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Auditor has ‘concerns’ with fire district buyouts

5:45 am June 20th, 2014

By Pat Jenkins
The Dispatch
Graham Fire and Rescue isn’t planning any more early retirements of personnel after its contract buyouts of three administrators, including a former fire chief, were questioned by the state auditor.
In 2013, the fire district’s commissioners approved buyouts in the amounts of $313,456 for chief Reggie Romines, $153,331 for district secretary Kathy Hale, and $125,577 for deputy chief Gary Franz. All three have since retired.
District officials say the proper steps were taken in negotiating and paying the retirement incentives, which they described as efforts to cut and costs and help the district meet budgetary demands for its fire protection and emergency medical services.
But “concerns with the process” were noted by the state auditor’s office, which regularly reviews the financial and governmental functions of local governments and taxing districts such as fire districts. According to auditor officials::
The contract buyout discussions were completed outside the public process, during executive sessions of the commissioners. Minutes of the meetings didn’t document the amounts of buyouts that the commissioners approved. Only the district savings m future payroll and benefit costs were detailed.
The district secretary at the time calculated the buyout amounts for all three positions, including her own. There was no evidence of an independent review.
The calculations were inconsistent, in that the contracts for the former chief and former secretary had 30 and 17 months remaining, respectively. The buyout agreements stated half of their remaining contracted salaries and benefits would be paid upon retirement. The payouts incorrectly included $71,502 based on employer costs such as FICA, state Labor and Industries insurance, retirement contributions, disability insurance and medical insurance, which are paid by an employer and not by the employee. The calculation also iacluded unearned vacation and sick-leave benefits for the former chief and secretary in the amounts of $39,964 and $16,051, respectively. They could earn that money only if they fulfilled their contracts. In addition, the payout for the secretary overpaid her by $26,391 for one year of medical and dental coverage for her and her spouse.
The auditor’s office summarized its comments by recommending that the district strengthen its internal controls, subject contract buyouts to independent reviews, and approve all expenditures in open public meetings.
In a management letter from audit manager Tammy Bigelow to the fire commissioners on May 20, the auditor’s office said it “will review the status of these matters during our next audit.”
Fire chief Ryan Baskett, who was appointed to replace Romines after his retirement, said the district will follow the auditor’s recommendations and takes them “seriously.” But he noted there were no findings in the audit of illegal actions, and he said no one in the district “intentionally did anything wrong or questionable.” Instead, the district was doing what it thought was best for maintaining its level of service for the public, he said.
“These were one-time cost-saving measures” that were a better alternative than laying off firefighters, Baskett said. He added there are “no plans to offer retirement incentives in the future.”
In its audit of the period of Jan. 1, 2011 through Dec. 31, 2012, the auditor’s office approved all other aspects of the district’s operations.
Graham Fire and Rescue, hoping to hire more firefighters and paramedics to keep up with rising demand for emergency services, will ask voters in the primary election this August to approve an $11 million maintenance and operations levy.
The four-year levy would cost taxpayers in the fire district $2.75 million per year. If it’s approved, the district would add 16 additional firefighters and paramedics, allowing the Thrift station to provide 24-hour coverage to the east side of the district, among other improved service, district officials said. .
Fire districts depend on property taxes for funding and can only increase their tax collection with voters’ approval. Graham Fire has experienced a decrease of more than 20 percent in assessed valuation of property since 2008. At the same time, calls for service have increased 14 percent and are expected to keep rising 3 to 6 per cent per year. Last year’s calls totaled 5,644, of which 70 percent were medical emergencies. More than 5,900 calls are expected this year, according to district officials.
The district covers an area of 70 square-miles that has a population of 61,000.
District officials have attempted to avoid layoffs and reductions in service by not replacing personnel who left, reorganizing the administration of the department to put more people on the streets, cutting costs, obtaining employee concessions, and drawing financial reserves down to the state auditor-recommended minimum, Baskett said.

Focus of buyouts was on maintaining fire service

Graham Fire and Rescue chief Ryan Baskett, writing on behalf of the fire district, issued the following statement on a state audit’s criticism of the district’s handling of retirement incentives:
“Graham Fire and Rescue did receive a management letter from the state auditor’s office in regards to the way the district handled the retirement incentives offered to the top three administrators in 2013. We would like to note that there were no actual findings, nothing illegal and no retirement salary spikes discovered during the review. The letter indicates the auditor’s office disagrees with the methodology and process used to provide the buyouts.
“The district does not take this letter lightly and has assured the auditor’s office we will follow the recommendations outlined in their letter going forward.
“However, we do disagree in principle on how best to manage employee cost reductions. The district has seen a $2.5 million reduction in revenue since 2008 and has made significant cuts without impacting citizen response. At the end of 2012, the organization was faced with more tough decisions in an effort to match expenditures with decreasing revenues. Buying out long-term employees and reorganizing management was just another effort to reduce operational cost without affecting citizen service.
“The makeup of our employees is fairly young and we have very few at retirement age. None of the three individuals who retired had planned on retiring before the end of their agreed contracts. Each took a long-term decrease to their retirement benefits by leaving early, one as much as a thousand dollars per month for the rest of his life, and another is not eligible to collect retirement for another five years.
“The auditor’s office is tasked with looking at the numbers associated with the cost of running the operation, not the actual organizational impacts. Their belief is it would have been best to leave the employees in place through the term of their contracts and reduce employee cost by laying off from the bottom. This does not take into consideration the impact to the citizens and the service being provided, as it would amount to twice as many firefighters and firefighter/paramedics to cover the same amount of salary and associated unemployment cost. The fact is, eliminating the three top-end positions from our overhead reduced costs by around a half a million dollars annually and paid for five to six firefighters and firefighter/paramedics without impacting service.
“Even with all the cuts and reductions in personnel, operational costs were still three quarters of a million dollars over budget heading into 2014. In an effort to balance the budget, the administration was forced to hand out nine layoff notices in September of last year, not funding those positions starting Jan. 1 of 2014. A federal grant was applied for in an effort to keep them and was not received. At that time, the entire organization agreed to take a 5 percent reduction in salaries and benefits to maintain all employees and keep the current level of service for the citizens.
“In regards to the specific comments referenced in the auditor’s office’s letter, they disagreed with the district taking the total employee cost associated with the remainder of the personal services contract and splitting it in half with the employee. They believe because we took the total cost of the employee through the remainder of the contract, we inadvertently included unearned benefits, associated taxes and employer cost. However, because we tried to come up with a fair, legitimate formula, it was scrutinized more thoroughly. The employees thought they were doing the right thing at the time.
“The auditor’s office did not approve of the negotiations taking place in executive session. We look at and discuss contracts in executive session regularly under RCW 42.30.140. The issue was not with discussing the contracts, it was with the Board (of Commissioners) returning to the public meeting and approving the contracts by stating how much the district was going to save and not mentioning the total contract buyout cost. The recommendation is to approve all contracts by stating the cost of the contract to the district.
“The auditor’s office did not agree with the district secretary calculating the buyouts, including her own, without a third-party review. We believe the negotiated contracts were discussed by phone with the district’s attorney and the auditor’s office. However, we could not locate and provide written documentation to support these communications. The district will make sure to obtain written documentation in the future on all legal consultations.
“The district will not seek reimbursement, as nothing illegal took place and we have signed contracts with the employees for the amount agreed upon and paid to the retirees.
“I was not personally involved in the retirement incentive buyout process, but do not believe anyone intentionally did anything questionable or wrong. This is a great organization that has been faced with a 20 percent decline in revenue and continued increase in call volume. We have attempted to put the citizen service level as our main goal, but we have very few options left before we truly begin to decrease service level and impact coverage.
“These were one-time cost-saving measures, and Graham Fire and Rescue has no plans to offer retirement incentives in the future.”

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