Compensation: Home loan for Oakley CA City Manager

Last month brought the story of a county manager in Oregon who was receiving a home loan along with other good benefits.

This month, its a city manager in California whose home loan has made the news three times this week.

Oakley, California (population 35,432): Oakley Mayor Jim Frazier apologized this week for a lucrative housing benefit the city recently gave its top administrator that sparked a public backlash, promising to rescind the deal. Frazier began Tuesday’s City Council meeting by reading a statement in which he acknowledged that he and the other council members who approved the lucrative home equity share agreement with City Manager Bryan Montgomery had made a mistake.

The deal involved forgiving the balance on the home loan the city had given Montgomery in 2005, which would have allowed him to go from being $196,500 underwater on his mortgage to being guaranteed at least $170,000 in equity, amounting to a $366,500 windfall. Frazier, who recently announced that he is running for a state Assembly seat, called for the council to rescind the agreement at its next meeting. Council members cannot act on matters that do not appear on the agenda. Frazier noted that he and several of his colleagues had offered Montgomery the form of housing assistance as an incentive for him to stay, and pointed out that the city manager has been handling the responsibilities of three department heads whose jobs fell victim to budget cuts.

Councilman Randy Pope cast the dissenting vote in last month’s 4-1 decision to give Montgomery and the city equal ownership in Montgomery’s Brooks Court home. The agreement also guaranteed the city manager at least $170,000 from the sale of the property. At that time, the City Council voided its previous agreement with Montgomery, forgiving the $508,000 remaining on a 30-year, 2.5 percent interest home loan the city had issued him.

News of that action angered a number of residents, who roundly criticized what they considered the council’s largesse at taxpayers’ expense. And some who showed up Tuesday to protest were not appeased by Frazier’s mea culpa. Eve Diamond, one of two residents who addressed the council directly, expressed shock that the council canceled Montgomery’s debt at a time when many other residents have lost their homes to foreclosure. Jon LaBarge echoed her doubts about the sincerity of the council and Montgomery, who had announced earlier in the day that the public backlash had prompted him to withdraw his acceptance of the new agreement.

Montgomery sent a letter to council members before the meeting requesting that they nullify the home equity share agreement they had approved as part of his performance evaluation. He proposed returning to the previous arrangement, which had been offered to entice him to move from Nevada to the Bay Area. Montgomery had said previously that his home’s value has dropped so much that at this point he could not recover what he has already invested in the property. The house he bought for $685,000 is now valued by Contra Costa County at $311,500. In his letter, he emphasized that the home equity share agreement is legal and well-intentioned, and thanked council members for their “significant and courageous action.” But Montgomery also indicated that because the deal had been cast in the “most negative light possible,” it triggered a backlash.

Since the deal was reported, residents have expressed their outrage in online discussions, including a Facebook page.

Oakley loaned Montgomery $620,000 in 2005 when he came to the city, $70,000 of which was immediately repaid as part of a bridge loan. The city also had deferred Montgomery’s mortgage payments since April 1, 2009, and had waived the interest during that period.

Montgomery, who earns an annual base salary of $190,770, indicated in his letter that on Tuesday he paid the past three months of his mortgage and from now on will have the amount automatically deducted from his paycheck. Montgomery declined to respond to an email from this newspaper asking whether he also would be making the other payments that had been deferred since 2009, saying he would no longer discuss the issue.

But the matter isn’t over, according to Frazier, who in his announcement Tuesday said he would be asking the rest of the council to remedy other aspects of the situation. Frazier wants council members to:

  • Bring in an independent adviser to work with Montgomery on restructuring the kind of housing assistance he receives.
  • Discuss this issue in public from now on.
  • Ask Montgomery to apply to a commercial lender for the approximately $508,000 he still owes the city.And, if the city manager can’t get a loan for the full amount, Frazier proposed renegotiating the terms of his original agreement with an outside party. He asked the council in this case to:
  • Change the 2.5 percent interest rate to one in keeping with the current market.
  • Require Montgomery immediately to pay the city interest on the 27 months of deferred mortgage payments he received.
  • Prohibit all future deferrals of mortgage payments.
  • Come up with a plan for recovering a loss on the sale of Montgomery’s home if he leaves before 2020.

Read more at the Silicon Valley Mercury News.

The Oakley City Council had given its city manager what amounts to a $366,500 bonus as part of a sweetheart deal to rescue him from an underwater mortgage. The generous taxpayer-funded payoff far exceeds loan restructuring terms banks would offer borrowers who owe more than their homes are worth. Under the council’s agreement with Bryan Montgomery, manager of the community of 35,000 people, the city forgave a home loan it had issued him and received in exchange a far-less-valuable partial ownership of his property. It was the third time Montgomery received mortgage assistance from the city. When he took the job in 2005, the city issued the loan at an exceptionally favorable interest rate. Then, for the past 2 1/2 years, the City Council had allowed Montgomery to defer monthly payments without accruing additional interest.

The City Council agreed to the latest deal without consulting an outside adviser and after negotiating directly with Montgomery in closed session. That private gathering violated the state open-meeting law because a council majority cannot legally negotiate compensation in private with an employee. Michael Martello, a government attorney for 30 years and an expert on California conflict-of-interest law, says Montgomery’s dual role negotiating with the council a major change to his home loan, benefitting him at the expense of the taxpayers he was supposed to be protecting, raises concerns of ethical and legal conflicts of interest. Finally, the huge magnitude of the bonus, equal to nearly two years of Montgomery’s salary, appears to make it an illegal gift of public funds, Martello says. Oakley City Attorney Derek Cole, who was present during the closed-door discussions, denies laws were broken.

The public notice of the accord included a misleading report from Mayor Jim Frazier that was ghost-written by Montgomery. The report was prepared for the Sept. 27 public approval of the deal, which had already been bargained behind closed doors. The analysis contains no disclosure of the taxpayer cost. Instead, the Frazier/Montgomery memo claims “the fiscal impact of the equity share arrangement is unknown and subject to the market at the time the property is sold.” The important accounting question in evaluating the cost of the deal is not what the house will sell for sometime in the future; the issue is what the house is worth today — and that can be easily determined through an appraisal.

It’s been six years since Montgomery, 42, was recruited from Nevada and received the mortgage to help him ease into the pricier California real estate market. He bought his 3,361-square-foot Brooks Court abode for $685,000 with aid of a $550,000 mortgage from the city. The loan, at 2.5 percent annual interest, was to be paid off in 30 years. Montgomery last month owed the city $508,000 on the loan. Meanwhile, according to his county records, the sagging real estate market had depressed the home’s value to $311,500. In other words, he was underwater by $196,500.

Under the new deal, the council forgave the loan balance. In exchange, the city took 50 percent ownership of the house. But Montgomery is guaranteed at least $170,000 from a future sale, even if his half of the house is worth less. Thus, Montgomery instantly went from $196,500 underwater to owning $170,000 of equity, a net gain of $366,500 — all at taxpayer expense.

Once reached, the deal was placed on the council’s public consent calendar, the section of the agenda for routine items. The item piqued the curiosity of reporter Rowena Coetsee, whose story appeared Oct. 1.

Councilman Randy Pope objected to the Montgomery deal. Pope’s four council colleagues disagreed. Frazier insists “it is not costing the city” because the property has not been sold. By that logic, retirement accounts haven’t really lost money if we haven’t cashed them out. And homeowners with loans greater than the value of their houses aren’t underwater until they actually sell their properties.

Frazier claims the council acted because it didn’t want to lose Montgomery. But the deal contains no incentive for him to stay. For example, the council could have phased in a loan reduction, rewarding Montgomery each year he remained. Instead, this deal guarantees him cash if he sells the house and, hence, makes it easier for him to move.

Frazier also says the deal protects the city because Montgomery could have walked away as many underwater homeowners have done. But if Montgomery had defaulted, the city would have owned the entire house rather than the half it now owns. Second, under the city manager’s contract, defaulting would have been grounds for termination. Third, city managers who want to preserve their careers don’t want defaults or foreclosures on their records.

Loan modifications are usually for people struggling to make payments. On his salary, Montgomery should have had no problem covering his $2,173-a-month obligation. Nevertheless, the city had let him skip payments since April 2009, more than offsetting for him the furlough pay cut that other city employees had to absorb. Even with the pay cut, Montgomery earns about $200,000 a year in salary, deferred compensation and vehicle allowance. On top of that, the city is paying about $34,000 a year toward his pension plan. Read more at the Contra Costa Times.

Salaries and pensions in California

‘Unprecedented’ market for city managers could drive up salaries, officials say

While the employment market is tough for most, potential city managers may find opportunity around several corners of the Los Angeles area. With about a dozen Southern California cities potentially seeking new city managers this fall, some local officials are worried demand could drive up the price for talent to run their cities.

Azusa Councilman Keith Hanks, whose City Manager Fran Delach is retired but working part-time until the city hires a replacement, said it may take more money to bring in experience than it did to pay for Delach. Hanks said, in the wake of the Bell pay scandal, residents are often critical of city staff pay, which may put cities in a precarious position if they are forced to raise salaries and benefits to attract a new city manager.

At least 11 cities could be looking for new city managers in 2011 and early 2012, including Azusa, Arcadia, Bell, Bellflower, Del Mar, El Cajon, Glendale, Irwindale, Los Altos, Montebello and Tustin. Also, Monterey Park’s city manager’s contract ends in November, though the city doesn’t have to seek a replacement at that time.

Despite the concerns in Azusa, city council members in other cities don’t think the plethora of job openings will raise manager salaries.

Roger Chandler, councilman in Arcadia whose city manager Don Penman is retiring in October after three years as the top administrator, said the opportunity to work for certain cities will outweigh the competitive market. The political environment of a city and the complexity of the job will favor some cities and won’t force them to offer more competitive benefits packages, Chandler said. In addition, the bad economy has changed the market for all job seekers, even city managers. Potential city managers take more than salary into consideration when deciding where to work, he added.

City managers generally earn between $180,000 and $215,000 in base salary in the San Gabriel Valley. Penman earns an annual salary of $214,032 plus $4,000 in deferred compensation. He also receives $14,076 a year in medical benefits, four weeks of vacation, two weeks of management leave, and use of a car and Blackberry. Before retiring, Delach had similar benefits and earned $212,483 in 2010. Those compensation packages mirror those in other cities across California. In the high desert town of Apple Valley, the city manager reported total earnings of $223,008 in 2009, according to the League of Cities survey. In Camarillo, the 2009 earnings were $258,098 and they were $260,837 in San Luis Obispo, according to the same survey.

Chandler said the size of a city and the complexity of the job – including if the city has its own police and fire departments, contracts services or not – are better determinants of salary. But even small cities who contract a lot of city services have city managers who make over $200,000. Duarte’s City Manager Darrell George earned $215,440 in 2009 in a city of about 22,000 people, according to the League of Cities survey. Azusa has about 50,000 people and Arcadia nearly 60,000.

Those numbers show that geography may play the most prominent role in determining executive salaries in cities, said California City Management Foundation Executive Director Bill Garrett. A former city manager himself of El Cajon and Corona, Garrett has about 30 years of experience in the field. Most cities decide how much to pay their top executive by looking at what other cities are doing, which is why a lot of competition could, theoretically, shake up the system, Garrett said. At the same time, cities have options in trying to counter the potential for increasing costs by hiring internally, he said. An assistant city manager would view a job as a city manager as a promotion and, probably, wouldn’t demand a salary higher than their predecessor, Garrett said. If a city wants to hire someone with more than five years experience, they may get into a situation where they are battling with other cities and the applicant could use it to their advantage, he said. Either way, there isn’t much science behind compensation for city managers, Garrett said. In the end, cities will do what they need or want to do to get the person they really want for the job, he said. Read more at the San Gabriel Valley Tribune.

New pension data show 98 Sonoma County retirees receive more than $100K annually

Ninety-eight retirees in the Sonoma County pension system get more than $100,000 in annual pension payments, including three who receive more than $200,000, according to records released Wednesday by the retirement association.

The top pensioner is Rod Dole, the recently retired county auditor-controller-treasurer-tax collector. He gets $254,625 annually, or more than $21,000 per month. Dole’s 35 years with the county included 26 years as the chief financial officer.

Second is retired Sheriff Bill Cogbill, who receives $239,311, or nearly $20,000 per month. Cogbill served two terms in elected office and worked for the county for more than 32 years.

Other retirees in the top five are former county administrator Mike Chrystal, who receives $209,862 annually; former county clerk Eeve Lewis, $182,102; and former county public works director David Knight, $182,024.

The pension figures, which were made public for the first time as a result of a lawsuit filed by The Press Democrat, show what some say are the ballooning payments of a system that taxpayers are propping up at the expense of other public services. Stock market losses plus salary and benefit increases in the past decade have forced the county, like many other local and state governments, to pour millions more into its retirement fund to cover pension obligations. Unfunded obligations now total $249 million, according to actuarial reports prepared for the county retirement association.

The higher contributions by taxpayers include the county’s sale last year of about $290 million in bonds, a move that doubled the county’s pension debt. The newly released records, while showing that the majority of county retirees earn pensions of $30,000 or less, are likely to add still more fuel to the fire.

The board of the Sonoma County Employees’ Retirement Association reversed years of past practice by releasing the list of payments made to 3,916 retired county and special-district workers and their beneficiaries. The disclosure was ordered by a Sonoma County judge and upheld by a state appellate court after The Press Democrat sued last year for access to the records. The data covers monthly pension payments through August. It shows some of the top public retirees represented by SCERA make more in retirement than they did while working.

That list includes both Dole and Cogbill, whose 2010 county earnings, including salary, car and cash allowances, totalled $221,093 and $231,366, respectively. It also includes Chrystal, a 31-year county employee who retired in 2004 with a salary of about $180,000. Dole, 59, and Cogbill, 58, did not return calls for comment Wednesday. Chrystal, 69, who along with Dole served on the county retirement board, declined to comment.

The records also show a wide disparity among what retirees earn. The top pension was more than 11 times the median annual pension, which is $22,552, and nearly nine times the average of $29,761. About 64 percent of the retirees earn below the average pension, while about 36 percent earn more. The lowest annual payment was about $124 annually.

The records include county workers who have worked more than 30 years down to those who have worked five years, the minimum term to be eligible for retirement benefits. The records appear to confirm a long-suspected trend: that career employees who’ve retired since benefit formulas were enhanced beginning seven years ago are helping fuel a rapid escalation in pension-system financial burdens. The average pension for retirees in 2009, according to SCERA, was $42,000, 69 percent more than the average for all retirees in the system.

Those at the top of county government are taking home the highest payments, receiving far more than their equally tenured predecessors. For example, Cogbill’s annual pension is nearly 70 percent larger than the pension earned by his predecessor, former Sheriff Jim Piccinini, who served five years in office and 27 years total with the county before retiring in 2003. Of the top 10 county pensioners, all are elected or appointed department heads, with the exception of Linda Suvoy, the former assistant sheriff and Larry Scoufos, the former assistant district attorney.

The total payout to the 98 retirees who receive pensions of $100,000 or more is about $12.6 million. That means 2.5 percent of the retirees are collecting 10.8 percent of the county’s total annual pension payments of $116.5 million.

A more in-depth analysis was not immediately possible because the initial release of records did not include retirement dates, job titles, years of service or employer, information necessary to accurately evaluate trends in pension payouts. Courts in other jurisdictions have determined this to be public information and other county pension boards have released it.

In a follow-up response late Wednesday, SCERA Administrator Gary Bei provided the dates of retirement for former employees. He referred the newspaper to decades of association monthly meeting agendas and minutes to determine employer information for each retiree.

Carol Bauer, leader of a group of former county workers who receive benefits from SCERA, blasted the disclosure of individual pension records Wednesday as a violation of privacy. Publishing the pension figures “sets retirees up as a target,” said Bauer, president of the Sonoma County Association of Retired Employees. She was also skeptical that it would help accurately frame or hasten any overhaul of the pension system.

Sonoma County’s retirement spending rose more than 250 percent over the past decade. Including additional payments on county pension debt, that 10-year rise is almost 340 percent. By another measure, the contribution rate the county pays into its retirement system as a percentage of payroll tripled from 2000 to 2010, to 30 percent, or about $92 million including pension debt. That means for every dollar the county pays toward salaries, it now pays an additional 30 cents into its retirement system and toward pension debt to support the current level of benefits.

Supervisors are set to return to the issue in early November. A report due then is expected to offer suggestions on ways to overhaul the retirement system and reduce county costs. Those proposals will feed into contract negotiations next year, a county spokesman said. Read more at The Press Democrat.

$654,000 loan, housing allowance, and three-year severance package part of Oregon county administrator’s compensation

Jackson County, Oregon (population 203,206): Jackson County taxpayers footed the bill for a $654,000 loan to County Administrator Danny Jordan for his east Medford house, granted as part of his salary package negotiated in 2009. The loan was described in a trust deed obtained by the Mail Tribune earlier this month.

Details of Jackson County Administrator Danny Jordan’s 2009 employment contract follow. His three-year contract has been granted one-year automatic extensions each year and now continues through Jan. 30, 2014.

  • Base salary: $155,043 (raised to $170,060 later that year)
  • Monthly housing allowance: $1,000
  • Monthly automobile allowance: $649
  • Monthly communications allowance (cellphone, Internet): $300, with $20 increases every other year. An additional $300 is provided every third year to replace equipment
  • Severance package: An amount equal to three years’ salary and benefits; compensation, salary and benefits owed for the remainder of the contract period; continued health insurance, car allowance and other benefits for three years
  • Loan: The administrator can have only one outstanding loan at a time with the county, but is able to have up to three separate loans during the contract period

County officials maintain the loan is legal, was properly noticed and is part of a compensation package needed to keep a highly valued employee. But they made little attempt to let the public know about it. The agenda item describing the commissioners’ vote on the loan for their March 26, 2009, meeting did not mention Jordan’s name. The item read, “Order Authorizing the Chair of the Jackson County Board of Commissioners to execute an agreement and lender’s escrow instructions with employee, #66-09.” The number refers to the board order. County Commissioner John Rachor, who was elected to the board in 2010, said the notice reflects a lack of transparency in government that he would like to improve.

Jordan bought the 2,734-square-foot, two-story house in 2005 for $545,000 under a different loan, but he added upgrades such as a pool and spa that increased its value. The county loan amount was based on the dollar value of the property from an appraisal requested by Jordan and conducted by Lang V. Nguyen Appraisal Management and Consulting Inc. in 2009. County Assessor’s Office estimates of the real market value show the property peaked in 2007 at $650,060, but by 2009 had dropped to $472,060. The most recent information from the Assessor’s Office lists the real market value of the property at $369,670, or 56.5 percent of the amount the county loaned to Jordan.

The 30-year loan was financed at a 3.46 percent interest rate, the federal interest rate in 2009. Average home loan rates at the time were 5 percent. The difference shaved nearly $600 off Jordan’s monthly payment, which is $2,922.

The balance remaining on the loan is $621,000. Jordan also receives a monthly $1,000 housing allowance as part of his employment contract.

The loan is described in the county’s Comprehensive Annual Financial Report as a receivable on the Statement of Net Assets under Note 16, “related party.” (For a copy of the report, go to It is not until pages later, when the notes are described in more detail, that the loan and interest rate are outlined.

In July 2009, four months after the loan was approved, the commissioners gave Jordan a 10 percent raise, bringing his salary to $170,060.

Commissioner C.W. Smith, who has been on the board since 2004, said the county approved Jordan’s loan to increase his compensation package during a time when he was being courted by other organizations. When asked about the board order’s vague wording, Smith said the county doesn’t like to broadcast an employee’s salary compensation. Smith said the loan wasn’t a secret, but acknowledged it would generate heat from the public no matter how it was handled.

The county routinely invests millions of dollars, gathering interest on its investments until the money needs to be spent. Unlike those investments, the money from Jordan’s loan can’t be tapped into as readily.

Cara Fischer, deputy director of the Association of Oregon Counties, said executive compensation that includes house loans is a fairly common practice in the corporate world, but not necessarily in local governments. Fischer didn’t rule out the possibility the practice could become more common in Oregon, particularly if executive salaries fall below those in other states. Read more at the Mail Tribune.