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Treasury Undersecretary's Dual Roles Raise Questions

By Jeffrey H. Birnbaum
Washington Post Staff Writer
Friday, December 1, 2006

Robert K. Steel is a Washington oddity. He holds two high-powered jobs, one inside and the other outside government.

As the new undersecretary of the Treasury in charge of domestic finance, Steel supervises thousands of federal employees and helps oversee the nation's multi-trillion-dollar financial markets. At the same time, he moonlights as the unpaid chairman of the Board of Trustees of Duke University, a major recipient of federal funds and one of the country's most richly endowed colleges.

Experts say it is rare for a senior executive branch official -- in this case a Treasury official ranked just below the department's No. 2 -- to hold a significant position outside government. Top federal executives customarily drop their nongovernmental posts to devote themselves to their time-consuming federal tasks and to avoid even the appearance of a conflict of interest with their public responsibilities.

"This situation is unusual," said Paul C. Light, a professor of public service at New York University and an expert on federal bureaucracy.

Steel insisted that he keep his chairmanship at Duke -- his alma mater and that of his parents -- as a condition of taking the Treasury job. Government and university ethics officials approved the combination as long as Steel did nothing that had a "direct and predictable effect" on Duke's finances, a stipulation that he accepted.

The Senate Finance Committee was also informed about the pact, a Steel spokeswoman said.

Still, watchdog groups and others have expressed concern about Steel's situation. They worry that he will inevitably have to choose between his fiduciary duty to Duke, which has an endowment of $4.5 billion and about $3 billion in other investments, and his role at Treasury. His position there makes him privy to often-sensitive price-moving information about U.S. markets, especially those involving management of the government's $8.6 trillion in debt.

They also doubt that a senior Treasury official, whose hours are grueling, would have enough spare time to also chair a major research university. In addition, they question the propriety of allowing a top federal official to head an organization that in fiscal 2006 alone, according to Duke, received $1.1 billion in federal funds, including $45,543 from Treasury for a clinic for low-income taxpayers.

"It's a conflict of interest," said Thomas J. Fitton, president of Judicial Watch, a conservative government watchdog group. "In his role as the chairman of the Board of Trustees, there will be decisions he will make that will be in conflict with his role as a high-level government official."

Melanie Sloan, executive director of the left-leaning Citizens for Responsibility and Ethics in Washington, agreed. "The concept of having a government job is that you work only on behalf of the American people, and being a trustee creates a divided loyalty," she said.

Barbara Roper, director of investor protection for the Consumer Federation of America, added: "He's creating the very real possibility that he will face situations where he has not just the appearance of a conflict but the reality of a conflict and then will have to decide how to behave. There will always be questions about whether he handled that kind of situation appropriately."

The Senate is keeping a close watch on the Steel-Duke arrangement. "I intend to monitor this situation," said Sen. Charles E. Grassley (R-Iowa), chairman of the Finance Committee, which has jurisdiction over Treasury. "I also want to make sure that serving as Duke's board chairman doesn't take time away from Treasury duties. I've learned from my review of nonprofit organizations that serving on a board can be very time-consuming if the board takes its responsibilities seriously."

Steel, a former vice chairman of the investment banking firm Goldman Sachs, does not foresee trouble. His spokeswoman, Jennifer Zuccarelli, said Steel's deal was blessed at Treasury and the Office of Government Ethics and was disclosed to the Senate, which confirmed him in October. Steel has agreed not to raise funds for Duke and is no longer directly involved in its endowment or investments. Any effort he puts into Duke, she said, comes out of his private time.

Duke's trustees were consulted about Steel's new job and decided to retain him as chairman. According to minutes of the board's executive committee meeting in August, Steel explained what his role in Washington would be and said he would have to step away from direct dealings with Duke's funding. After a discussion without Steel in the room, the executive committee "agreed that Mr. Steel's service in Washington would not have a negative impact on his service to Duke."

Still, the board requires plenty of his attention. It meets four times a year for two days each time, usually Friday and Saturday. In addition, the board's executive committee, which Steel also chairs, meets seven times a year between board meetings.

The board is responsible for the school's well-being, financial and otherwise. "In essence, the Board of Trustees owns Duke University," said John F. Burness, a Duke senior vice president. "The trustees have ultimate responsibility for the university in all of its aspects, including financial."

As undersecretary, Steel has one of the largest portfolios at Treasury. He supervises the assistant secretary for financial markets, the assistant secretary for financial institutions, the fiscal assistant secretary, the deputy assistant secretary for community development policy and the director of the Community Development Financial Institutions Fund. He also oversees the Bureau of the Public Debt and, through the fiscal assistant secretary, the Financial Management Service.

The Bureau of the Public Debt borrows the money needed to operate the federal government and services the debt by issuing trillions of dollars in Treasury securities. The Financial Management Service receives and disburses all public monies, maintains government accounts and oversees a daily cash flow of $50 billion. The Community Development Financial Institutions Fund was created to expand credit in distressed communities.

Steel is not the first Duke chairman to hold federal office. In the 1990s, John Koskinen kept his Duke post when he became deputy director for management of the White House budget office. He removed himself from all higher-education issues and did not raise money for Duke. But even with those restrictions, he said, the double duty was unusual. "Generally, you have to give up everything if you get into a high position," he said.

Light, the NYU professor, said that there is good reason for the rule and that Steel should resign from Duke's board. "The potential conflicts are significant," he said. "His positions violate the spirit of the law that separates public and private service."

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