At the time Gov. Jeb Bush appointed Elizabeth Fago to a board that oversees the spending of the state’s $310 million contribution for the Scripps biotech project, a company managed by the Palm Beach Gardens businesswoman had failed to pay the federal government $1.3 million in payroll taxes.
And as Fago and her biggest company were donating hundreds of thousands to the Republican Party, that company was struggling to pay basic benefits to its employees. The company also was notified that a lien had been placed on its assets for failing to pay a $4,357 bill for termite control.
These new revelations, the results of a Palm Beach Post investigation, come as some are questioning last year’s appointment of the 53-year-old nursing home owner to the Scripps Florida Funding Corp. That’s the nine-member board the state created to watch over the state’s investment in the mammoth Scripps research facility in Palm Beach County.
Fago was appointed chair of the board’s audit committee, which is charged with hiring auditors and making sure that the state’s $310 million ends up in the right places.
Project proponents also count on her for the fund-raising magic that made Fago a favorite with the reelection campaigns of U.S. Reps. Katherine Harris and Mark Foley, and even President Bush. She already pledged $1 million of her own money to Scripps, at the rate of $100,000 a year.
But this month, The Post reported details about Fago ‘s past that made critics ask whether she should serve on the Funding Corp. She once was married to a leader of a drug gang deemed the best-organized in county history. And she accumulated 20 years worth of unpaid bills and tax problems.
“I am looking into the matter,” Funding Corp. Chairman Marshall Criser said recently. “I have the power to remove her from the audit committee. Our bylaws provide the board with the power to remove a member of the full board for cause. But that discussion is too premature.”
And while The Scripps Research Institute depends on donations, one well-known local philanthropist swore the biotech company won’t see a dime from him until the major players are “pristine.”
“To put someone like this lady in such a position of power is no way to do business,” said high-profile lawyer and benefactor Bob Montgomery. “I was terribly disappointed to read about her background. Scripps could be one of the greatest things for Florida. It would be a shame for it to go down the drain because the powers that be didn’t pay attention to their hires.”
Dozens of calls, meanwhile, have been made to the newspaper by former and current employees, taxpayers and vendors, all of whom questioned Fago ‘s business acumen. Her business experience is partly why the governor picked Fago , Bush spokeswoman Alia Faraj said in an earlier interview.
“I left in February,” said West Palm Beach’s Mary Joe Fragueiro, a former payroll supervisor at Fago ‘s umbrella company, Home Quality Management. “Employee paychecks would bounce or wouldn’t be written for the proper amount. You’d do overtime for no pay. Medical bills wouldn’t get paid. When I first got there, we owed more than $1 million in payroll taxes.”
A South Florida businessman who had dealings with HQM said he considered suing the company for nonpayment of a $35,000-plus contract.
“I had my lawyer run a credit check on the company,” he said. He asked to remain anonymous because HQM made him sign a confidentiality agreement before agreeing to pay him 30 cents to the dollar. “It was obvious that we would never get our money.”
Friends, family on company board
Even though Fago ‘s companies are private entities and protect themselves from scrutiny with such confidentiality contracts, public records provide a look inside some of Fago ‘s interests.
Not-for-profit nursing home company Continuum Care Corp., or CCC, is one of them, although Fago representatives say she has nothing to do with the direction of the company, just its management. State records show that Fago was the company’s president until 1997. That’s when she quit and founded the company now managing CCC’s day-to-day operations.
“I don’t see why she should be held responsible for the CCC problems,” said a Boston lawyer hired by Fago, Harry Manion.
Fago declined interviews about her businesses and deferred comment to Manion, HQM counsel Sandra Adams and a Republican media consultant, Anita Mitchell. “CCC is led by a board of directors that doesn’t include Ms. Fago . Her only involvement is that she is chairwoman of the company that manages CCC. HQM only works at the direction of CCC,” Manion said.
The board is now made up of paid officers who are friends and family members. Fago ‘s cousin, Marie Cassaro of Palm Beach Gardens, was paid $30,000 last year to be CCC secretary, according to Internal Revenue Service documents. She declared working 15 hours a week. She provided a resume showing she graduated from beauty school and managed a few stores.
A CCC adviser, attorney George Mueller, was paid $60,000 in fiscal year 2001-2002 for five hours of work a week, according to other IRS records. He was described by Mitchell as “a great friend of Betsy’s for the last 25 years.”
Comparatively, CCC’s highest-paid full-time employee, its administrator, was paid $80,000 a year.
CCC, in turn, paid Fago ‘s HQM more than $2 million in management fees during the past two years, according to the same filings.
IRS liens on CCC businesses
Between 2000 and 2003, meanwhile, the IRS slapped three liens on businesses owned by CCC, nine assisted-living facilities. HQM failed to send in payroll taxes for CCC’s 600-plus employees. They are the quarterly taxes that a company takes out of employees’ paychecks under the heading “deductions.”
One CCC lien came in June 2000, when CCC fell behind by $211,000. It settled that assessment in May 2001, along with another one for $18,000. Then in January 2003, the IRS went after CCC for $1.3 million in unpaid payroll taxes for two quarters in 2002. It took Continuum 14 months – until April 14 of this year – to pay up.
Media consultant Mitchell said Fago lent CCC more than $1 million in cash and deferred management fees.
“I blew my stack when I found out that HQM didn’t pay those taxes,” said current CCC board President John Metz, a local consultant in corporate restructuring. “HQM was clearly in charge.”
But Metz said the board wasn’t mad enough to get rid of HQM. In 2000, as the IRS debt mounted, the board renewed the HQM contract for five years.
“This board is happy with HQM,” he said. “The properties are leveraged to the max, and that’s tough to manage.
“We haven’t actively looked for another management company,” said Metz, who added he has been a Fago consultant for a number of years. “We wanted some continuity.”
According to the most recent IRS filing, for 2003, CCC had $27 million worth of outstanding bonds and revenue of $23 million. It’s under liens from private companies, too. County records do not show that those liens, requested by two contracting firms for a total of $400,000 nearly 10 years ago, have been released.
Fago described Home Quality Management in previous interviews as her pride and joy. The company runs and manages 70-plus nursing homes in Florida, Tennessee, Alabama, Georgia and the Carolinas.
Fago is HQM’s director and comptroller, while Paul Walczak, the oldest of her three children, is listed as CEO. Still, there’s little doubt, says former payroll supervisor Fragueiro, that Fago is in charge.
Home Quality Management also has been having financial trouble as of late.
While the company is listed alongside Fago ‘s name in cash donations to the Republican Party totaling more than $400,000 since 2001, HQM has had problems covering its 8,000-plus employees for medical and worker compensation benefits.
It is on a strict payment plan to catch up on $405,000 in premium payments to Clarendon National Insurance Co., HQM’s workers comp carrier.
And, Fago counsel Adams described how a $1 million medical claim by one employee caused a domino effect that resulted in most employees not getting reimbursed, or getting paid after lengthy delays, for their medical bills for nearly two years.
“In 2001, we decided to be selnsured,” Adams said. “The plan was going well until an employee was the victim of a car crash.”
HQM is suing the self-insurance administrator, but Adams admitted that the huge bill caused a serious cash flow problem for HQM. “It caused a tremendous disruption in our ability to pay claims. We’re still in the process of paying.”
HQM went back to buying health insurance for its employees in January of this year.
Small businesses file liens
Small businesses, meanwhile, saw HQM’s cash flow problems firsthand. Safehome Environmental Services in Mount Dora sued in January 2002 to recoup $4,357 for termite treatment in one of HQM’s nursing homes nearby. A lien is on record in Lake County for that debt. And another lien against HQM, originating from Long Beach, Calif., was sent to Palm Beach County for an unpaid bill of $4,400.
“I wasn’t aware of this,” Adams said. “But I’m glad it was brought to my attention by the paper, and we’ll look into it.”
Still, Manion said, HQM and its subsidiaries are a family business that’s trying its best.
“We aren’t Harvard Business School graduates here,” Manion said. “But I think that everyone means well.”
Media consultant Mitchell and Palm Beach County Commission Chairwoman Karen Marcus defended Fago ‘s business practices.
“There is nothing sinister here,” Mitchell said. “Betsy Fago is an honest woman who has a tremendously successful business. Maybe she’s had a rough start. But the nursing home business is tremendously difficult, and she is trying to fix her companies.”
The governor’s office did not return repeated calls and an e-mail for comment about Fago ‘s business woes, but Marcus, one of her local supporters, said she hopes Fago will be on the Scripps Funding Corp. board for a long time.
“She has been incredibly helpful in bringing Scripps here and a great liaison between Scripps, the community, the county commission and the governor’s office,” Marcus said.
This story was first published June 23, 2004 in The Palm Beach Post