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The Politics of Management: Paying More For Less

Most people who live in Ann Arbor don’t have the time or the inclination to get overly involved in the minutia of city government. People are busy spending their days getting done what they need to get done to get the bills paid. Politics isn’t a passion for many, and the thought of running for an elected office probably never crosses the minds of most folks. After all, there are about 10 million people in Michigan, but only about 1,500 mayors. There are just 40 Michigan state senators.  

I was at synagogue last Friday and overheard the spouse of a candidate for County Commissioner ask my partner why on earth I wanted to run for mayor. Good question. Why, indeed? Our roads are some of the worst in the entire state. The Stadium bridges are, literally, falling down. The budget is a constant source of heartburn to anyone with the time to read through the behemoth (a tip: you’ll get more information by studying the city’s audited financial statements). Who wants to work to clean up that kind of a mess? Me. Why? Because while there is a mess to clean up, I see that there is also incredible potential and opportunity to make Ann Arbor an even better place for all of us to call home. I am committed to living, working and raising a family here. What better reason to share my decades of management, marketing and finance experience, step up, and accept the challenge of public service? 

A police officer whom I spoke with recently made a point of telling me about the two surveys of staff morale that found our 750 city employees in desperate need of some serious pep talks, and maybe even a few anti-depressants. We have employees who feel under-appreciated, and are inclined to jump ship. They work under constant threat of layoff. Studies make clear that layoffs do not actually save money, because overall productivity decreases. The top performers who survive a layoff won’t necessarily feel obligated to soldier on. A 2000 study by Roderick Iverson and Jacqueline Pullman from the University of Melbourne, and a 2003 study by Sarah Moore, Leon Grunberg, and Edward Greenberg from the University of Colorado at Boulder, both confirmed that employees were far more likely to quit jobs in environments of repeated downsizing. The likelihood that an employee will quit actually increases the more layoffs he or she “survives,” the CU-Boulder study found.

The City Administrator Roger Fraser recently gave a presentation to Mayor and Council members in which he presented the following graph:

Layoffs

Between 2002 and 2010, Ann Arbor has reduced its work force through layoff, early retirement and attrition by about 30 people per year. This graph purports two facts.

First, that the overall reduction has resulted in $25 million dollars in “savings.”

The second fact is that the number of consultants (contracted services) and temps has remained “flat.”

No one on Council asked to have the terms “savings” and “flat” defined. Should they have? The City Administrator’s financial data should be presumed to be accurate. However, we have to remember that since 2003, Roger Fraser has inflated General Fund deficits in every budget. With the exception of 2009, when the actual numbers have come in, our General Fund has actually finished with modest surpluses. This is a very important fact that would give anyone with experience in budgeting and finance ample reason to question Mr. Fraser very closely when presented with financial data such as the data in the graph above.

How would one go about verifying Fraser’s data? The City files income tax returns just as you and I do. In those returns, are several bits of information that allow us to check Mr. Fraser’s work. 

Here’s a graph with information from the City’s income tax returns filed between 2000 and 2009:

 

Fiscal Year Number of FTE and Contract Employees Claimed Wages Claimed
2000 1,230 $49.6 million dollars
2001 # of employees not recorded on tax return $58.7 million dollars
2002 1,149 $55.9 million dollars
2003 1,102 $54.7 million dollars
2004 1,079 $54.2 million dollars
2005 1,128 $57.5 million dollars
2006 1,104 $60.3 million dollars
2007 1,069 $57.2 million dollars
2008 1,018 $55.3 million dollars
2009 1,029 $54.7 million dollars

You should, of course, have an immediate question: Where’s the purported $25 million dollar “savings” Mr. Fraser told Council has been realized by the “streamlining” of those 239 employees?  The next question is why the total number of employees declared to the IRS doesn’t match information presented to the public by Mayor Hieftje and Mr. Fraser. In December of 2009, Mr. Fraser, in a presentation to Council, told the group that as of December 2009 Ann Arbor employes 756 people.

According to the City’s IRS tax returns, Ann Arbor employs 201 fewer people than in 2000, but spending on wages has increased. In fact, in 2009 we paid about the same to employ 1,029 people as we did to employ 1,159 people in 2002.

We’re paying more for less. We’re getting less for more.

The City Administrator’s data raise many more questions than they answer, and the data are certainly not of the quality necessary to make informed decisions concerning closing projected budget gaps. Mayor and Council have a legal and fiduciary obligation to hold the City Administrator accountable in the performance of his job. Repeatedly presenting incomplete and contradicting financial data to bolster claims of savings that are suspect, at best, is cause for serious concern, close questioning and, potentially, some very frank discussions between Mayor, Council and the City Administrator.  

It is clear to me that, as any good manager knows, profitability is not achieved through a long-term strategy of layoffs. Why not?  Employee morale and productivity drop, as documented in many studies, including the two I referred to above. Over the last decade, Council members and Mayor have run for re-election based on their support of a fiscal strategy that encompassed the systematic decimation of Ann Arbor’s human capital—our police, firefighters, customer service workers, foresters, planners, even our dog catcher is gone. It’s clear from the IRS data that the cost of government has not been reduced by the layoffs, nor has there been any marked increase in the efficiency of city government; we’ve paid millions for consultants and contract workers to supplement the work of our remaining city staff.

It should be clear that further layoffs are not the answer to the fiscal problems facing our city. The answer is to reverse the damage done and rebuild our human capital.

The City’s department managers must be forced to cut out the junk food from the City’s fiscal diet. This means sharply reducing the amounts approved for contract labor and consultants. For instance, Ann Arbor employs both a landscape architect and a forester, yet Council recently approved several hundred thousand dollars worth of contracts for companies to do landscape architecture and forestry work for the City. Our City Attorney’s office has eight full-time attorneys (tip o’ the keyboard to Rick) on staff, yet that office has asked Council to approve close to $400,000 in contracts for outsourced legal work over the past 18 months. In 2009, Ann Arbor spent over $1 million dollars on consultants. 

There’s much more we can do to sort out the fiscal mess that has been created over the past half a dozen years.

The real work will start, and the real savings will be realized, when we reconfigure the City of Ann Arbor Employees’ Retirement System for future retirees—a crucial task put off for a decade, much like the reconstruction of the Stadium bridges, and a good part of the reason our city budget is crumbling, much like our streets.

So what’s it going to take to get our labor unions and non-unionized employees to buy into a complete restructuring of their retiree benefit programs? How are we going to get retirees to pay, for instance, 10 percent of their yearly $7 million dollar health insurance premiums, and to implement a change in benefits to those who retire before 65? How will we ask for an even larger contribution for health insurance premiums from early retired city employees who’re employed full-time elsewhere? How are we going to get employees to agree to accept a change to the age at which they may retire?

For starters, it’s going to new elected leadership at City Hall who is prepared to ask them to do it. 

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Short URL: http://www.a2politico.com/?p=3084

15 Comments for “The Politics of Management: Paying More For Less”

  1. [...] bureaucracy, now saving taxpayers over $15 million per year.” As A2Politico.com’s Margaret Wong points out, Hieftje reduced staff, but wages increased. “We’re paying more for less,” Wong reveals. [...]

  2. Well done! It’s about time someone looked at what has been passing for “information” on the finances in this city. It has been clear for quite some time that there have been some manipulation of the information presented to the public. One notices that there is frequently funding available for construction projects, but supporting our services has dropped to the bottom of the city’s list of items to fund. I see that AnnArbor.com followed your lead once again with a piece in which the city administrator admits that cutting the cost of staff is going to be difficult. Of course, it would have been nice had the reporter reminded Mr. Fraser and our Mayor that they have been claiming for years to have reduced the cost of city staff to the taxpayer without actually ever having done so.

  3. Thanks Pat for the great posting.

  4. The salaries paid to City Attorney Steve Postema as well as Roger Fraser are obscenely high and I would venture to say are either the highest paid in the state at their respective positions or close to it. Compare them to those in other communities.

    Budget cuts should begin with those two fatcats.

  5. I am a city retiree. Lived here since 72. Lived in the city. I worked for more than 2 decades and retired in my late 50′s with a penalty for. I am approaching SS. My annual pension is $24,000 and I have good, but not great, health care. Speaking only for myself, I would consider a small reduction in my pension with half of the total used to bolster the entire fund. I would expect that all others, present and future pension fund recipients, make similar sacrifices. I also support a restructuring of the pension funds to raise minimum vesting and progressive rate contributions from all employees.

    I also support a local income tax, that is fully supported by a reduction on property tax that placed in a lockbox. (apologies to Al Gore)

    I want to thank everyone for making Ann Arbor a place that values the real work of it’s public servants (elected officials not included). It was a personal pleasure to do things I thought were important for my friends and neighbors and their friends and neighbors. Yes, I did go to work at the city for the job security and benefits, but I also felt I was giving back because I did things that added value and safety to people’s lives. At one time, city hall was a great place to work, no matter what you did. Thee was a common goal by the vast majority of employees. Until about 20 years ago, we had administrators who understood what Ann Arbor was about and how the government should relate to it’s people. They fostered teamwork at all levels and worked to solve problems with local/regional ethics, standards and solutions as opposed to a strict hierarchical corporate structure based on the latest corporate management seminar. What I’m saying is that in the last 20 years, we’ve seen a rise in corporate style management in City Hall, everywhere, but that doesn’t make it right for Ann Arbor.

    Now the health care. … If only Democrats, here and in Washington, acted and worked like Progressives, things might be different and the health care that I have, thanks to you, would be available to everyone.

  6. I re-read my above post. Fraser said he’s NOW going to take 20 people instead of 13.

  7. The city charts showing the declining number of employees are the number of full time equivalent city employees with benefits. They do not include temporary employees. The IRS form 941 includes both employees with full benefits and temporary employees without benefits. The IRS form includes total employees for a particular pay period, regardless of whether the employee works full or part time. The two will never match. The only thing that can be compared is the trends.

    The city chart also appears to include budgeted employees. An employee is counted if the position is budgeted, even if that position is empty. I suspect that some of the decline in employees in the city chart is due to elimination of budgeted and unfilled positions. The IRS form counts only actual employees getting paid for a particular pay period.

    Based on the check register posted to the data catalog, the city does not appear to have many individual independent contractors. For those that do not know the jargon, if a person is an employee, the city must withhold taxes from the amount paid, including social security taxes. An independent contractor has no withholding. The city does pay temporary worker firms like manpower and does hire professional firms to perform services that could be performed by city employees. For example, the city recently hired JJR to facilitate public meetings on tree maintenance policies. The Virginia Park Tree group meeting on tree policy was handled by city employees.

  8. Good article, Pat. Seems to me Mayor Hieftje’s not the only one who needs to go.
    So, once we elect a new Mayor…how do we go about acquiring a new City Administrator?

  9. Pat,

    Your last statement: “For starters, it’s going to new elected leadership at City Hall who is prepared to ask them to do it.” Troubles me a little. I’m sure you realize how bad the relationship Fraser created with the workers in the past few years with his Fraser-Math.

    Simply asking has already been attempted. The Firefighters are still the ONLY group in the city to not only take a pay cut, but also increase their contributions to the retirement plan. Fraser then came back right after that and told them that instead of taking 13 people, that he’s not going to take 20 come July 1st.

    The city council can’t even agree to a LESSER pay cut, nor are they willing to make Fraser take a LESSER cut.

    The other union and non-union workers of this city just saw first hand how the city treated the firefighters after giving more back than they Mayor asked for.

    So how to you intend to simply ask the same question of the workers that has already been asked, especially after the city just showed how quickly they are willing to turn on the lower workers?

    Year of mis-trust and lies need to be repaired between management and labor before any more workers are willing to make ‘deals’ in this city.

    The city had a great opportunity to take what the FD offered and prove to the other city workers, union and non, just how much they appreciate a sacrafice. Instead, they spit in their faces by telling 7 more firefighters, “thanks for giving up your wages, now get ready to be unemployed.”

  10. I am looking at a city income tax form that tells yet another version of this story. I got the city’s Form 941 for 2009: Employer’s quarterly federal tax return, off the city’s new data catalog. It says:

    “Number of employees who received wages, tips or other compensation for the pay period including Dec. 12: 857.”

    This is actual people, not FTEs. Also, the IRS does not include independent contractors in “employees”.

    Pat, could you please provide a link to the form from which you got the above table? I don’t think the IRS ever deals with FTEs, only bodies. Also, the term “contract employees” is probably not from the form. After all, every employee has a contract, either oral or written. An “independent contractor” is not an employee at all.

    It seems that there is a significant difference between Roger Fraser’s statement that as of December 2009 Ann Arbor employs 756 people, and the quarterly return stating that the City had 857 employees for the pay period including December 12.

  11. Is this post saying what I think it’s saying? Our city has lost many fine employees under the pretense of saving $25 million dollars yet wages have not decreased substantially? Good Lord! Can you please tell me why we have city council members at all if they’ll sit back and question none of the information brought to them? Spend. Spend. Spend. Is that all they can do? Thank you for linking to the studies. Of course that’s what we’ve come to expect from you. I asked my husband what we’ll do for information on these kinds of important issues if you’re elected. His answer was perfect. He said we’ll have the A2Politico looking into these things as mayor! That suits me just fine.

  12. So are you saying you think that by taking on the employee health and pension monsters we’ll be able to pull the budget from its tailspin? I don’t think there’s enough fat in the pension and health systems to do that. On the other hand why did the mayor have a Blue Ribbon panel to look at the problem and then sit on the report for five years? It looks to me like we’re staring down the barrel of a cannon and it’s going to explode no matter what we do.

  13. Thank you! This is right on the money so to speak. Getting the information is key and making sure that the information is accurate is even more key. Not many on council right now who know how to do that, or want to take the time to do that. The presentation you linked to here was a total dog and pony show. You forgot to mention the slide that showed how much money U of M gives to the city so that your call for payments in lieu of property taxes could be addressed in public. U of M pays for water and sewer. They should. They need to pay more. You’re right to push this. Bless that police officer. More people need to know the results of Roger Fraser’s management style and the passivity of mayor and council in the face of it. More efficient government? I can tell you that’s an out and out fabrication. Keep up the good work, A2Pat.

  14. Thanks Rick.

  15. Pat -

    Nitpicking some grammar: ‘attorney’s'?

    Our City Attorney’s office has eight full-time attorney’s on staff, yet that office has asked Council to approve close to $400,000 in contracts for outsourced legal work over the past 18 months. In 2009, Ann Arbor spent over $1 million dollars on consultants.

    R-

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