they’ll never be caught. Strict punishments can deter others from committing crimes.

Taxpayers are having a tough go of it lately in Illinois. The recent two-year state budget impasse, the income tax increase, the school-funding deal, high property taxes, Cook County’s soda tax — what’s the one thread that ties them all together?

Pensions. Virtually every government body that says it needs to raise taxes says the increases are necessary not to cover current operating costs, but future pension costs.

There’s plenty of blame to go around. Legislators kicked the can down the road and made the problem worse. Chicago declared “pension holidays,” like they were something to celebrate. Actually, they used money they should have set aside for retirees to cover operating costs, forestalling the inevitable need for more revenue.

In politics, it’s easy to incite suburban and downstate voters to rail against a “bailout” for Chicago pensions. I’ve often wondered why more Chicagoans don’t publicly express their outrage at having to pay the generous pension benefits for suburban school retirees.

You know, those school CEOs who are considered financial wizards because of their ability to produce results. The beneficiaries of the “Lake Wobegon Effect” who impress their boards into rewarding them with compensation packages the average person in Chicago could only dream about.

I wonder what people who scrape by on fixed incomes of $1,000 a month think about public sector retirees collecting pensions of nearly $1,000 a day.

People like Lawrence Wyllie.

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