Did patronage lead to BMV overcharges?

The Indiana Bureau of Motor Vehicles' chief financial officer, a man who oversees a $110 million budget, lacks one of the most basic qualifications typical of CFOs.

Harold Day has no college degree.

Day does have something else valued in state government — political connections. He is a longtime GOP ward boss whose wife was an Indianapolis councilwoman. He got his job with a recommendation from former Republican Perry Township Trustee Jack Sandlin.

BMV spokesman Josh Gillespie said political patronage played no role in Day's hiring, or in the events that led BMV officials to overcharge Hoosier motorists more than $60 million for driver's licenses and registration fees over the course of several years.

"In recruiting and retaining a well-qualified team, the BMV considers education along with relevant experience," he said in an emailed statement. "We do not ask political affiliation. There is a long list of public servants from both sides of the aisle who have served our State with distinction, despite lacking a post-secondary diploma."

But public affairs experts consulted by The Indianapolis Star said the qualifications of key BMV officials and their responses to questions in legal documents obtained in a Star investigation raise serious questions about the way BMV officials are chosen.

Despite repeated hints, Day, for example, was unable to say what branch of government he worked for: judicial, legislative or executive.

He also testified that he neglected to collect interest on a BMV account that routinely contains $5 million to $20 million.

"That's a sign that this is not somebody who is well-equipped to do their position," said Trevor Brown, director of the John Glenn School of Public Affairs at The Ohio State University. "The transgression is not that you have a political appointee, it's that you have appointed a political appointee that doesn't have requisite skills required to perform the task."

And Day's credentials were not the only ones called into question.

Ron Hendrickson, who until recently was the BMV's deputy commissioner in charge of driver's licenses, was a former snowplow driver and pizza shop manager without a college degree. But he was a former Republican precinct committeeman from the city's Eastside.

Even Scott Waddell, the former BMV commissioner who ignored warnings that the agency was gouging motorists with excessive and illegal fees, had no experience in government, despite having a college degree. He got his job through Jim Kittle, a prominent political fundraiser and former Indiana Republican Party chairman.

The current and past BMV officials mentioned in this story either declined to comment or did not return messages seeking comment.

Their roles in the scandal were highlighted in a Star investigation published in March, which found that top officials at the BMV knew for years they were likely overcharging motorists. But those officials chose to ignore or cover up the overcharges rather than refund the extra money and adjust to significant budget losses.

Following a class-action lawsuit in 2013, the state refunded $60 million in higher-than-allowed fees. A second lawsuit alleges as much as $38 million more was wrongfully charged. The BMV is fighting that claim, but if true it would bring the total overcharges to about $100 million. And a recent audit by the accounting firm BKD identified 16 additional questionable fees.

Does patronage persist?

The role of political connections in today's BMV suggests that the agency has not fully shaken off the vestiges of the political patronage system abolished in the 1980s. In those days, the political party of the governor ran the BMV's license branches as money-making businesses, sometimes operating out of the cramped garages or back porches of county party chairmen who worked hard to maximize profits for their political parties.

While license fees no longer go directly to the parties, political appointments of top officials are still common at the BMV, and all across government. Experts say that can cause problems when appointments are made with too little consideration for professional expertise.

"Politicians often conflate ideology with competence," said David Lewis, a professor at Vanderbilt University whose research focuses on political appointments. "They think that someone that shares their political views, whether on the left or the right, is more competent than someone that does not. This is not true."

How big a role such appointments may have played in the BMV scandal is hard to say, but the recently completed outside review by BKD slammed the BMV's leadership for a lack of oversight and accountability.

"Given the complexity of their charge, the BMV should demonstrate a commitment to establishing a workforce capable of supporting their mission," auditors wrote. "Further, management should evaluate the effectiveness and proficiency of key leadership positions and act as necessary to address shortcomings."

More clear is that a lack of expertise among top BMV officials likely cost the state money.

In discussing the BMV's primary bank account during a deposition in the ongoing lawsuit, Day explained that it had $5 million to $20 million in it on any given day. When asked if he ever sought interest on those funds, he said: "No."

"Have you ever even thought about the possibility that a bank might be willing to pay interest on somebody whose deposits average between $5 (million) and $20 million every day?" Irwin Levin, the Indianapolis attorney representing plaintiffs, asked.

"No, I have not," Day said.

"Can you think of any reason not to ask the bank to pay the Bureau of Motor Vehicles interest on the $5 (million) to $20 million that it has parked in the bank on any given day?" Levin asked.

"No," Day said.

In another exchange, Day expressed confusion about which branch of government the state budget office falls under. Levin then asked, "Do you know what branch of government the BMV is in?"

"No, I do not," Day said.

Experts on public administration say those answers aren't the only red flags that political considerations may be outweighing expertise in BMV hiring.

Lewis, the Vanderbilt professor, said the lack of prior experience for Hendrickson and Waddell is concerning as well. Waddell earned a business degree from Indiana University and joined the BMV after selling his family's locknut manufacturing business, but he had no previous government experience. Likewise, Hendrickson had driven a snowplow for the state and worked as a store manager for Domino's, Pizza Hut, and Steak 'n Shake — but he had no college degree or government management experience when he got hired to oversee about 20 BMV license branches.

"In this case, where is the public management experience prior to the appointment?" he said. "Managing a large organization, particularly a public one, is a difficult job."

Who knew what, when

In sworn depositions, several top BMV officials claimed little knowledge of the fee problems despite emails and other evidence that suggested they had been actively involved in discussions on the matter.

Of the three men, only Hendrickson admits any knowledge of the fee problems prior to the 2013 lawsuit. He said that he urged the BMV's "lead team" of executives — including Waddell and Day — to authorize an outside audit in 2011. But he said Waddell and his chief of staff, Shawn Walters, declined.

Day denied any involvement with the fee issues. But he was a member of an internal "fee committee" that came to the consensus in 2011 the agency was overcharging for driver's licenses, according to testimony from a former BMV legal staffer. And dozens of emails obtained by The Star show he was routinely involved with fee problems.

"Based upon all the information I have received, I say that the code tables are incorrect and need to be changed," one of his employees wrote in an August 2009 email to him and others.

He also received a spreadsheet from Deputy BMV Director Mathew Foley in 2011 identifying 17 overcharges and was a member of a fee committee set up to review those overcharges, emails show.

Despite those records, Day repeatedly testified that fee issues were "not my area." When asked whose area it was, he said, "I don't know.

"I didn't think about it," he said.

He also said Foley reported directly to Waddell, not to him. But organizational charts show that Foley, who spent about a year reviewing agency fees, reported directly to Day.

Waddell claimed the mere possibility that the state might be overcharging customers was news to him and the entire agency until the lawsuit was filed in 2013.

"We were completely blindsided by it," he said.

But emails show that he asked his administrative assistant to print out Foley's spreadsheet outlining the overcharges more than two years earlier. Hendrickson also testified he urged Waddell in 2011 to launch an independent audit in response to the fee committee's conclusion that the agency was overcharging for driver's licenses.

A duty to the governor

Documents obtained by The Star indicate that internal knowledge of potential overcharges went back to at least to 2007, but the unauthorized fees presented a dilemma for the agency.

During internal discussions, Foley sent an email to Hendrickson warning that a fix would be expensive. He predicted that fixing just one of the problematic fees would cause "a revenue loss of $8,400,000 in 2012 alone."

That could threaten a priority of then-Gov. Mitch Daniels, who had built a political career on impressive budget surpluses. During that time, the BMV was under orders to cut spending and return a portion of its budget to the state's general fund. It faithfully fulfilled those requests, turning back $47 million to the state's bank account from 2006 to 2014.

Daniels also has earned praise for his reforms of the agency. His administration cut wait times and dramatically improved customer service.

The BMV's illegal fees, if publicly disclosed and refunded, could have threatened those legacies.

The balancing act political appointees sometimes face was on display during the deposition of Kent Schroder, the BMV commissioner who preceded Waddell. Initially, he said he owed his duty to the governor.

A few moments later, he was asked, "Is your duty to the public equal to, less than, or greater than your duty to the governor?"

"The agency's duty is greater to the public," he said.

"I asked about you," the attorney said.

"Yeah," Schroder said. "And mine I would say it's equal."

"Your obligation to the public is no greater than your obligation to the governor; is that your testimony?" the attorney asked.

"I would say that they're equal, yes," Schroder said.

'Poor management practice'

Foley testified that he advocated refunding the improper charges to motorists, but ran into resistence. After one meeting with Waddell, the commissioner's chief of staff sternly told Foley he was interrupting their work on the fee issues, Foley said.

When asked during a deposition why his superiors didn't want to refund the ill-gotten money, Foley attributed the decision to budget considerations.

It's hard to overstate the gravity of that decision in 2011. For each day that BMV officials hesitated to fix the problem, its overcharges averaged more than $23,000, all of it coming directly out of Hoosier motorists' pockets.

That's about $1,000 an hour, every hour of every day, for two long years.

Carl Hayes, an attorney representing the BMV in the case, has defended the agency, saying such calculations don't take into account an even larger number of mistaken undercharges — about $140 million worth. That is money the agency lost and has decided not to seek from motorists, he said.

But Brown, the Ohio State professor, said, "That's another sign of poor management practice.

"They're not appropriately performing the tasks and functions that were given to them," he said. "The fact that there was an overcharge and an undercharge are both indicators of poor management practice."

Gov. Mike Pence has said his administration is working to clean up the agency, and lawmakers plan to study potential reforms before next year's legislative session begins.

In the meantime, no one from the BMV has been publicly disciplined or fired, despite the massive financial blunders.

Waddell returned to the private sector in November 2013 as the state was settling the first lawsuit. Hendrickson moved to another state agency, the Family and Social Services Administration, where he receives $80,750 a year. Day is still the BMV's chief financial officer, with an annual salary of $74,000.

Star researcher Cathy Knapp contributed to this story.

Call Star reporter Tony Cook at (317) 444-6081. Follow him on Twitter: @indystartony.

Call Star reporter Tim Evans at (317) 444-6204. Follow him on Twitter: @starwatchtim.

Key players in the BMV fee scandal

Harold Day

A longtime Republican ward boss, he landed a job at the BMV as a budget analyst in 2007. Before that, he worked in the finance departments of some construction companies. Later, he was a deputy for Republican Perry Township Trustee Jack Sandlin, who recommended him for a job at the BMV when he left office. In less than a year, Day was promoted to chief financial officer, a position he still holds today at an annual salary of $74,000.

Ron Hendrickson

The former Republican precinct committeeman did stints as a snowplow driver for the state, a pizza store manager and a salesman for a charter airplane company before getting a job as a regional manager at the BMV, overseeing about 20 license branches. He was later promoted to deputy commissioner of policy and programs. He still works for the state, but not at the BMV. He left his job as deputy BMV commissioner of policy and programs in September 2013 and is now an information technology project manager for the Family and Social Services Administration. He receives a salary of $80,750.

Scott Waddell

Waddell earned a business degree from Indiana University and took over his family's business, Westfield-based Standard Locknut. He sold the company in 2007 and later landed an interview with Earl Goode, then chief of staff for Gov. Mitch Daniels. The meeting was arranged with the help of his friend Jim Kittle, the furniture store chain owner, political fundraiser and one-time chairman of the Indiana Republican Party. Waddell was hired as a deputy BMV commissioner and appointed commissioner the following year. He received a $107,000 salary until he resigned in November 2013. As of his deposition in April 2014, he was vice president of operations for Hageman Group, where his duties included overseeing the development of a hunting resort in Texas.

Mat Foley

After graduating from IUPUI with a degree in finance, he worked in retail and commercial banking. After getting laid off, he reached out to then-BMV Commissioner Andy Miller, who he had known for 10 years through a banking relationship. Foley got hired as a deputy director and began evaluating the BMV's fee structure, eventually alerting top officials to 17 overcharges and 26 undercharges. He left the BMV in January 2012 and returned to the private sector. Prior to his departure, he received a salary of $49,250.