TO

:

Mayor Jason Burnett and Members of the City Council and Citizens of Carmel by the Sea

FR:

Douglas J. Schmitz, City Administrator

DATE: 4 November 2014
RE:

THE MUNICIPAL ORGANIZATION---PAST, PRESENT, FUTURE

This report was requested by the Mayor and City Council in early October 2014, asking for a one month
overview of my impressions of the municipal organization. I want to state that there will be further
reports in the months ahead as I become more familiar with the personnel, policies, practices, budget,
equipment and projects of the agency. It is not the purpose ofthis review to cast personal aspersions on
person(s) or their management style(s); rather, the purpose is to show where the Council, the staff and
the community should focus in the months ahead to address the needs of the community and of the
organization.
I do want to acknowledge the ongoing service provided to the community by the dedicated employees
of this organization during the recent times. They continued to carry forth with their responsibilities and
duties to keep our operations ongoing. Thank you!
I will be asking Council tonight to consider eight (8) action items to begin to rebuild the organization and
to regain the trust of our citizenry.
For this initial report, I have broken it into four (4) categories: Personnel, Financial and Contracts,
Transparency and Communications and Projects.

PERSONNEL
The budget adopted in June 2014 lists 81.27 FTE. As of today, 16.23 positions or twenty percent (20%) of
those allotments are vacant or filled by temporary staff. We have a business with little "institutional
knowledge" and one that is only able to undertake the barest of tasks because we have, in sports
parlance, no "bench strength." As an example, with vacancies in Community Services, the Library
Director and Local History Librarian are the staff for all community and private events which require
permits. In October, the two librarians processed twenty-four (24) events, both private and public.
Permit processing for events involves discussions with applicants before they file; working with the
applicants to secure the necessary insurance to protect the City; coordinating with other departments;
making sure the noticing has been correctly done, or, in the case of City events, initiating the noticing
requirements; issuing the invoices; processing payments and issuing the final documents. Due to the
number of permits in October, the number of hours Janet and Ash lee spent on library matters was
minimal.

Thirty percent (30%) of the staff are involved in four grievance investigations as witnesses, alleged
perpetrators of questionable actions, or possible victims. A fifth investigation may soon commence. This

means that nearly one in three of our employees are being interviewed as part of the Municipal Code
specified process for grievances. Three of the investigations are nearing completion, one has recently
begun and the fifth is in the early internal investigative stage to determine if sufficient evidence exists to
proceed to a full inquiry.

Of the terminated employees, the City Attorney is in negotiations with the attorney for John Hanson.
The Council is to hold a Closed Session this evening on this matter. The Administrative Hearing for Leslie
Fenton was held in June but no decision was rendered by my predecessor. The attorneys involved in this
matter have verbally stipulated that I could be substituted in as the Hearing Officer and final decision
maker; however, the written stipulation remains unsigned as each attorney tweaks the language of the
document as it is circulated. I have read the June transcript of the hearing and reviewed all the evidence
but will not issue a decision until the stipulation is signed by all the parties. As with the Hanson case, this
matter is on the Council's Closed Session agenda for this evening.

Numerous dates have been proposed in November and December for the Perotti Administrative Hearing
which, if similar to the Fenton hearing, will last almost four days. However, the attorneys have been
unable to secure amongst themselves a definitive block of time for when that hearing can be scheduled.

We currently have no one performing Human Resources functions due to vacancies. Thus, we have no
HR expert to advise employees on benefits issues, retirement, personal counselling or employee
assistance plans, or to undertake recruitments for the sixteen-plus vacancies. We have no one sending
out reminders that employee evaluations are due (or late) or to schedule training. We have no in-house
person to assist outside counsel on labor negotiations. I have asked the City of Monterey to lend us an
employee from its HR Department to assist with the above matters and with recruitments for our vacant
positions until our Human Resources managerial position is filled. Monterey HR staff members have
been reviewing our needs and I expect a response this week.

I am asking the Council to approve proceeding with a rewrite and overhaul of the Personnel Code,
particularly Article IX, Disciplinary Action. The attorneys for Leslie Fenton raised an objection at her
appeal hearing to Jason Stilwell being the party initiating the process which lead to her termination and
then serving as the Hearing Officer. Even though best practices would suggest an independent hearing
officer not previously involved in the disciplinary process of an employee, there is no specific provision
in the code for such a substitution. Additionally, the Code is silent on what the process should be if an
employee has a grievance involving the City Administrator. The Personnel Ordinance was adopted in
1987. Best practices and case law have evolved over the past quarter century and it is time to update
and rewrite this part of the Municipal Code.

I have recommended to the Council, and it has acted, to eliminate the position of Director of
Administrative Services. For the near future, the Managers of Human Resources, Finance and IT will
report directly to the City Administrator.

The City Attorney and I are reviewing Whistleblower policies from other agencies and, if Council so
directs, will bring forth in the months ahead a draft policy applicable to Carmel by the Sea for Council,
staff and public review.

FINANCE AND CONTRACTS

Obviously, our internal systems did not work. Whether through force of personality, doing work "fast
and loose" or "details to follow," or intentional avoidance or ignorance of the City's policies and
practices, the safeguards failed. The City has no centralized system to monitor contracts including
contract costs or conditions.
I will soon begin setting up a contracts monitoring system so everyone can easily access information on
all of the City's contracts. This will involve reassigning an employee(s) to develop and oversee this task. I
have asked the City Treasurer, David Sandys, to assist the staff with this effort.

I am recommending to Council this evening the following actions:
That our auditor undertake a review of all City credit cards and the expenses associated with purchases
over the past 6-12 months. I do not know if there has been any misuse but such a review is just one
more step to assure the community, the Council and me that we take our fiduciary duties seriously and
that our expenses are appropriate. The preliminary estimate to undertake this examination is $3000$5000.
Questions have been raised by some in the community regarding the Deposit Fund. There are currently
101 accounts within the Fund. The Deposit Fund contains monies for which the City is the custodian. No
interest accrues to these deposits. Examples of accounts are: donations for specific uses such as park or
beach benches or public art and fees collected on behalf of other agencies such as fingerprinting monies
that are sent to the FBI and Department of Justice.
Because of the concerns expressed that the Deposit Fund accounts are a "slush fund" (as some have
referred to it), I have asked the auditor to undertake a review of the 101 accounts when the team is
here later this month and to provide me a report on their findings. This report will be shared with the
Council and the community.
Because our technological and financial hardware systems are obsolete, many types of information we
would like to have immediately available must be entered by hand. I would like the monthly warrants
list to not only enumerate the amount paid to a vendor for that month, but to also list the cumulative
amount paid to that vendor since the contract was entered into with the City. The City has

approximately ninety (90) contracts. Even though the information will need to be manually entered, I
have asked the staff to prepare information that will be distributed in the Council's monthly agenda
packet that lists the cumulative total expended per contract as well as the authorized contract limit. If,
after starting this effort, entering this data manually proves too time consuming, as an alternative, we
will focus on adding the cumulative details of the fifteen (15) largest contracts until the system is
overhauled and upgraded.
I am asking Council to authorize staff to seek proposals for outsourcing our payroll. Many private
companies and public entities now use the services of ADP or Paychex. I will be asking members of the
community to serve on a committee to evaluate the responses to our RFP once we have received
proposals.
I have asked our auditor, JJACPA, Inc., as part of its current work, to review our internal financial
systems---our checks and balances---to ascertain where we need to strengthen our protections and to
suggest improvements. Part of their review will include the adequacy of our Purchasing ordinance which
was last updated in 2003. Their report is due in December.

COMMUNICATIONS AND TRANSPARENCY
For some good news, changes over the past several months to the practices involving responses to
Public Records Act requests appear to be successful. Requests are being responded to in a timely
manner and without redactions. An exception are requests for the production of large amounts of
documents made from attorneys involved in litigation with the City. Due to the magnitude of the
requests, staff has asked for time extensions in these instances. There are also some requests which
can't be complied with due to exemptions in the law such as in criminal cases.
There has been some criticism regarding the lack of timely responses to inquiries from the press. I will
be working with the Department Directors and Managers on being more expeditious in our
responsiveness as well as our being more anticipatory of the needs and time lines of the media.

The British Parliamentary system has a weekly, single session when the Parliament is meeting whereby
the Prime Minister comes to the well of the House and answers questions from the Members. This is
known as the Prime Minister's Questions. No question is off limits (although some are rather
distasteful.) I am proposing that at least quarterly beginning in 2015, the Council and public meet with
Department Directors and Managers and the City Administrator and ask any questions on any subject to
the staff. The citizenry can also ask questions of Council. I would hope this would alleviate concerns that
the City Administrator is a bottleneck to the flow of information between the staff and the Council and
citizens. Managers in both public and private entities have differing styles. I have no concerns about
such an open forum or the answers staff would provide to the questions raised.

PROJECTS

The Council undertook an ambitious program of projects for 2014-15 and beyond. To date, due to many
reasons, success and completion have been evasive or progress thwarted. I am asking the Council to
scale back its projects and reprioritize, focusing on a smaller list. Council's budgetary agenda of projects
has been impacted by the following: 1) the political turmoil that has put the organization on the
defensive, focusing attention internally on personnel and contracts; 2) the issues, Council and staff time
surrounding PG&E and the nearly eight months it took for the utility to resume normal operations within
the village; 3) personnel matters, grievances and terminated employee lawsuits; 4) contract
investigations, and 5) employee vacancies amounting to twenty percent (20%) of the authorized
positions.
The Council's project goals for this year have become the casualties of the five disparate topics listed
above. Despite the upheaval, some progress has been made. The restrooms on Scenic Drive at Santa
Lucia are underway; Forest Theater has been given the go-ahead; and the tennis courts and play
equipment at Forest Hill Park have been refurbished.

Council should determine a date in the future for a study session to begin a preliminary discussion of
where to reprioritize its projects list. But until we have more "bench strength" in the organization with
the filling of vacancies, we don't have the horsepower to undertake a lot of new initiatives.

TIMELINES
In the months ahead, we will essentially be reconstructing the organization, reviewing and reworking its
policies, practices and ordinances. My time line is to have the matters involving the three terminated
employees resolved by the end of this year. Due to the tragic circumstances involving Mr. Mclnchak, I do
not expect his case to be concluded by year's end. Three of the four pending grievance matters will also
be resolved by January 2015. Due to the vast number of witnesses involved in the fourth grievance, I do
not expect it to be concluded until well into 2015. I do not know at this time if there will be a fifth
grievance which will involve the commencement of an investigative process as information is being
gathered now to ascertain whether the filing is credible.

I expect that by the end of the fiscal year, we will have filled the HR Manager position. With the hiring of
this person, we will begin the rewriting of our Personnel Code. Until then, we will utilize the services of
the City of Monterey or, if that does not work out, another agency to help us with basic efforts such as
recruitments. The City Attorney and I will present a Whistleblower policy to the Council in early 2015.
In January, we will have received the auditor's review of our internal financial and contractual systems
and those will be shared with the Council and the community.
I will be reassigning an employee in the near future to work with the City Treasurer on the development
of a system to track the monies and conditions of contracts into which the City enters.

At some point in the future, our Policy Manual needs to be updated. This is going to take a substantial
amount of effort----staff time to rework the policies and Council time to review, tweak and adopt. As
important as it is to have current policies, this project will not proceed until the other matters identified
above are addressed and resolved.
In the months ahead, all of these efforts will take resources, including both personnel and in some
instances, money. My goal, and my hope, is that we will have completed many of the implementing
tasks outlined above by June 2015, the end of this fiscal year.