I was very disappointed to read [City Manager James] Pennington’s Nov. 5, 2014 front page article entitled, “Pennington fires back at pay raise critics.”
To me, it confirmed how seemingly dishonest our Peachtree management is; and reminded me of how weak our City Council is, in its duty of business oversight.
The article rather boldly asserted that proper analysis had been done in support of the pay raise recommendation made by, and for, staff. In fact, the article mentioned that, “correct total implementation costs had been derived;” and later in the article that, “Our actuary was provided figures and asked to run some calculations to determine the impact [of the pay increase on our pension obligation].
In short the pay increases that were approved by the council were no more (and slightly less) than those already anticipated by the defined benefit pension plan.” Less, even with pay increases, really?
These comments can only be described as the kind of white lies told by city staff who expect that the city residents and city council are too foolish to think for themselves (in the case of the latter, this was true). Here are two basic reasons why what was stated was misleading:
1. The only legally relevant number that describes the true long-term nature of the Peachtree City Defined Pension Benefit Plan is referred to as the Net Pension Liability.
This number is intended to show citizens the true cost of future obligations of defined benefit pension plans held in trust. It is the legally mandated measure as of THIS YEAR for all such pension plans, under GASB 67 (the official proclamation of the Governmental Accounting Standards Board; which defines reporting for all governments reporting under GAAP – including PTC).
PTC city staff stated to the public, and PTC Council, that they did not have an estimate of the GASB 67 Net Pension Liability. This means that they could not have reported this appropriate measure from the pension’s actuaries to the council and public.
Which can only mean that the “analysis” presented by Mr. Pennington was wrong, and outdated. By the way, did he ever share the analysis he referred to in his article with anyone? If so, certainly not anyone who would have understood it – and certainly not to the public (see “3” below).
2. Mr. Pennington’s statement in the article that the pay increases approved by the council did not increase the city’s future pension obligation is downright dishonest.
The “costs less than plan” comment can only mean that the city staff told the actuary what assumptions should be about the future pay increases (i.e., compare this pay increase approved by the council to a bunch of other pay increases that I am pretending will occur).
Also, the “lower pension costs” Mr. Pennington referred to in next year, as compared to this year, likely resulted from higher stock market returns on the plan’s invested assets. These higher returns would have happened regardless of the pay increase.
3. In the above, I have had to form my own judgments about why the analysis that Mr. Pennington referred to was false. This is because, despite asking (even through Open Records requests), the public was not provided any meaningful analysis or information as to how they made their recommendations (we know that the Condrey study was not sufficient).
In fact, I have found this to be a troubling habit of the PTC staff: Never sharing analysis or assumptions with the public in relation to important financial decisions. If the public (or two of our more responsible PTC council members) had been part of the analysis and discussion over pay raises, we would have been able to help the city avoid the mistakes made by the PTC Council majority on the pay raise issue and vote.
If the PTC staff is not inclined to be open, honest and transparent, then who is responsible for ensuring at least a minimal degree of analysis is provided in support of major, long impacting budget decisions?
Why, of course (and by law), the PTC Council. To be fair, two of the council members, Kim Learnard and Eric Imker, did ask for additional information, and did ask for a delay in the important vote on raises until some degree of due diligence could be done.
Unfortunately they were voted down by the PTC Council majority. (Please note, I am not suggesting how these two responsible council members would have voted, only that they requested time for proper analysis to be done). If only we had had one more like them on the council!
So what about the other three members of the PTC Council? Why did they avoid analysis, and rush headlong into a snap decision to approve staff pay raises that were not accurately presented and which were not able to be funded in the budget (and still are not!)?
Here are general thoughts being expressed by residents as to why the council majority made such a rash decision. Perhaps it was:
1. They were intimidated? I did not attend the ill-fated meeting when the PTC Council majority passed the pay increase. It has been reported that many staff conspicuously paraded into the meeting; and with a menacing presence, scared the PTC Council into agreeing to pay increases.
While I find the reported behavior disturbing, I doubt fear of staff was the impetus. I believe that two related emotional responses to staff protests were partly to blame. They are: one, a go along to get along mentality, and two, an ego driven “I am embarrassed about this reported pay problem and I will fix it now (see how good I am?).”
Too bad in the case of the ego driven response, it turned out that the reported number, upon which the ego driven decision was based, was not correct. (This is why emotions are not as useful as rational analysis when making long-term financial decisions.)
2. They had lack of knowledge? Not likely. Firstly, it is basic common sense that a large budget item should be funded before being approved is pretty elementary. There was no need to rush the pay raises.
Secondly, the council was advised of simple to understand accounting rules: that there is only ONE relevant measure to define the long-term nature of the impact of pay raises on the pension obligation. This one number concept should have been very simple for anyone to understand, even non-business people.
Thirdly, there were many other basic problems with the PTC staff’s analysis that begged additional analysis, such as, what cities should we compare ourselves to?
3. They were lazy? Maybe on this issue, but certainly not normally. The PTC Council spends many hours ruminating over issues of much less importance than our city’s future financial viability. I believe the problem is that the three PTC Council majority members who voted for the pay raise just need to learn to work smarter. That is, spend enough time on important matters to make well-grounded decisions, and get the staff to do less important work. Or, if the council has to make snap decisions without proper analysis or review, make them in areas of low importance.
4. Were they even wrong? Yes, according to common sense, and generally by expectations of the State Auditor’s office, GASB, the AICPA, COSO, and other official organizations responsible for financial governance.
Under Generally Accepted Accounting Principles, those charged with decision-making responsibility (such as the PTC Council) are required to exercise reasonable care and judgment in managing financial matters of the governmental entity.
By these measures (common sense and accounting directives) the three members of our PTC Council WERE wrong in failing to exercise reasonable judgment when they haphazardly approved large pay increases without appropriate basis and without having identified how the expenditure would be paid for (knowing at the time of the vote that the raises exceeded amounts in the official budget).
Said directly, I believe that the PTC Council majority was derelict in its fiduciary obligations when they rashly approved pay increases through an unnecessarily rushed official action.
So what can be done now? Unfortunately, even if the raises were reversed now, which is unlikely (see “2” Ego above), the damage to our city’s reputation has already been done.
After all, the major criticism is not in the decision to raise pay without a plan, but in the PROCESS that was so lacking of good financial practices. What resident, or company would feel comfortable moving to a city with such shoddy management and oversight?
Perhaps the best we can hope for is that the budget damage from the pay increase will be limited by a new PTC Council majority that will do something the old majority did not do earlier. Namely, exercise reasonable care and judgment (with some degree of credible analysis), to determine how we will pay for the additional $910,425 in annual pay cost, recently approved by the PTC Council majority.
Also, since we are now paying top dollar salaries and benefits, perhaps we can attract senior PTC staff that will be able to provide basic information to the public, and council, that will allow important decisions to be made transparently and confidently. Peachtree City deserves better!
One can only hope – at least until the next PTC Council election.
Scott Austensen
Peachtree City, Ga.
