Insurance premium subsidy boosted superintendent’s pay to $772,457

An embattled South Bay school district leader, under investigation for his high compensation, now has a new issue to deal with: insurance premiums that should have been counted as taxable income, but were not.

The Centinela Valley Union High School District is being investigated by federal and state authorities for paying Supt. Jose Fernandez $674,559 last year — a figure derived from Fernandez’s own calculations. Now, it turns out that he mistakenly understated his taxable earnings.

The district also paid nearly $98,000 last year for whole life insurance for Fernandez, according to records provided by the school district Thursday. That brings the superintendent’s taxable income to $772,457.

The district made similar accounting mistakes with other employees who received subsidies for life insurance. But Fernandez faces the greatest potential impact because his subsidized premiums dwarfed the others.

The school system placed Fernandez on paid leave last week.

In response to a California Public Records Act request, the district provided information on two policies for Fernandez, one with a value of $1 million and another worth $750,000. Both policies have a cash value and can be borrowed against. Fernandez’s contract includes a $1-million whole life policy, but does not mention the cost of the premiums.

Because Centinela was paying the annual premiums, they must be counted as taxable income, according to instructions the district received from the Los Angeles County Office of Education.

Fernandez made considerably more last year than the leaders of the New York, Los Angeles and Chicago school districts, the nation’s three largest school systems. His 2013 compensation was inflated by a one-time supplement of $230,000, which he used to buy seniority in state retirement systems. Doing so allows him to collect a higher pension when he retires.

The superintendent’s contract and related issues are being investigated or audited by the FBI, the L.A. County district attorney, the county education office and a state pension system. The county education office confirmed its inquiry; district officials or other employees as well as other agencies verified the others.

Fernandez, 54, said this week that his attorney had advised him not to comment on the issues swirling around him. But in the past he has said that school board members understood his contract when they approved it with the advice of counsel. He added that the district contacted the county education office specifically to affirm that his employment terms complied with the law.

Both insurance policies were issued in 2010, so the added income — and possible tax penalties — could stretch back several years.

Other district employees also face back taxes and possible penalties.

At a district meeting this week, the board of education passed a resolution saying it would work with about 50 lower-level managers to help them with their tax issues. But the board specifically excluded the district’s three assistant superintendents and Fernandez.

Based on the board’s action, these top officials will have to pay any additional fees on their own. The same goes for four school board members who benefit from $150,000 in life insurance purchased by the school system.

Aside from Fernandez, two senior administrators were placed on leave, the district said Thursday: Patrick Au, who was in charge of information technology, and Ernani Montijo, director of fiscal services.

Interim Supt. Bob Cox said he could not comment on why the two administrators had been removed from their positions.

The Daily Breeze and CBS2/KCAL9 first reported elements of the district insurance policies.

howard.blume@latimes.com