CITY COUNCIL: Resolution Amending Employment Contract with City Attorney related to Compensation Owed by the City

Meeting Date: July 12, 2011
Prepared by: John Goss

City Council
Agenda Item Summary

Name: Consideration of a Resolution amending the employment contract with the City Attorney related to compensation owed by the City.

Description: The City contracts for municipal legal services with Donald G. Freeman. The legal retainer received by Mr. Freeman is currently $7,500 per month and has been at this level for several years.

Included in his 1984, 1987, 1996, 1997 and 1999 agreements was a provision for the City to contribute towards a retirement plan benefit equivalent to that of other management employees. As a result of that provision, Mr. Freeman paid the employee’s share of PERS coverage, while the City paid the employer’s contribution of this coverage. The follow-up 2004 agreement between the City and Mr. Freeman inadvertently omitted the provision obligating the City paying his PERS. The City continued paying the employees’ share of his PERS contribution, however, through April 2007.

On April 11, 2007, Mr. Freeman submitted a letter to staff asking that his participation in Carmel’s PERS plan be terminated effective April 19, 2007. By opting out of the City’s retirement plan, it was with the understanding that he would be compensated an equivalent cash amount. It is unclear why the equivalent compensation was never paid to Mr. Freeman, or why a modified contract was never adopted. The proposed amendment to Mr. Freeman’s current contract corrects this oversight and does three things: (1) ratifies the City’s PERS contributions made on Mr. Freeman’s behalf made between 2004 and 2007; (2) adjusts his monthly compensation to add the cash equivalent of not receiving the agreed upon PERS benefit going forward; and (3) retroactively pays the cash amount since Mr. Freeman opted out of PERS in 2007.

Overall Cost:
City Funds: (1) The cost for adjusting Mr. Freeman’s monthly compensation going forward would be $1,288.58, or $15,462.96 annually. (2) The cost of paying Mr. Freeman the cash equivalent of his PERS benefit since he opted out in April 2007 through June 2011 is $68,041.13. (See attached spread sheet).

Grant Funds: N/A

Staff Recommendation: Consider the Resolution. Note: A specific recommendation is not offered due to the Interim City Administrator’s short duration with the City and the lack of direct knowledge regarding the history of this issue.

Important Considerations: The City Attorney’s prior contract included a provision for the City to contribute towards his retirement. When the City Attorney opted out of the retirement plan, his compensation was not adjusted accordingly.

Decision Record: (1) In 1984, 1996, 1997 and 1999 the City Council approved an agreement with Mr. Freeman providing that the City would pay the employer’s share of his PERS benefits; (2) Mr. Freeman and the prior City Administrator indicate that the 2004 agreement inadvertently left out that provision; (3) No subsequent decision has been made ratifying the City Attorney opting out of his retirement plan benefits and replacing these benefits with cash payments.

Reviewed:

_______________________________ __________________________
John Goss, Interim City Administrator Date

CITY OF CARMEL-BY-THE-SEA
STAFF REPORT
TO: MAYOR McCLOUD AND COUNCIL MEMBERS
FROM: JOHN GOSS, INTERIM CITY ADMINISTRATOR
DATE: JULY 12, 2011
SUBJECT: CONSIDERATION OF A RESOLUTION AMENDING THE EMPLOYMENT CONTRACT WITH THE CITY ATTORNEY RELATED TO COMPENSATION OWED BY THE CITY

BACKGROUND
The City receives municipal legal services from Donald G. Freeman, who serves as the City Attorney under contract. The legal retainer for Mr. Freeman’s services currently is $7,500 per month and has been at this level for several years. Also, Mr. Freeman has a long tenure with the City, having served as the contract City Attorney since 1984.

At issue is a provision in several of Mr. Freeman’s contracts with the City that the Carmel-by-the-Sea would contribute the City’s share of the PERS retirement plan on his behalf. Included in his agreements in 1984, 1987, 1996, 1997, and 1999 was a provision that the City would contribute toward a retirement plan equivalent to that of other management employees. Representative of this language is the 1999 contract in which the City agrees to pay a monthly amount for his services, “…plus inclusion of Attorney in City’s retirement plan…”

A problem occurred in the 2004 agreement when Mr. Freeman requested an increase in his monthly retainer. The new contract language omitted reference to his inclusion in the City’s retirement plan. The previous City Administrator acknowledged that inadvertent omission. In fact, the City continued paying its share of the PERS cost for Mr. Freeman for over three more years until April 19, 2007.

The City discontinued paying the City Attorney’s PERS expense in response to a letter dated April 11, 2007, from Mr. Freeman to Karen Love, City Finance Specialist. In that letter he requested termination of his participation in the City’s Public Employees Retirement System. By opting out of the City’s retirement plan, the City Attorney indicates that it was with the understanding that he would be compensated an equivalent cash amount. It is unclear why the equivalent cash amount was never paid to Mr.
Freeman, and why a modified contract was never adopted.

The resolution attached to this report would accomplish three things:
1. Ratify the City’s PERS contributions made on Mr. Freeman’s behalf between 2004 and 2007;
2. Adjust Mr. Freeman’s monthly contribution to add the cash equivalent of not receiving the PERS benefit going forward; and
3. Retroactively pay the equivalent cash amount since Mr. Freeman opted out of PERS in 2007.

A couple of comments are in order. First, Mr. Freeman indicated that items 2 and 3 are not separable. In other words, he is not interested in receiving the equivalent of this benefit going forward if the retroactive payment since 2007 is not also approved.

Second, whether or not the City Council approves Items 2 and 3, the Council should approve Item 1, ratifying the already paid PERS contribution made from 2004 – 2007.

FISCAL IMPACT
The cost of paying Mr. Freeman the cash equivalent of his PERS benefit since he opted out of Carmel’s retirement plan in April 2007 through June 2011 is $68,041.13, as reflected in the attached spread sheet. If Mr. Freeman’s monthly compensation is adjusted to reflect this payment going forward, the cost would be $1,288.58, or $15,462.96 annually. The cost of both of these expenses in FY 2011-12 would be $83,504.09 ($68,041.13 + $15,462.96). This would require payment from the City’s operating budget, presumably from the General Fund Reserve. However, if this request
is approved, it is suggested that whether or not the Reserve fund is needed and should be used be deferred until after the first quarter budget review recommended in the proposed 2011-12 budget.

RECOMMENDATION
A specific recommendation regarding the retroactive and future payment of the requested benefit is not offered, due to the Interim City Administrator’s short duration with the City and the lack of direct knowledge regarding the history of this issue.

It is recommended, in any event, that the City Council ratify the City’s previous payments of the City Attorney’s retirement plan from 2004 – 2007.

CITY OF CARMEL-BY-THE-SEA
CITY COUNCIL
RESOLUTION 2011-
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARMEL-BY-THE-SEA AMENDING THE EMPLOYMENT CONTRACT WITH THE CITY ATTORNEY RELATED TO COMPENSATION OWED BY THE CITY

WHEREAS, the City contracts for municipal legal services with Donald G. Freeman; and

WHEREAS, Donald G. Freeman was compensated for ordinary legal services for a retainer of $7,500 per month plus a contribution towards retirement plan benefits; and

WHEREAS, on April 20, 2007, Donald G. Freeman opted out of the City’s retirement plan benefits with the understanding that he will receive a cash equivalent.

NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF CARMEL-BY-THE-SEA DOES:

1. Ratify the City’s PERS contribution made of Mr. Freeman’s behalf from
March 2, 2004 to April 19, 2007.

2. Approve the amended contract for the City Attorney.

3. Authorize transfer of $68,041.13 from Account 01-61016 (Legal-Retirement) for payment of money owed for service between April 20, 2007 and July 1, 2011.

4. Authorize adjustment of monthly compensation for services beginning July 1, 2011 to include monthly cash equivalent of City’s retirement contribution.

PASSED AND ADOPTED BY THE CITY COUNCIL OF THE CITY OF CARMEL-BY-THE-SEA this 12th day of July 2011, by the following roll call vote:

AYES: COUNCIL MEMBERS:
NOES: COUNCIL MEMBERS:
ABSENT: COUNCIL MEMBERS:

SIGNED:

_______________________
SUE McCLOUD, MAYOR

ATTEST:

______________________
Heidi Burch, City Clerk