TO:
Honorable Mayor and Members of the City Council
THROUGH:
Mark Danaj, City Manager
FROM:
Quinn Barrow, City Attorney
Bruce Moe, Finance Director
SUBJECT:Title
Adoption of Council Policy Regarding Management Employment Agreements; Temporary Short-Term Home Loan for Assistant City Manager (City Attorney Barrow/Finance Director Moe).
ADOPT; APPROVE; APPROPRIATE
Line
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RECOMMENDATION:
Staff recommends that the City Council: a) adopt Resolution No. 15-0064 adopting the Executive Management Employment Agreement Policy, b) approve a temporary short-term home loan for the Assistant City Manager in an amount not to exceed $2.3 million, c) appropriate $2.3 million from the General Fund, and d) authorize the City Manager to execute all documents associated with the loan, including but not limited to the promissory note, first trust deed and escrow instructions.
FISCAL IMPLICATIONS:
There are no fiscal implications associated with the adoption of the Executive Management Employment Agreement Policy.
With regard to the recommended short-term home loan, the loan is, at a minimum, cost-neutral for the City in that the interest rate charged is commensurate with the yield on the City’s portfolio for short term investments plus an additional 0.5% (the loan has a maximum term of three years).
The funds to provide this short-term loan will be taken from the General Fund Economic Uncertainty Reserve (EUR) on a temporary basis. As the loan is repaid, the funds will replenish the EUR. The loan has a one-year term with two one-year options, thus the maximum possible term is three years. As a result, the EUR will be replenished within three years (or sooner) of funding the temporary loan. Staff recommends using the EUR because this is a reserve in excess of the City Council’s Financial Policies reserves. The loan is expected to be fully repaid no later than the first half of 2019 (FY 2018-2019).
Finally, monthly borrower payments (principal and interest) during the maximum period of the loan are estimated at $260,000 until the balance is due and payable, thereby aiding in the replenishment of the reserve throughout the term. The balance of the loan will be repaid by the end of the three year period, if not earlier.
Terms of the loan are described further within this report.
BACKGROUND:
This report presents: 1) a draft policy on Executive Management Employment Agreements, and 2) a short-term home loan for the Assistant City Manager, which will be incorporated into an employment agreement if the policy is adopted.
The City Council directed the staff to draft a policy for Council consideration authorizing the City Manager to enter into employment agreements that would contain all the terms and conditions of employment for executive management positions.
Housing assistance for City Managers and other high-level municipal executives is common in communities with high costs of living. Providing this assistance aids in the recruitment and retention of highly-skilled executives. Further, it benefits the community by allowing those individuals who are heavily involved in the City’s daily operations and activities to be a part of the community, readily accessible and to have a vested interest in the operations of the municipality. In fact, the City of Manhattan Beach has provided housing assistance for its last three City Managers, as well as a former Police Chief.
A partial list of other cities that have provided some type of housing assistance include Santa Monica, Beverly Hills, Newport Beach, Laguna Niguel, Culver City, Sunnyvale, Menlo Park, Mountain View, Palo Alto and San Bruno - all high-cost of living areas.
DISCUSSION:
Executive Management Employment Agreements
The City Manager is the chief administrative officer of the City. As such, the City Manager is the appointing authority for all employees other than the City Attorney. The City Manager is responsible for attracting and hiring the very best candidates.
A best practice, utilized by numerous California cities, is to have employment contracts with key executive managers which provide all the terms and conditions of employment (see Attachment 2 - Management Employment Agreement template). Appendix A will list salaries and benefits authorized by the City Council. Further, an additional exhibit is typically attached to provide any additional special terms that are unique to a particular employee (e.g., rights afforded to peace officers by state law, home loans, etc.). The agreements define the terms and conditions of employment, provide certainty to both the City and the covered employees, provide security to employees, and reduce expenses and legal fees in the event of a separation. A key component is the provision that notice will be provided to the City and the employee in the event of non-renewal, resignation or termination. If the City Manager determines to terminate an employee without cause, the City will provide that employee with three to six months prior notice of the termination date. The amount of notice shall be in the City Manager’s discretion. In lieu of providing the required notice above, the City Manager in his discretion may pay the eligible Employee in the range of three to six months’ severance (salary and COBRA reimbursement payments). It is a good practice that if an employee is terminated without cause, the City Manager may opt to provide that employee with severance instead of the employee staying in the City’s employ for the notice period. Please see the draft policy shown as Exhibit A to Resolution No. 15-0064 (Attachment #1).
If the City Council adopts the policy, the City Manager will present to Executive Managers a proposed agreement, substantially in the template form attached (Attachment #2). The agreement includes the following provisions in addition to standard boilerplate language:
• Appointment date and term
• Employee duties and authority
• Employee obligations
• Salary and benefits at the time of execution of the contract
• Annual performance evaluations
• A provision that the City Manager may fix other terms and conditions of employment provided such terms and conditions are not inconsistent with or in conflict with the provisions of the Agreement or applicable law
• A provision that the employment is at will.
• Provisions addressing resignation, termination with cause, and termination without cause
• Notice provisions, including notice of non-renewal and termination
• Severance in lieu of notice
• Arbitration clause
• Appendix A listing general benefits authorized by the City Council
• Appendix B listing additional benefits, where applicable
Future adjustments to salary or benefits, if any, will be memorialized by amending the appendices.
As a perfect segue to the next subject, Appendix B can be used to contain provisions unique to a specific employee either: (a) required by law (e.g., rights afforded by the Peace Officer’s Bill of Rights); (b) within the parameters of the City Manager’s authority (e.g., reasonable relocation expenses); or (c) additional benefits provided by the Council on a case-by-case basis, such as short-term loans needed to attract or retain essential Executive Managers. As discussed below, staff recommends that the Council authorize a short-term loan for the Assistant City Manager. If the Council provides such authorization, Appendix B of her agreement will list the loan.
Short Term Home Loan
Assistant City Manager, Nadine Nader, was recruited from northern California in September 2014. Since her arrival, she and her family have leased a home in Manhattan Beach. In an effort to be more permanently situated within our community, she and her family would like to purchase a residence in the South Bay, and specifically Manhattan Beach if possible. As a result, the City Manager is recommending that the City Council approve a temporary, short-term home loan for Ms. Nader, which will become part of her employment contract with the City.
The terms of the loan are as follows:
• The maximum loan amount is $2.3 million.
• Up to 15% of the maximum loan amount ($2.3 million) may be used for improvements ($345,000).
• The loan will be fully secured by a first mortgage on the residence in favor of the City.
• The loan will be for a one-year term with two-one year options at the City Manager’s discretion. The City Manager will notify the City Council of any extensions granted under this loan. The loan has a maximum term of three years from the date of funding.
• The loan will bear an interest rate indexed to the State of California Local Agency Investment Fund (LAIF) plus .5%. The starting rate will be based upon the September 2015 rate of .32%, therefore the first year rate will be .82%. Subsequent years’ rates, if applicable, will be tied to future September quarter LAIF rates.
• The loan will be amortized over a thirty-year period.
• Loan payments will be made monthly in arrears, with both principal and interest.
• If the employee separates before the loan is repaid, and before the current term expires, the loan will become due and payable at the end of the current one-year term, or 6 months, whichever is greater.
• Employee shall be responsible for, and pay, all taxes imposed on the residence.
• Employee shall provide customary homeowners insurance for the full amount of the purchase price and the City named as an additional insured.
• The property selected by the buyer will be subject to an appraisal supporting the purchase price (including any improvements that may be funded). Clear title will also be required.
CONCLUSION:
Staff recommends that the City Council: a) adopt Resolution No. 15-0064 adopting the Executive Management Employment Agreement Policy, b) approve a temporary short-term home loan for the Assistant City Manager in an amount not to exceed $2.3 million, c) appropriate $2.3 million from the General Fund, and d) authorize the City Manager to execute all documents associated with the loan, including but not limited to the promissory note, first trust deed and escrow instructions.
Attachments:
1. Resolution No. 15-0064 (Management Employment Agreements Policy)
2. Management Employment Agreement Template
3. Draft Secured Promissory Note