Saturday, July 24, 2010

On running a railroad

The big news out here in Edina this week was the announcement that departing City Manager Gordon Hughes would receive approximately $229,000 as a separation payment, about $120,000 in cash, and the balance being paid into the city’s Heath Care Savings Plan on his behalf.

This news was not greeted with uniform delight. There was an extensive article in the Star Tribune about the payment on Thursday, July 21st. Since I was quoted in the article, I want to discuss the issue at greater length.

Let me say first of all, this isn’t about Gordon Hughes, the departing city manager. You can’t be a city manager, and the assistant city manager before that, and the city planner before that, without accumulating some dents and scratches from your interaction with the residents, but Gordon Hughes is held in high regard by the citizens of Edina and by his peers, too.

So that isn’t the issue.

The issue is paying a city manager, or a school superintendant, or any number of other managerial public employees in a way that is transparent (that’s a fancy word for open and understandable) to constituents. So they can gripe about it if they are so inclined.

This contract was negotiated under a different council and mayoral régime and with a different city attorney than Edina has now. But it is clearly a situation that has come back to haunt the people presently in charge.

I commend the article for a description of the contract, but in summary, it provided that on retirement, the city manager would receive 100 percent of all accrued (that is, unused) sick leave and vacation going back to the beginning of this manager’s employment over thirty years ago (he wasn’t the city manager when he started, of course), without limit as to hours, and that the hours would be paid at the effective hourly rate of the manager at the time he retired, regardless of how long ago they were accrued. Gordon Hughes tallied some 2,700 hours of accrued sick leave.

You really do have to wonder if the people who negotiated this deal thought through the implications of it, or of the budget hole that the city would step into in 2010. Edina’s entire, and declining, operating budget is about $28 million. This single payment is roughly one percent of the annual operating budget. Moreover, for 2009 and 2010, the city budgeted each year the sum of $130,000 for separation payments for all city employees.

Clearly, this is a budget buster.

There are some good reasons to pay an employee for (usually just a part) of their unused vacation and sick leave. This is especially true when a substitute — as for example a teacher — has to be hired as a replacement when the employee is out sick. The replacement labor can be more expensive (overtime), and there is the administrative hassle of obtaining it and putting it in place.

It’s better to provide some incentive to keep the employee on the job when s/he might otherwise stay home — unless s/he spreads contagion to everyone else, but that’s another story.

That is exactly the rationale that the City of Edina used when it adopted a policy of compensating retirees for half of their unused sick leave up to 960 hours; a policy that was adopted a year after the current city manager was hired on the contract just described.

When you think about it, it makes less policy sense to compensate city managers or superintendents for unused sick leave, because nobody hires a substitute city manager or superintendent for an occasional illness. But you ought to do it, if you do it for other employees, on a comparable basis; that’s just equitable.

But when it turns into a compensation method for managerial employees that’s much larger than for other employees, and it isn’t apparent, or accounted for, or accrued somehow on public books, that’s a problem. It’s just paying double time; it has nothing to do with the raison d'être for the policy in the first place.

The questions arose in the minds of some people as to whether the city manager became subject to the same policy that covered everyone else when it was adopted. I don’t know the answer to that; the mayor say “no.” And it is a fact that city managers are sui generis: in a category by themselves. (They are the only employee in a class B city hired by the council; the city manager actually hires the rest.)  But in view of the amount, and the outcry that it has raised in some quarters, proceeding cautiously and on the basis of a written legal (and perhaps accounting) opinion seemed desirable to me.

Speaking of accounting, it is another reason why a contract that requires determining illness events (or the lack of them) in personnel files that go back thirty years is a bad idea. Illness events are also something that employees want and employers need to keep confidential, but by the explicit terms of the data practices statute that covers personnel, data that are used to determine compensation are public data.

Original documents (such as time records for employees) in Edina are retained for six years, after that the physical records are destroyed, and only summary data in digital form remains. The calculation cannot be audited; there is no paper trail that extends back anywhere near that far.

And that is regrettable in a public setting. It’s regrettable for everybody: the city manager, the mayor and the city council, and the resident of the city.

If the offer of some kind of severance package over and above the contributions to the public pension plan, PERA, and other benefits that city managers are often offered, is required to attract or retain a qualified city manager — and it may be; I don’t have a view or understanding of that either way — it would be far more desirable to have the calculation of any amount payable determined by, for example, years of service. That would be transparent and easy to audit. It could be “audited” by citizens out of council minutes or even the archives of the community newspaper.

Steve Timmer

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