Preston Doerflinger. Frontier illustration.
As Oklahoma Gov. Mary Fallin assessed what to do last fall as the state’s Health Department announced a financial crisis that threatened the entire agency, she saw an answer in one of her top longtime aides.
Preston Doerflinger, who had served for years as Oklahoma’s secretary of finance, was appointed Oct. 30, 2017, the same day the Oklahoma State Department of Health accepted the resignation of Terry Cline.
Ultimately, Doerflinger left the embattled agency in disgrace, quickly resigning after a Frontier investigation revealed two domestic violence incidents from his past. But he didn’t leave before requesting, and receiving, a $30 million appropriation from the Legislature and hatching a plan to lay off 200 Health Department employees.
As it turns out, a grand jury report released Thursday showed that both moves by Doerflinger were unnecessary — the money wasn’t needed and, worse, neither were the layoffs.
Doerflinger’s appointment was surprising to some — state law dictates the OSDH commissioner meet several criteria, most of which Doerflinger lacked. But still, with his background as Tulsa’s city auditor and as the state’s secretary of finance, Fallin figured if anyone could get to the bottom of the financial crisis, it would be Doerflinger.
Within weeks of his appointment, Doerflinger had asked for and received a $30 million appropriation from Fallin, saying that the OSDH could not make payroll without it. Then in December Doerflinger announced a plan to lay off nearly 200 health department employees. The plan would cost about $3 million in the short term, counting buyout packages, but could save around $10 million annually, Doerflinger said at the time.
On Thursday, about two months after the final round of agency layoffs intended to help the OSDH reach solvency, a grand jury investigation announced there was no insolvency in the first place, no need for the $30 million appropriation and no need for the layoffs.
“The agency was and is solvent. The $30 million supplemental appropriation was unnecessary and still sits untouched in an account at the Oklahoma Department of Health,” Attorney General Mike Hunter told reporters on Thursday. “The agency had money all along to make payroll.”
With State Auditor and Inspector Gary Jones looking on, Oklahoma Attorney General Mike Hunter explains the results of the multi-county grand jury’s findings about the Oklahoma State Department of Health on Thursday, May 17, 2018. (William W. Savage III/Nondoc)
So how did Doerflinger with his financial and auditing background, and with full support of Fallin, miss by that much?
The answer is unclear. Neither Fallin nor current OSDH officials responded to requests for comment on Friday (OSDH spokesman Tony Sellars had said on Thursday that the agency needed time to digest the grand jury report prior to commenting,) and attempts to reach Doerflinger were unsuccessful.
Doerflinger, according to Oklahoma Watch, issued a statement Thursday saying decisions to lay off nearly 200 people and ask for a $30 million appropriation “were not made in a vacuum.”
“The decisions to request a supplemental and to proceed with a Reduction in Force (RIF) at OSDH were not made in a vacuum,” Doerflinger said in a statement posted by Oklahoma Watch. “I and others were working with the best information available at the time,” which he said was provided by former OSDH Chief Financial Officer Mike Romero and then Chief Operating Officer Deborah Nichols.
Late last year, testifying before a House Special Investigation Committee, Doerflinger said that the $30 million was so necessary that “if it was not received, this agency would have defaulted, not just on payroll but on other obligations as well.”
If the appropriation wasn’t needed, then where was the money that could have staved off the cutbacks and layoffs? The grand jury report stated OSDH leadership had created a “slush fund” full of money they had in turn hidden from the state Legislature.
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If the realization that the financial crisis at the OSDH was apparently fictional is hard to stomach for those who were laid off, some of the statements made in the grand jury report might be vomit-inducing.
About a week before the first round of layoffs hit, Nichols resigned as COO. According to the grand jury report, Nichols testified that she left the agency because of Doerflinger’s decision to “bring over cronies” from the Office Of Management and Enterprise Services, where he was simultaneously working as finance secretary.
Doerflinger, “at the insistence” of Nichols and Romero, requested the $30 million appropriation from Fallin “without waiting for the results of the audit requested by the previous commissioner.”
In order to get the money, OSDH was required to cut appropriated costs by 15 percent before June 30, 2019, according to the report.
Preston Doerflinger. DYLAN GOFORTH/The Frontier
Days later Doerflinger announced the layoff plan — 198 people would be laid off or would resign. It would cost money in the short term but would save money long term, he said, and would allow the OSDH to meet the requirements the Legislature had tied to the appropriation.
And yet, the grand jury found that the “Reduction in Force” plan “was done without exercising due diligence to determine if the cut was truly necessary.”
“The financial crisis necessitating these layoffs was fictional. It was unnecessary for the Department to slash costs because the Department was not insolvent.”
Even worse, the savings Doerflinger touted were also fictitious — the grand jury report stated that the employees who were ultimately laid off were “paid in part by federal and revolving dollars,” that savings to the state would be lower than had been announced.
The RIF plan, was supposed to save the state $7 million in 2018. Instead, the grand jury said it might have saved as little as $3.3 million. Worse than that? There was apparently no need for the $30 million appropriation (which currently sits in a slush fund, untouched,) and, thus, no need for the layoffs.
The Oklahoma State Department of Health. DYLAN GOFORTH/The Frontier
“The unnecessary and ineffective termination of 198 Oklahomans stands in marked contrast to the 94 significant pay raises that occurred from July 1, 2010, to Sept, 30, 2017,” the report stated.
In early November at an OSDH board meeting, Doerflinger told reporters the agency would turn the setback “into a comeback.”
“And I will be here until the job is done,” he said.
In the end, that was untrue. Doerflinger resigned Feb. 13, a day after a Frontier report alleging a prior domestic violence incident between Doerflinger and his then-wife. The final round of layoffs happened about three weeks later, and it was months later that it was discovered there had been no setback in the first place.
Sterling Zearley, with the Oklahoma Public Employees Association, told Oklahoma Watch on Thursday that it was possible laid off “employees could sue for wrongful termination,” and that he was seeking legal input.
Should those lawsuits ever be filed, it could cost the state thousands of dollars.
House Democrats on Friday urged state leadership to “address concerns of the 198 Oklahomans that have lost their jobs due to this debacle.”
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In releasing the grand jury report on Thursday, Hunter announced that “certainly laws were broken” by figures within OSDH, yet there were “no criminal consequences to those laws,” and therefore nothing that could be prosecuted.
House Speaker Charles McCall, R-Atoka, said on Thursday he believed some leadership within OSDH “apparently lied” when testifying before the House Special Committee.
“We will be reviewing testimony provided to the Legislature under oath to determine who, specifically, may have lied to us about those issues,” he said to Oklahoma Watch.
The grand jury made several sweeping recommendations, one of which was to amend state law to ensure that similar actions in the future fall under anti-embezzlement statutes, and that a law be created to ensure each state agency create and publish a public balance sheet each year.
They also asked that the $30 million supplemental appropriation “be rescinded” from OSDH coffers and used to fund investigative audits of other state agencies.
