Nearly a year-and-a-half ago we ran a story regarding a salary report suggesting that city and county executives can deceive the public to earn annual compensation packages upwards of $750,000 annually.

The author of the report, former Capitol Weekly owner Ken Mandler, was on the wrong end of shots fired from the public sector, those ripping the report.

Now, it appears that Mandler was on the right track.

Here’s the story, from April 2009. It’s quite interesting to read:

Some Public CEOs are slamming a recent salary report produced by the upstart Public Pay Institute that suggests city and county executives can deceive the public to garner annual compensation packages upwards of $750,000 annually.

The Public Pay Institute, a monthly online newsletter owned and operated by former Capitol Weekly owner Ken Mandler, focuses its first publication on former Elk Grove City Manager John Danielson.

The 30-page report appears to applaud Danielson, but also states clearly that he deceived the public to the tune of $4.5 million between 2001 and 2007 by negotiating relatively low base salaries and hiding in the fine print extra earnings – leave buybacks, medical benefits, incremental pay raises, and performance bonuses – and being able to negotiate it all by hiring a close friend as his personnel chief.

While local newspapers reported Danielson’s pay at $205,000 in 2003, Mandler said he was paid double that when benefits and pension were factored in.”Did you see how he was able to trick the Sacramento Bee into reporting such a low salary?” Mandler asked in a phone interview. “That was a pretty neat trick. I’m not saying what they’re doing is wrong. It’s great for them. They’re making the most of the system.” Danielson could not be contacted for comment, and the City of Elk Grove has not issued an official statement.

Other city offices throughout California, however, say Mandler’s report miscalculates and provides a gross misinterpretation of how Public CEOs are paid.

“We have no idea who came up with his numbers, but they’re not right,” said Roseville spokeswoman Megan MacPherson, representing Craig Robinson who ranks fifth on Mandler’s list of highest compensated city managers at nearly $675,000 a year.

The point of contention for most city managers is not the base pay in Mandler’s report; those numbers are easy to find and are public information. Mandler sent public information requests to every city in order to obtain those numbers.

Instead, it’s Mandler’s calculation of medical and pension benefits that baffles most Public CEOs. Mandler said he used one of three formulas. In an article he said will appear in his next newsletter, he offers this explanation:

“Let’s look at a typical Public CEO and do some “trust fund” calculations.  A typical Public CEO may retire at the top pay of $200,000/year after 30 years of work at the age of 57.  A typical pension at many California cities is 2.7% at 55 years old.  At this rate the annual pension would be $162,000/year (2.7% x 30 years = .81 x $200,000 = $162,000).

As indicated above, most, but not all, public pensions are inflation protected.  Therefore, to accurately determine the value of the 401(k) deposit needed to reach the same result, we would have to calculate the “real” rate of return.  Over the last 30 years, the “real” rate of return has been approximately 3%.  For example, inflation protected 10-year denoted treasuries have returned 3.02% annual during this 20 year period.  Therefore, the Public CEO newsletter utilizes a 3% rate of return for the Trust Fund methodology.  

The key question in valuing the public pension benefit comparably under the trust fund method is then this.  At 3% interest, how much does the employee have to deposit in a 401(k)/IRA to achieve an annual payout of $162,000?  The answer is $5.4 million (3% times $5.4 Million = $162,000).  The fund totals $5.4 million and the employee earned it over a 30 year career.  How much value was added each year of employment?  The answer is $180,000 ($5.4 million/30 years = $180,000).”

Public CEOs say his calculations are too general, and can’t be considered accurate for individual pension accounts. And, when you add in what some call a potentially libelous statement that Danielson colluded with a close friend he hired as his personnel chief to make sure he was highly compensated, the reaction is sharp.

California City Management Foundation executive director Bill Garrett called Mandler’s report “absurd” and said his organization will consider at its April meeting how to react to the Pay Institute report.

“My biggest problem with it is that he assumes a city manager’s pension if they retired this year, after all their years of service, and then plops it into their pay as if they’re making that much money this year..and that’s just absurd,” Garrett said.  

First, most municipal workers don’t consider their pension to be part of their annual salary. Pensions are based on years of public service, salary and other contributions. Every municipal employee – from the rank and file, to top executives – earn their pensions in similar fashion.

“My pension is calculated in a formula just like a maintenance workers is,” said Rancho Cucamonga City Manager Jack Lam. “I’ve been in public service for 38 years now. Pension is determined by how many employees work in the city, years of service, and contributions.”

Also, city managers in places that exploded in population during the housing boom were able to negotiate strong salaries and pay increases because property tax, retail sales tax and other city revenues were off the charts.

Now that times are tougher, even negotiated pay raises are being put on the back burner, said Indio City Manager Glenn Southard who is named in the Public Pay Institute report as California’s highest paid among cities with 50,000 or more residents.

The report says Southard makes $758,018 annually – $309,375 in base pay, $61,880 in leave benefits, $20,500 in deferred compensation, $53,058 in medical benefits, $305,104 in pension and $8,100 in other pay.

Southard said the report does not reflect his true earnings.

“The numbers don’t add up,” Southard said. “He says I make $53,000 for medical care. I get $1,200 a month. Does that add up to $53,000? Also, that’s not cash I receive.”

Southard says he’s enrolled in CalPERS, as are more than 90 percent of full-time municipal employees. However, he is also certain that Mandler’s estimate is erroneous.

“How does he know my personal pension formula? I don’t even have it completely figured out,” Southard said. “You can go by salary and years served, but there’s more to it then that.”

Lam also said Mandler’s estimated $58,000 in medical benefits far overstates his medical benefits as well. He said the city pays under $2,000 a month for his health insurance.

Mandler says his report is not meant to criticize Public CEOs, but to help them. He said his newsletter is targeted to Public CEOs that he hopes will spend a few hundred dollars a year to subscribe.

“My goal is to help lower-paid executives make more,” Mandler said.

He said he has studied public pay for years, and while city executives don’t like to consider pension and health care as their salary, it is compensation he says – making city and county managers among the wealthiest people in California.

“Big money is not in the private sector, it’s in public employment,” Mandler said. “City managers don’t want pension considered to be pay, but it is.”